Tag Archives: taxes

The Latest “Recovery” Numbers

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First, some numbers via The Wall Street Journal:

  • Commerce Department: 2.2% growth for the first quarter of 2012.
    • down from 3% at the end of last year.
    • close to the 1.7% that all of 2011 had.
  • Recession-created pent up demand for cars and trucks accounted for half of that increase in GDP—1.1%.
    • “Real” growth in GDP, then, was 1.1%.
  • Businesses building up inventories accounted for another 0.6 percentage points of GDP growth.
    • Now we’re down to 0.5% “real” growth.
  • Businesses, over the last six months, have added inventory by more than $120 billion.
    • foretells lower business spending in the nearby future as that expanded inventory needs to be sold off.

As backdrop for all that, our GDP grew on the year by $600 billion, but Federal debt climbed by $1.3 trillion—more than twice GDP growth—in the same period.

Now, about President Obama’s enormous tax increase scheduled to take effect next January.  A worker’s Social Security tax bill will go up by nearly 50% as the payroll tax holiday expires, and his income tax bill will go up drastically: a lower income worker will see his first marginal tax go from 10% to 15% as Obama simply erases that 10% bracket, while a high-income worker will see his top marginal rate run up from 35% to 39.6%.

And this doesn’t include Obama’s tax increases on capital gains and dividends—levied on those rich investors like retired grandma for whom dividend income plays such a major role, and on those middle class investors—the ones whose 401(k)s or whose company-provided pensions invest for dividend and cap gain income.

Imagine the impact on GDP—and on the practical economy in which we must live—of these tax explosions.

A Thought on Taxes

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With a tip of the hat to The Wall Street Journal, and a caution to those who insist on raising our taxes—including doing so only to certain governmentally disfavored groups.

Henry Hazlitt in “Economics in One Lesson,” 1946:

When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only 60 cents of every dollar it gains, and when it cannot offset its years of losses against its years of gains, or cannot do so adequately, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. . . .

There is a similar effect when personal incomes are taxed 50, 60, 75 and 90 per cent. People begin to ask themselves why they should work six, eight or ten months of the entire year for the government, and only six, four or two months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a dime of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

What he said.

Party and Taxes

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The argument over the House of Representatives’ just-passed Small Business Tax Cut Act demonstrates the stark contrasts between the Republican and Democratic Parties’ attitudes toward Americans and our money, even as the bill demonstrates a continued Republican failure—it’s a temporary measure, and so it has no economic value whatsoever.

The SBTC allows businesses with up to 500 employees to take a tax deduction equal to 20% of their profits, up to a maximum deduction equal to 50% of their employee wage bill.  This deduction is good for one year, only.

This bill plainly encourages hiring, with the size of the deduction driven by the company’s payroll cost.  Pay raises or intrinsically high wages are themselves unlikely to yield improvements in production or in productivity as efficiently as hiring new employees: a larger work force brings more working hours to a company than simply paying more for an existing number of working hours.

On the other hand, the deduction also can be put to uses other than hiring that are good for our economy.  Improved capital equipment improves the productivity of the existing work force, leading to lower prices to consumers.  Paying down existing debt strengthens the company against the uncertain future our present economy is inflicting on all of us.  Funding active R&D helps the company to stay ahead of evolving consumer demand.  Simply saving the money adds to the company’s strength by building its cash cushion for deployment in crisis or for use in an unexpected opportunity.

What the Republicans say about the bill:

…the one-year tax cut for businesses with fewer than 500 workers would boost job creation.  Only companies that pay wages would be eligible for the deduction of 20% of their domestic business income….

We need to let small-business owners keep more of their hard-earned money so they can start hiring again[.]

It treats every small business equally.  This bill does not pick winners and losers[.]

What the Democrats say about the bill:

…a giveaway to wealthy business owners since it includes no requirement that companies hire workers.

…the tax cut favor[s] richer small businesses, since the tax savings would be larger for firms with higher income.  Democratic aides cited a Joint Committee on Taxation report showing 125,000 business taxpayers with income of more than $1 million would receive $7.35 billion in tax cuts, or $58,500 a tax filer.

…the legislation would cost $46 billion and add to the deficit…. …Democrats said they backed Mr. Obama’s plan for an alternative minimum tax of 30% for people making more than $1 million.

The differences in attitude are clear.  Republicans view the money as our money, and with lower taxes they attempt to leave more of it in our hands and to leave the use of it up to us.  They plainly prefer the money to be used for hiring, but they do not presume to dictate to us how we must spend it.  Republicans trust the judgment of Americans, as effected both by individuals and through our free market, more than they trust the judgment of government.

On the other hand, Democrats have a real problem with Americans becoming rich.  Rather than helping all Americans to do better, as the SBTC could have a chance of doing, they much prefer holding back the wealthy to the level of the rest of us.  Anything that helps them along with the rest of us is anathema to Democrats.  This, of course, caps our own chances of bettering our lives.

