Tag Archives: taxes

The Current State

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…of our economic “recovery.”

Here are some numbers, from The Walls Street Journal.

  • GDP grew at a (preliminary) 2% rate in the third quarter…
  • That rate means that growth for the first nine months of this year was only 1.7%
    • Slower than last year’s 1.8%
    • Which was slower than the year before’s 2.4%
  • Consumer spending provided most of the third-quarter lift…but consumers can’t continue if the overall economy doesn’t grow fast enough to raise incomes faster
  • The other big third-quarter growth driver was Federal government spending
    • Rose 9.6%
    • Overall government outlays rose 3.7% and accounted for about 0.7 percentage points of that 2% GDP increase
  • Economist David Malpass calculates that growth in private output was closer to 1.3%. The private economy isn’t “doing fine…
    • Non-housing related investment contracted by 1.3%.
    • But business investment is a leading indicator of future job and wage growth.

Finally,

  • [T]he typical growth rate at this stage of the previous nine recoveries (13 quarters) averaged 16.8%
  • The rate for this recovery is 7.2%.
  • That’s about $1.2 trillion in foregone output.

Consumption and Inequality

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Some on the left worry about income inequality as though that matters.  It is, though, equality of opportunity that provides everyone the path to increasing prosperity.  Even though we begin life with an equal endowment of inalienable rights—including the right to seek our own happiness as John Adams described it—it is the implementation of those rights, equality of opportunity, that lets us capitalize on and so to maximize, our unequal endowments of ability, temperament, luck.

One way to assess the increasing prosperity of all is to look at consumption.  Hassett and Mathur do this in their paper, “A New Measure of Consumption Inequality,” a copy of which can be found here.

Some numbers will illustrate.  First, a snapshot of the general situation:

Per cent of Total US Consumption

 

Year 2000

Year 2010

Bottom Fifth of Households by Pretax Income

8.9%

8.3%

Middle Fifth

17.3%

17.1%

Top Fifth

37.3%

38.6%

That’s remarkably stable.

Now, the trend in consumption:

Increase in US Consumption from 2000 to 2010

Bottom Fifth

14%

Middle Fifth

6%

Top Fifth

14.3%

Despite the recessions of the early 2000s and since 2008, household consumption actually has increased, and the bottom fifth by pretax income increased their consumption by quite a bit, despite the claimed unfairness of income inequality.

Now, some illustrative items of consumption, focusing on the bottom fifth of American households:

Per cent of Households with the Indicated Item

 

Year 2001

Year 2009

Computer

19.8%

47.7%

Dishwasher

17.6%

30.8%

Microwave

74.9%

92.4%

Washing Machine

57.2%

62.4%

Air-Conditioning Equipment

65.8%

83.5%

6 Rooms (Other than bath) in the House

21.9%

30.0%

 

Odd, that—overall relative share, by those unequal income groups, of consumption of items like these has remained quite stable across over time.  Moreover, despite that income inequality (which has grown, as it typically does, during recessions, does not act as a limiting factor in consumption capacity.  Apparently unequal incomes don’t matter that much to well-being.  Household quality of life for is improving for all groups.

Of course, this does not mean that the lower income groups don’t need help—they often do, especially during economic dislocations; their resource margins are much thinner.  But that help is most effective as temporary hands up, not in the form of permanent wealth redistribution programs.  The latter simply address a non-existent problem.

Pick One

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David Wessel, writing in a recent Wall Street Journal, reports that

Chief executives of more than 80 big-name US corporations…in a statement to be released on Thursday, say any fiscal plan “that can succeed both financially and politically” has to limit the growth of health-care spending, make Social Security solvent and “include comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.”

Then Wessel himself makes this remark [emphasis added]:

The declaration differs sharply from those of several other business groups, which urge Washington to deal with the deficit and avoid across-the-board spending cuts and tax increases set for year-end—but avoid any stance on the politically charged issue of raising taxes.

This is an all too common conflation of two separate questions, but it’s amazing to see it coming from a Pulitzer Prize-winning economics journalist.

Of course raising tax revenue is different from raising taxes: the latter is merely one way to achieve the former.  But Wessel compounds his confusion by repeating it:

The CEOs who signed the manifesto deem tax increases inevitable no matter which party succeeds at the polls in November. “There is no possible way; you can do the arithmetic a million different ways” to avoid raising taxes, said Mark Bertolini, CEO of Aetna.

Notice that: Wessel directly contradicts the CEOs in their statement, which he quoted above.  And then he carefully provides his confused “paraphrase” of raising taxes outside another direct quote.  Yet Wessel then notes the following:

The executives didn’t endorse Mr. Obama’s proposal to raise the marginal income-tax rates for the top 2% of taxpayers or any other proposal.  Rather, they called for an overhaul of the tax code that, among things, would eliminate or reduce deductions, credits and loopholes (known as “broadening the base”), and one that also would bring the Treasury more revenue than the existing code does.

