Tag Archives: taxes

Let’s Tax the Rich

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Yeah, that’ll work.  Let’s go with that.  And of course this has nothing to do with class envy.  No siree, Bob.

Here’s what happens when we tax those worthies.  When we hit up the Obama-rich, those making more than $250k per year (or those families doing better than $200k per year), we’re actually taxing small businesses, which are organized as LLCs, S-Corporations, partnerships, and so on, so that the business’ profits are passed through to the owners, who pay income tax on that money.  Businesses or their owners, though, including large businesses that nominally pay their own taxes, don’t actually pay those taxes; they just act as go-betweens between Uncle Sugar and their customers: those taxes are passed through as increased prices which their customers must pay to buy their product.

Thus, the benefit of taxing the “rich” is this: these business’ product prices will rise, leading to less buying, leading to slower growth and lower hiring—or reduced hiring from actually shrinking businesses—leading to more leisure time for us as we continue to be unable to find a job.

Here’s just one example of how that works.  In the ’90s, the Feds instituted a 10% luxury tax on yachts, ostensibly aimed at the really rich.  The American yachting industry virtually disappeared as a result, while the rich went on being rich.  As the President of the Institute for Policy Innovation, Tom Giovanetti, put it

The luxury tax didn’t hurt the wealthy.  It hurt the people that make things for the wealthy.

Sure.  The top 10% already pay 70% of the total income tax collected by the Feds while the bottom 50% of income earners pay around 4% of the total, so the rich plainly aren’t paying their share.  Raise the taxes on the rich.  That’s the ticket.

Next Year’s Tax Increases

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Here’s a list of President Obama’s tax increases that are scheduled to kick in, in six short months.  The list is from the IPI’s TaxBytes.

  • Bush tax cuts expire.  Obama has steadfastly refused to extend them beyond 1 Jan 13 unless the Republicans accede to his demand to raise taxes elsewhere under the Progressive fiction that tax cuts must be “paid for” with tax increases rather than spending cuts.
  • Obama payroll tax cut expires.  This is a tax cut that has made absolutely no sense whatsoever.  It’s only useful purpose has been to bamboozle Republicans as they continue to make a hash of their messaging.  This cut reduced funding for an already dysfunctional and rapidly approaching bankruptcy Social Security system, while at the same time the Democrats in government have absolutely refused to allow any reform of that system.
  • The child tax credit will be reduced from its current $1,000 per child to its original $500.
  • The death tax will explode.  In 2010, the death tax—the tax on your estate, collected by the Feds before your heirs get a dime—had been repealed, but only for that year.  This year, and this year only, that death tax was 35% (!) of the value of your estate above $5.12 million.  On 1 Jan, it will go to 55% (!!) of the value of your estate above $1 million.  The Feds think they deserve your money more than your heirs do.
  • Obamacare taxes (this is not an exhaustive list):
    • If you’re rich (which Obama defines as you making $250k or more per year, or your family making $200k or more*), the Hospital Insurance Tax goes up: the hospital insurance portion of your payroll tax will rise from 2.9% to 3.8%.  This is carefully not indexed for inflation, either.  At current inflation rates, that means that in 10 years’ time, that rich threshold drops to the equivalent of today’s $190k ($152k for families).
    • Medical device manufacturers will begin being charged a 2.3% excise tax on top line revenues—not even on profits.  There’s a pro-business move….
    • Medical deductions on your personal income tax (whether you’re “rich” or not) will have to exceed 10% of your adjusted gross income instead of the current 7.5%.  This certainly helps the less fortunate among us.

Hmm….

 

*Notice that: here’s the marriage penalty back, too.

Déjà Vu All Over Again Cont’d

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In this post I continue a discussion of the advice to Reagan memo that The Wall Street Journal excerpted a few days ago.

