Tag Archives: taxes

A Few More Musings on Taxes and an Economy

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James Pethokoukis, writing for AEIdeas, has a thought.

First, some rough background:

From 2009-2012, revenue as a share of GDP has averaged 15.4% of GDP vs. 13.9% from 1948-1951 and 18.1% overall in the postwar era.

Then,

Imagine if we a) kept all the expiring 2001 and 2003 tax cuts, b) started indexing the Alternative Minimum Tax for inflation so it wouldn’t hit more and more taxpayers.

How would that affect tax revenue? The Congressional Budget Office tells us:

Under that scenario, revenues from 2013 to 2022 would average about 18 percent of GDP, which is equal to their 40-year average.

Indeed, we would be back to the postwar average of 18.1% by 2016.

I would argue that the AMT, which began life as a special assessment against all of 155 particularly hated-by-Progressives successful Americans, should be abolished altogether, but that’s a topic for another post.

Here are a couple of other numbers.  US GDP was $15.1 trillion in 2011, while Federal income tax collections ran to $1.273 trillion, or 8.5% of GDP (my number differs from Pethokoukis’ because I’m only considering individual and business income taxes and leaving out Social Insurance, ad valorem, and other taxes).  In 2007, US GDP was $13.3 trillion, while Federal income tax collections ran to $1.534 trillion, or 11.5% of GDP (yes, that’s a 17% drop in Federal income tax collections in the third year of the failed recovery).

Plainly, if the Feds just got out of the way of our economy, stopped demanding ever more taxes, stopped spending our money on failed “investments,” stopped paying essentially well-meaning individuals for not working, our economic recovery would push income tax revenues up those missing three per centage points—and having returned to 11.5% of GDP, Federal income tax revenues would approximate $1.7 trillion—a rise of nearly $500 billion in the first year.  And that’s just a static analysis.  At that rate of increase every year, the Feds would be getting a whole lot more in income tax revenue by 2016—again a static analysis.  Imagine the increase from a dynamic analysis, which would include all the feedback loops from economic growth—like individual spending, business growth, jobs increases for those currently on the Feds’ dole, etc.

Another thought: from the Tax Foundation, via the TaxProf, comes this:

[W]hat does the academic literature say about the empirical relationship between taxes and economic growth?  …the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.  In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth.  Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.  …

[T]he lesson from the studies conducted is that long-term economic growth is to a significant degree a function of tax policy.  Our current economic doldrums are the result of many factors, but having the highest corporate rate in the industrialized world does not help.  Nor does the prospect of higher taxes on shareholders and workers.  If we intend to spur investment, we should lower taxes on the earnings of capital.  If we intend to increase employment, we should lower taxes on workers and the businesses that hire them.

Why, with all that revenue enriching the Feds coffers, we could look forward to actually paying down/off our national debt, and then across the board reductions in income tax rates.

Except that tax revenues (partly) fund incumbents’ vote pandering “welfare” programs.

A Press Conference

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Here’s what was said at a recent press conference:

So I’m going to continue to talk to the President and the other leaders up in the Senate.  But, ultimately, they’ve got to do their job.  Right now their job is to make sure that middle-class taxes do not go up and that we have a balanced, responsible package of deficit reduction.

It is there for all to see.  It is a deal that can get done.  But it is not going to be—it cannot be done if every side wants 100 percent.  And part of what voters were looking for is some compromise up here.  That’s what folks want.  They understand that they’re not going to get 100 percent of what they want.  And for some reason, that message has not yet taken up at the White House or in the Senate.

And when you think about what we’ve gone through over the last couple of months—a devastating hurricane, and now one of the worst tragedies in our memory—the country deserves folks to be willing to compromise on behalf of the greater good, and not tangle themselves up in a whole bunch of ideological positions that don’t make much sense.

So I remain not only open to conversations, but I remain eager to get something done.  I’d like to get it done before Christmas.  There’s been a lot of posturing up at the White House and over in the Senate, instead of just going ahead and getting stuff done.  And we’ve been wasting a lot of time.  It is the right thing to do.  I’m prepared to get it done.  But they’re going to have to go ahead and make some adjustments.

Was that Speaker of the House John Boehnor (R, OH)?  Not really.  It was President Barack Obama, and he wasn’t talking about himself and his allies; he was disparaging Republican efforts to avert our fall over the cliff.

Some Thoughts on Spending, the Debt Ceiling, and Taxes

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I’ve written about this in my books (see the side bar); here are some of my thoughts.  Of course, to achieve this, we’ll need significant majorities of conservatives in the House and Senate, and we’ll need a conservative President.

Enact legislation requiring Federal spending averaged over a five year period to not exceed Federal revenues, except in time of national emergency.  Further, that five year period must be a sliding five years: the oldest year is dropped from the computation, and the latest year added to that computation.  This will allow spending to exceed revenues for short periods to allow for the vagaries in the timing of revenue vs. obligations that are inevitable, while requiring spending to be reined in so as to keep this short term borrowing from growing.