It’s no wonder Americans are having trouble sorting through the question of tax reform when the so-called experts can’t even trouble themselves to keep matters straight in their own writings.

Romney’s Tax Plan and Obama’s Tax Plan

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It’s interesting, at this juncture just after the third debate—on foreign policy—to look at the proposals the two Presidential candidates have for personal taxes and personal tax reform (yes, yesterday’s debate and tax policy have little to do with each other, but never mind about that).

The Wall Street Journal provided a description of Republican Presidential Candidate Mitt Romney’s proposal.  Against a backdrop of an across the board rate cut of 20% (along with a reduction in the top business tax rate from the current 35% to 25%), Romney is proposing a cap on the total value of the deductions and credits an individual or family might take.

During the first Presidential debate, Romney proposed

What are the various ways we could bring down deductions, for instance?  One way, for instance, would be to have a single number.  Make up a number—$25,000, $50,000.  Anybody can have deductions up to that amount.  And then that number disappears for high-income people.

He repeated the concept in early October, suggesting a $17,000 cap with higher income people perhaps having a lower cap.

In the second debate, Romney again put forward his concept.

I’ll pick a number—$25,000 of deductions and credits, and you can decide which ones to use.  Your home mortgage interest deduction, charity, child tax credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions.

Of course Progressives and the NLMSM want yet more specificity, and Romney declines to provide it.  In the first place, it doesn’t get much more specific than a cap—no particular deductions or credits are on the table for elimination, so there’s nothing about which to be specific there.  In the second place, Romney acknowledges that there are, also, other

ways to reduce deductions that in any case would have to be negotiated with Congress.

This is quite a different approach to Obama’s concept of negotiation.

Why a cap, rather than eliminating outright several of these market distorting deductions and/or credits?  Each taxpayer would pick and choose the deductions and credits that are of value to him in his particular circumstance, in a particular year.  Thus, these deductions and credits would compete with each other for inclusion.  What a concept: competition and individual choice.  And we’d be accumulating empirical data about which deductions and credits really do have value for us taxpayers.  But those are anathema to Progressives, whose raison d’être would disappear the moment their dependents don’t need them anymore.

Moreover, this competition, coupled with the generally lower tax rates, would reduce the degree of market distortion that each deduction causes.

The cap also preserves, for now, the degree of progressivity in our tax code that in itself is market distorting, yet is politically necessary to get any reform be passed in today’s DC environment.  See the table below.

Notice how, under the current system, the average total of deductions and credits rises with income.  The Progressives’ evil rich would bear the brunt of the effect a deduction cap.  And middle income Americans wouldn’t feel the cap at all.

Set in apposition to Romney’s proposal is Democratic Presidential Candidate Barack Obama’s tax plan.  We’ve seen his idea at the link above: raise taxes on those Americans whom he despises.  And for what purpose?  Not to pay down our national debt or even to reduce the Federal budget deficit.  No, Obama intends to use his tax increase to transfer funds to his favored Americans—union, and so-called green energy, cronies who will then fund his political power.  And he’ll use the monies to fund the rapidly increasing spending for which he called in the last two budget proposals he sent to Congress.

Hmm….

Extortion

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Fox News is reporting that the

White House confirmed Thursday that President Obama is prepared to veto legislation that would skirt the so-called “fiscal cliff”—a battery of tax hikes and spending cuts—unless Republicans consent to raise taxes on top earners.

Democratic Presidential Candidate Barack Obama plainly willing to see our economy collapse into another recession every bit as deep as the one from which we’ve not yet recovered solely for the sake of the ego of his getting his way on tax increases.  Obama demands to raise taxes on the 2% of the wealthiest of Americans while leaving taxes alone for the remaining 98% of us.  That’s his number, 2%.  Even though his tax increases will impact far more Americans than that (like anyone with income over $250k—small businesses, for instance, which pass through their incomes to the mom and pop owners/partners for tax payment), let’s take his number for argument’s sake.  What Obama is saying is that he’ll cheerfully blow up our economic future because he can only get 98% of what he claims to want: unchanged taxes for the 98% of the rest of us.

This makes crystalline what Obama really wants: those taxes on that group of Americans which he despises so much.  Obama doesn’t care a whit about the middle class or the poor, whom he could help by calling off his self-imposed gridlock.  He’s only concerned about the rush he’ll get from getting his way and getting over on that unacceptable group of citizens.

But this failure goes far beyond petty ego or the damage done to our economic future; it hits at our ability to protect ourselves from our enemies.  By vetoing any bill that doesn’t have his precious tax increases, even though it would walk us back from the fiscal cliff (just a bit over two months off), he’ll also be vetoing any bill that would end the sequester of an additional nearly half-trillion dollars from our military capacity beyond the already built-in nearly half-trillion dollar cut in spending for defense.  This is having, today, a negative effect on defense-related jobs.  Worse, the veto will put our military’s welfare, training, equipage, and capacity in serious jeopardy.

Here is extortion the Chicago way.  Nice economy you got there….