On the matter of budgeting, the memo advised, in the context of fighting then-high inflation

Many question whether you are serious about a sizeable cut in budget outlays.  Credible FY 1981 and 1982 budgets which do that clearly and unambiguously would evoke an extraordinary response in the financial markets, and set the stage for a successful assault on inflation and a decline in mortgage and other interest rates.

This is sound advice for the next President, also.  Credible FY2013 (since the Progressives in the Senate and White House have variously refused to offer a serious budget or any budget at all for the last three years, a 2013 budget for the fiscal year then in progress will remain a necessity), FY2014, and FY2015 budgets will be as critical in demonstrating resolve in cutting irresponsible spending as it was in fighting inflation.  And it will be critical in reducing the impact of the inflation time bomb the Fed is creating, should that go off before it can be defused.

Those advisors continued in their section on the Budget:

Off-budget financing and government guarantees mount and expand programs through the use of the government’s borrowing capacity, draining the nation’s resources without being adequately recorded in the formal spending totals.

Pop quiz time: what off-budget financing and government guarantees are present today?  Bonus question: what does the continued existence of off-budget financing and government guarantees of any sort say about the sense of responsibility felt by incumbents of a Big Government?

The Reagan advisors also warn of this:

In addition, the mandating of private expenditures for government purposes has gained momentum as the spotlight has [i]lluminated direct spending. These mandates are also a clear call by government on the nation’s resources.

Boy, has it ever gained momentum.

Closely related to budgeting is tax policy.

Tax policy is properly the province of your Secretary of the Treasury.

Indeed.  And the inability of the present Treasury Secretary to pay his own taxes says far more about the unnecessary scope and complexity of current tax law than it does about his intelligence or sense of responsibility.  If we assume Geithner isn’t a tax scofflaw—and I believe he is a fundamentally honest man—his mistake should be a clarion call for simplification.  That it is not speaks poorly of the incumbents on both sides of the aisle.

Reagan’s advisors continue:

We consider that the key ingredients should be your proposals for the Kemp-Roth cut in personal income tax rates, simplification and liberalization of business depreciation and a cut in effective taxes on capital gains….  Consistent with your proposals earlier this year, the effective date for these reductions should be January 1, 1981.

Other key proposals are…reductions in…inheritance taxes and the taxation of Americans living abroad….

Again, these are remarkably prescient.  The Obama tax increase is set to take effect on January 1, 2013.  That increase, aside from raising income taxes on ordinary Americans smack in the middle of the present recession, will include jumps to usurious rates on what those same ordinary Americans would otherwise leave to their own children and other heirs of their choice—not of government’s choice.  Moreover, most sub-Federal jurisdictions only tax income earned within their jurisdiction.  Why should the Federal government be any different?

The Obama tax increase also includes major increases in business-related taxes: investment taxes on capital gains and increasing the double taxation present on dividend payouts.  These will serve only to reduce investment in American businesses, to the detriment of our already suffering economy.

I’ll have more in the coming days.

Déjà Vu All Over Again

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This post is taken from “Economic Strategy for the Reagan Administration,” a memo summarizing studies commissioned by candidate Ronald Reagan and delivered to President-elect Reagan on mid-November 1980, as summarized in The Wall Street Journal.  The memo began

Sharp change in present economic policy is an absolute necessity.  The problems of inflation and slow growth, of falling standards of living and declining productivity, of high government spending but an inadequate flow of funds for defense, of an almost endless litany of economic ills, large and small, are severe, they are not intractable.  Having been produced by government policy, they can be redressed by a change in policy.

Aside from the high inflation of 1980, that could have been written today.  Besides, the actual inflation then is a threatened inflation today, with the Fed’s policy of deliberately depressed interest rates and rapid printing of money coupled with the administration’s prolific spending.

You have identified in the campaign the key issues and lines of policy necessary to restore hope and confidence in a better economic future:

  • Reestablish stability in the purchasing power of the dollar.
  • Achieve a widely-shared prosperity through real growth in jobs, investment, and productivity.
  • Devote the resources needed for a strong defense, and accomplish the goal of releasing the creative forces of entrepreneurship, management, and labor by:
  • Restraining government spending.
  • Reducing the burden of taxation and regulation.
  • Conducting monetary policy in a steady manner, directed toward eliminating inflation.