If the President declares a national emergency, and the Speaker of the House and the Senate Majority Leader concur, debt can be accumulated for the purpose of dealing with the emergency.  If the emergency is a declared war, then that emergency will automatically expire one year after the end of that war.  If the emergency is from another cause, then the emergency will automatically expire after one year, unless the President renews his declaration and a majority of each house of Congress concurs.  Once the emergency has expired, then each year’s spending must be held below each year’s revenues until the emergency-driven debt has been repaid entirely.

There will be a huge hue and cry over this, of course.  It’s impractical.  It ignores big ticket items.  It overly constrains spending by the government.  It’s too hard to do politically.  And so on; there will always be excuses not to make the change.  The truth is, it’s only impractical because politicians make it so.  Instead of taking action, most of our current politicians push party politics, want to trade favors, need to pay back the interest groups who made their elections fiscally possible.

Congressman Emanuel Cleaver (D, MO), chairman of the Congressional Black Caucus, tweeted after the conclusion of the summer of 2011 debt limit rise negotiations, “Democrats got nothing in this deal, and if we did, someone please show it to me.”  However, this isn’t about the Democratic or Republican Party.  It isn’t about which party gets more or less than the other.  It’s about whether the nation wins or loses, and what’s good for the United States isn’t a mindless zero-sum game.

The big-ticket items—defense and other—can, and should, be budgeted for in advance.  Absent an outright emergency, these large expenditures are not surprises.  Although military spending is constitutionally constrained to two-year periods, the President submits a budget every year, and the Congress handles budget creation and passage every year (or is required to by law; the Senate has failed that obligation for the past three years).  When budgeting is taken seriously, as every family and business takes it, the long-term, expensive items can be planned in advance, and an expenditure schema that covers those big ticket expenses can be worked out in advance to keep overall spending within the limits just described.  Notice that this can include specific long-term borrowing for specific big-ticket items.  Most families are capable of budgeting for the acquisition of a 30-year home mortgage.  Our government can budget, also, for a defense system and the repair and upgrade of the nation’s electricity grid (as one example of an expensive, infrastructure investment).

As to the constraints on government spending, that’s the point.  Congressman Mike Doyle (D, PA) is reported as saying in a meeting with Vice President Joe Biden just prior to the August 2011 House vote on the bill that codified the negotiations that Congressman Cleaver so plaintively decried, “We have negotiated with terrorists.  This small group of terrorists have made it impossible to spend any money.”  But it isn’t about the government’s “right” to spend our money.  Leaving aside the dishonest slur on a group of Americans whose only “crime” is daring to disagree with this Progressive mentality, this attitude of a government entitlement to spend is exactly why government spending needs to be tightly constrained; the only terrorism involved here consists of the exploding deficits and national debt.

Related to this, the following legislation regarding Federal borrowing is necessary.  Total US Federal debt must be limited to 20% of GDP, absent a declared national emergency.  Current Federal debt already pushes 100% of GDP; we have a long way to go.  The legislation must also include a requirement that revenue surpluses go toward paying down the debt and then toward reducing tax rates in subsequent years.  Why 20%?  That was the upper bound of the range of Federal debt in the 1920s, before Progressive policies exploded that debt from the 1930s on.  Some will decry having a debt limit, though.  It’s too constraining, they’ll complain.  Consider this: we’ve had no debt limit for the last 80 years, except in name: the debt “limit” has been routinely raised for the asking until 2011.  As a lady once asked not so long ago, “How’s that working out?”

Finally, the tax rates must be frozen at the “Bush tax cut” level, until the debt is paid down to the required level.

Watch the economy burgeon, and GDP rise to meet the falling debt.

Another Party?

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Speaker of the House John Boehner (R, OH) is now joining the growing chorus of…Republicans…who are begging for surrender on the economy: he’s offering tax rate increases, albeit on Americans with more than $1 million of annual income.  This will be an abject failure: President Barak Obama, standing tall with the Republicans now on their knees in front of him, has no need of accepting this.  In fact, he has an excellent chance of succeeding with a gambit that seemingly failed in the debt ceiling negotiations of 2011, when he made a last minute demand for even more taxes: with Republicans now begging for mercy, he can, at this late hour, add to his demands—yet more taxes beyond the $1.6 trillion he’s currently demanding (the offered reduction to $1.4 trillion was never serious).

Given this abject failure, should we walk away from the Republican Party and form a third national party, one more honest and courageous and better rooted in the principles of conservatism—the 18th Century Liberal principles on which our nation was founded and which underlie our prosperity and power?

I’m of two minds on this.  On the one hand, with the Republican Party as currently constituted now empirically in shambles and a failure, we need a national party capable of retrieving our nation from the nearby disaster of Europe-like social and political failure, and from the disaster waiting to be imposed politically and militarily later by our enemies.

The Tea Partiers have the national reach, but remain politically naïve.  They are, however, learning.  Forming a new national party would represent a strategic retreat for the principles of individual liberty and responsibility and of the small, limited government that is the only thing that can help preserve these.  However, sometimes retreat is necessary in order to be able to reengage from a position of greater strength.