The beef about the SBTC favoring the rich is plainly bogus.  It elides the fact that the businesses with the larger profits have the larger payrolls—the larger work forces—and it is the work force bill that is the limiter on the deduction, not the profit.

Democrats consider the “lost” revenue to be the government’s money, not us taxpayers’, and when forced to leave some to us, they want to dictate to us how we must use it: “You must spend our money on hiring.”  Democrats trust their own judgment more than they do that of individual Americans.

Moreover, Democrats insist on raising taxes even further, particularly on disfavored groups, while refusing the obvious alternative: reducing their spending to make up for the reduction in the amount of our money government gets to collect.

As I said at the outset, though, this bill has a serious problem: it’s temporary.  No business is going to do anything of a long-term nature—like permanent hires—on a temporary measure.  To properly impact our economy and have the advertised effect, it needs to be made permanent.

Taxes and a Do-Nothing President

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“At the end of the year, some $500 billion in tax breaks expire all at once, hitting American households with an average tax increase of $3,800—if Congress doesn’t act,” reports Jim Angle of Fox News.

Here are, to channel the late Jack Brickhouse, the unhappy totals:

  • $165 billion increase from the expiration of the Bush tax cuts, pushing tax rates from a bottom rate and top rate of 10% and 35% to 15% and 39.6%, respectively,
  • cut the child tax credit by fully half, from $1,000 a child to $500,
  • the marriage penalty returns,
  • tax on dividends, which many seniors rely on, would soar from 15% to as high as 39.6%,
  • a temporary fix to the alternative minimum tax disappears/expires.  The AMT originally was aimed at millionaires, but now it would hit 34 million taxpayers,
  • separate $124 billion cut in the payroll tax would end.

Moreover, as Curtis Dubay of the Heritage Foundation points out,

Taxmageddon falls 70 percent on middle and low income families.  That’s because 60% of the Bush tax cuts were for middle- and low-income taxpayers.

Thus, the Reid/Obama tax increases are set to hammer all Americans, but especially President Obama’s “non-rich.”

Yet this could have been avoided.  During the debt limit ceiling raise kerfuffle of last summer, President Obama had a golden opportunity to fix these things, but in a Chicago shuffle, he tried to steamroll the Republicans with a last minute (literally) demand for an additional $1 trillion tax increase, and he blew up the negotiations altogether.  Obama and Majority Leader Reid (D, UT) had a chance to fix these things later in the fall, but they demanded tax increases as a quid pro quo for extending an expiring payroll tax reduction.  This winter, Obama and Reid got tax increases in exchange for extending an expiring (again!) payroll tax reduction—the one set to expire at the end of this year along with all those other items.

Obama and Reid have spent all of these last three years demanding tax increases to “pay for” tax reductions elsewhere, and spending cuts anywhere—in the name of “fairness.”

What’s also galling, though, is that payroll tax reduction for which the Republicans held out so zealously.  This is the same gang that insists (rightly) that our Social Security system is bankrupt and desperately needs reform—yet they’re insistent on reducing even further that system’s funding with this payroll tax reduction of theirs.  Ignoring the fact that the Democrats were on record as agreeing that a 2% reduction in (payroll) tax rates was good for Americans, ignoring further that Obama had proposed a 3% reduction for both individual Americans and businesses in those payroll taxes, the Republicans chose not to insist, instead, on a 3% (or even a 2%) income tax reduction for all Americans and our businesses.  They just held out for gutting Social Security.

Now Obama is set to get his tax increases in the name of his concept of fairness.  Happy New Year.

Taxes and Fair Share

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At the start of the week, the Senate failed a cloture vote on President Obama’s Buffet Rule by a 51-45 vote, with Senator Susan Collins (R, ME) voting for on the excuse that the measure should be openly debated (never minding that President Obama has been debating it on his latest campaign tours), and Senator Mark Pryor (D, AR) voting against on the theory that such a measure should be part of a debate on general tax reform.

I won’t occupy bandwidth repeating commentary about Obama’s “it’s only fair” mantra.  However, via Villainous Company, comes another view of what’s fair—the following graphic, based on tax rates from 2007 and published in 2010.

Interesting, this.  The only folks paying roughly their “fair share,” if we’re willing to consider what’s fair to be paying a share of the nation’s income taxes roughly akin to the share of national income represented by one’s own income grouping, is those rich folks in the second 10% income group—those whose income puts them in the band of top 10% down to top 20% of income—and the truly destitute—those folks in the very bottom 20%.  The Stinking Rich, those top 10%-ers, are paying far more than their fair share.  And most everyone else below those top 20% are paying increasingly less than their fair share.

But President Obama and his Progressives want to pile on and make his ugly rich pay even further beyond their fair share.  With lots of words about creating yet another entitlement program, a program of transferring tax money from those who pay a lot to those who pay a little.  But with not a word about cutting spending to fit within the revenues already accruing to his administration.  With not a word about reforming existing entitlements like Social Security, Medicaid, and Medicare.

Hmm….