This amounts to emphasis on fundamentals for the full four years, as the key to a flourishing economy.

Sound like what’s needed today?

The need for a long-term point of view is essential to allow for the time, the coherence, and the predictability so necessary for success. This long-term view is as important for day-to-day problem solving as for the making of large policy decisions.

This was true then, 50 years after the start of the New Deal, a 50-year period of spendthrift policies and high taxes, and it’s even truer today, 30 years farther down that road, with this administration’s effort to raise taxes on top of its already explosive spending and debt accumulation.  It’ll take a long time, and a long-term strategy is critical, to repair the damage.

The memo went on with sound advice concerning budgeting, tax policy, regulation, energy, and monetary policy—it could have been written for delivery to President-elect Mitt Romney in mid-November 2012.  And we can certainly hope both for President-elect Mitt Romney, and that he takes this advice to heart.  The incumbent certainly has already eschewed it.

I’ll more on the Reagan memo in the coming days.

The Long and Short of Fiscal Policy

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Sorry, I couldn’t resist.  That’s the title of another missive by Alan Blinder in a recent Wall Street Journal issue.

He begins with this Keynesian fiction:

In the short run—let’s say within a year or so—a larger deficit…boosts economic growth by increasing aggregate demand.  It’s pretty simple.  If the government spends more money without raising anyone’s taxes to pay the bills, that adds to total demand directly.

Umm, well, no, it doesn’t.  That increased government spending (accepting, arguendo, no associated increase in taxes) only comes at the expense of future taxes or current borrowing—which is more future taxes.  People aren’t as dumb as Keynes thought they were, or as Blinder thinks they are.  In the present case, Americans see this trap, and they reduce spending (and investing) today in favor of saving and/or paying down their own current debt, thus offsetting that spike (again assuming, arguendo, that a government actually can reduce spending after its spike up).

Moreover, that government spending crowds out a significant fraction of remaining private spending.  After all, why should we buy something that the government is going to buy and give to us?

On top of this, Swedish economists Andreas Bergh and Magnus Henrekson have a 2011 piece (login required; sorry), that surely Blinder has read, in the Journal of Economic Surveys that shows the deleterious effects of increases in government spending.  They conclude that a 10% increase in government size (relative to GDP) is associated with a 0.5%-1.0% lower annual growth rate in the economy.  This is no spike, but then governments don’t spike spending.

It really is pretty simple.  Just not as oversimplified as Blinder suggests, and not in the same direction.

In short, money that folks, and businesses, are paying in higher taxes is money that folks, and businesses, no longer have available for current spending.  Or investing, or saving.

It is true, though, that spending is increased relative to taxes.  But the only result of this “increase” is in the deleterious effects of deficit spending.

On this matter, Romer and Romer have a 2010 piece (login required here, too; sorry), that surely Blinder also has read, in American Economic Review, that shows the powerful effect of increasing tax rates on economic growth: an increase in taxes of 1% of GDP lowers GDP by nearly 3%.

Blinder has more in his piece, but with his underlying assumptions shown to be false, the rest has no more value than that.  For instance, he writes in all seriousness

But don’t we need to reduce the deficit—and by large amounts? Yes, we do, but that’s in the long run, where the effects of larger deficits are mostly harmful to economic growth.

Of course, as Blinder’s own Keynes noted so long ago, in the long run, we’re all dead.  More empirically, over the long run, governments do not unroll spending increases that they’ve foisted off on us for that good cause of the time.  As long as Blinder is satisfied that our present enormous debt can be safely reduced in that far-off fantastical long run, he’s satisfied that our present enormous debt never will be reduced.

Update: Deleted a section where I’d simply–and carelessly–misread Blinder’s statement, and so my argument became irrelevant.