On the other hand, the infrastructure of an existing national party is no mean thing.  The primary things wrong with the Republican Party are the RINOs in positions of leadership, who are too willing to sacrifice principle for political expediency however well intended the sacrifice, and their utter inability to make their case in the practical terms of interest to their constituents—and to their neighboring Progressives’ constituents.

The Tea Partiers have made great inroads in the last few years in inserting greater conservatism into the GOP, along with inserting people who will actually hew the GOP to those principles.  Their success was demonstrated in 2010, and confirmed in 2012, other than at the Presidential level.  Their success was both confirmed and expanded down-ticket in the state houses in those 2012 elections.

The Tea Partiers, though, whether in a new national party or through further recovery of the Republican Party, will need to communicate, also.  It isn’t sufficient to make tempestuous—or mild—speeches on the floor of an empty House or Senate and hope the Progressives’ news outlets will give it coverage.  Nor are digital media, important though they are, sufficient.  The new or recovered party needs to get out among the people—in their neighborhoods, their community centers, their diners, their living rooms, and in those of their Progressive constituents’—and explain in practical terms the values of conservative principles.  For this, the Professional Communicators of the GOP need not apply.  They’ve shown their level of competence already.

And the leaders, and membership, of this new or revised national party must understand that this is a struggle for our nation’s soul.  There will be conflict.  There will be demands for compromise of principles.  But they must also understand that if a man has no principles for which he’ll sacrifice, he has no principles.  That means that, sometimes, we have actually to sacrifice, not just bleat.  The present crop of Republican leadership seem to have lost sight of that last, critical part.  And it’s been fatal.

Now is Not the Time

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…to surrender.  Yet that’s what Peter Berkowitz advocates Conservatives do in a recent Wall Street Journal op-ed [emphasis added].

Conservatives should…come to grips with two entrenched realities that pose genuine challenges to liberty, and whose prudent management is critical to the nation’s well-being.

The first entrenched reality is that big government is here to stay.  This is particularly important for libertarians to absorb.  Over the last two hundred years, society and the economy in advanced industrial nations have undergone dramatic transformations. And for three-quarters of a century, the New Deal settlement has been reshaping Americans’ expectations about the nation-state’s reach and role.

…

In these circumstances, conservatives must redouble their efforts to reform sloppy and incompetent government and resist government’s inherent expansionist tendencies and progressivism’s reflexive leveling proclivities.  But to reform sloppy and incompetent government and resist government’s inherent expansionist tendencies and progressivism’s reflexive leveling proclivities reflects a distinctly unconservative refusal to ground political goals in political realities.

Conservatives can and should focus on restraining spending, reducing regulation, reforming the tax code, and generally reining in our sprawling federal government. But conservatives should retire misleading talk of small government. Instead, they should think and speak in terms of limited government.

Yet the only way to “reform sloppy and incompetent government and resist government’s inherent expansionist tendencies and progressivism’s reflexive leveling proclivities” is to shrink the government back to a manageable size—to regain the small, limited government we used to have and that is created in the documents of our social compact.  Limited government and small government are inseparable; they are two sides of the same coin.  Yes, yes, monarchies can be small governments, too.  But they’re not limited.

Accepting the status quo and declining to seek to “reform sloppy and incompetent government and resist government’s inherent expansionist tendencies and progressivism’s reflexive leveling proclivities” by shrinking—limiting—that over-large and out of control government is most assuredly an unconservative thing to do; it is to accede to the modern Liberal’s goal.

Berkowitz seems not recognize the role reversal that has occurred.  The modern Conservative is the 18th Century Liberal—the champion of limited government that protects and enhances individual liberty, individual responsibility, and the resulting national prosperity.  The modern Liberal is the 18th Century Conservative, a man who favored government control over men’s lives on the theory that both the common man was too stupid to see to his own ends and that Government—the King—Knows Better.  The only difference between the modern Liberal and that 18th Century monarchist is the accepted superficial structure of the Big Government that Knows Better.

Berkowitz’ second entrenched reality,

…this one testing social conservatives, is the sexual revolution, perhaps the greatest social revolution in human history[]

is wholly irrelevant without the individual freedom and responsibility available only with small, limited government.  With government determining what our lives should be like and how we should live them, things like the sexual revolution and our responses to them also are for governments to determine.

Even under the shadow of big government and in the wake of the sexual revolution, both libertarians and social conservatives, consistent with their most deeply held beliefs, can and should affirm the dignity of the person and the inseparability of human dignity from individual freedom and self-government. They can and should affirm the dependence of individual freedom and self-government on a thriving civil society, and the paramount importance the Constitution places on maintaining a political framework that secures liberty by limiting government.

Indeed, but a modern Conservative is not a libertarian—and he never was.  Moreover, the “social conservative” is a modern invention, defined less by social mores than by opposition to the mores of the modern Liberal.  And the affirmation of the need of civil society as one means of guaranteeing “individual freedom and self-government” and that “political framework that secures liberty by limiting government” separately and together demand an actual limiting of government—its size and the reach of its powers.