Tag Archives: taxes

Taxes, Revenue, and Growth

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Do Federal revenues come from taxes or from economic growth?  (I’ll elide, for this post, a discussion of whether the Federal government needs the revenue it wants to collect.)  A couple of better men than me offer up some thoughts:

There is a point at which in peace times high rates of income and profits taxes destroy energy, remove the incentive to new enterprise, encourage extravagant expenditures and produce industrial stagnation with consequent unemployment and other attendant evils.

and more loquaciously,

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget just as it will never produce enough jobs or enough profits.  Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records.

In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now…. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.

Who said these things?  Those old and venerated, in some circles, Democrats: Woodrow Wilson in the first case, in his 1919 message to Congress, and John Fitzgerald Kennedy in the second, in his 1962 speech to the Economic Club of New York.

Here’s a graph from our current Progressives’ favorite exemplar, Europe, courtesy of Dan Mitchell at the International Liberty blog:

EU-15 refers to the 15 nations which comprise the 15 members of the pre-May 2004 European Union: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom—e.g., western Europe, less Norway and Switzerland.

The graph shows, decade by decade, the steady reduction in economic growth of those 15 EU nations as their governments, individually, and the EU “government” generally, expanded their size and control over their nations’ economies and their citizens’ abilities to make their own decisions.

As an aside, how do we get an economy to generate revenue?  Not this way:

Shall we create more jobs by aping Europe, which since 1990 has averaged 9.16% unemployment while ours was 5.95%?

[L]ike the leaders of the bankrupt states of Europe, President Obama believes that the key to prosperity is to regulate, engineer, and direct the economy; to raise taxes; to augment the powers of government; to substitute collective largess for family cohesion; to spend money that does not exist…to paraphrase Macbeth, to borrow, to borrow, and to borrow.

Hmm….

Some “Tea Partiers” and Budgets

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The White House objects to Congressman Paul Ryan’s (R, WI) latest budget proposal as the end of the welfare state.  I certainly hope it is.

As to the rest of The Wall Street Journal‘s op-ed, what they said.

Some—by no means all, but every grouping has its extremists—who aver themselves to be tea partiers need to withdraw their heads from rectal storage and pay attention.  In DC, in politics, in any endeavor, we need to not hold out for everything all at once, or we’ll get nothing at all, and at once.  Take what we can get today, and come back tomorrow to work for more.

This working, bit by bit, toward the goal is how the Progressives have gotten us into our present strait over these last 80 years, and it’s the only way out of our present strait to fiscal sanity and its associated economic growth and prosperity.  It’s the only path away from government dependency and back to personal responsibility and individual freedom.

Take the budget and vote it up.  Make the spending, taxing, and “entitlement” corrections today that are possible today, rather than failing to get any of it by being greedy for more.  Come back tomorrow, and work then for the next increment.  And by the way, tomorrow’s effort will be informed (for those willing to listen) by the empirical data flowing from today’s reforms, and so tomorrow’s continued reforms can be more efficiently structured and thus produce its results more quickly.  Sort of a dynamic political scoring.

Two Tax Plans

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On the one hand, we have the House Republicans’ proposed tax plan, one whose construction was led by the House Budget Committee Chairman, Congressman Paul Ryan (R, WI).  The outline of this plan contains replacement of our present six income tax brackets with just two, 10% and 25%, and reduction or elimination of tax loopholes used by (the nebulously defined) “high-income” Americans.  Ryan suggested

Take away the tax shelter, subject all of their income to taxation, and get more revenue—and we can lower everybody’s tax rate in return.

Beyond that, Ryan conceded that at this early stage, it’s not possible to know whether these “wealthy” would gain or lose from the exchange, and he refused to go into detail on the loopholes to be cut or eliminated.  It’s the House Ways and Means Committee’s task to work out the tax details in any budget proposal; until the details are worked out, the impact of the changes is inherently unknowable; and Ways and Means discussions should be held by that committee in public, not by Ryan on talk television programs, including Fox News Sunday, where these remarks were recorded.

President Obama didn’t waste time objecting to the plan.  Through his senior advisor, David Plouffe, he told Fox News Sunday that Ryan’s plan “fails the test of balance, fairness and shared responsibility.”  This certainly does draw a stark contrast between the Republicans’ ideas and his own: he continues to demand his right to raise taxes, with the inherent unfairness of taking money that doesn’t belong to government in the first place, or of raising taxes to get money the government doesn’t need.  Obama went on, claiming the Ryan plan would give the “average millionaire and billionaire” a tax cut of $150,000:

It showers huge tax cuts on millionaires and billionaires, paid for by seniors and veterans.

Here is demonstrated Obama’s breathtaking omnipotence: it’s not possible to know the effect since the Ways and Means Committee has not written the details, but he “knows,” anyway.

Obama then disparaged the Ryan plan’s vouchers for Medicare while continuing to refuse to offer any evidence of the downside of such vouchers—continuing, instead, his drumbeat of cynically unsubstantiated claims of rising costs to seniors.  With these aspersions, he also ignores the market competition effects on costs from seniors shopping their business around among private health insurers.  Moreover, his complaint comes with his continued refusal to offer a solution of his own.  He insists, instead, on simply defunding Medicare through his Patient Protection and Affordable Care Act and his payroll tax cut, despite the pending financial failure of the current Medicare system.

On the other hand, the Table below shows Democratic Party’s tax plan for our consideration and discussion:

Oh, wait: they don’t have one.  They’ve refused these last three years even to offer one beyond the cynical jokes contained in Obama’s “budget” proposals.  They’ve just had the courage of sitting on the sidelines sniping at plans that others have offered—and then refusing even to discuss those other plans in the Senate.

House 2013 Budget Blueprint

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This is, indeed, a contrast in visions.  We are in the middle of a struggle for the future of our country, and the budget blueprint lays out the parameters of that struggle.

This table, from the House’s Committee on the Budget’s Web site, lays out the contrast pretty clearly.

 

The President’s Budget

House Blueprint

pending

 Net $1.5 trillion increase relative to current policy Cuts spending by $5 trillion relative to President’s budget

Taxes

 Imposes a $1.9 trillion tax increase; Adds new complexity and new hurdles for hardworking taxpayers, making it more difficult to expand opportunity Prevents President’s tax increases; Reforms broken tax code to make it simple, fair, and competitive; clears out special interest loopholes and lowers everybody’s tax rates to promote growth

Deficits

 Four straight trillion-dollar deficits; Breaks promise to cut deficit in half by end of first term; Budget never balances Brings deficits below 3 percent of GDP by 2015; Reduces deficits by over $3 trillion relative to President’s budget; Puts budget on path to balance

Debt

 Adds $11 trillion to the debt – increasing debt as a share of the economy – over the next decade; Imposes $200,000 debt burden per household; Debt skyrockets in the years ahead Reduces debt as a share of the economy over the next decade; Charts a sustainable trajectory by reforming the drivers of the debt; Pays off the debt over time

Size of Government

 Size of government never falls below 23 percent of the economy, making it more difficult to expand opportunity Brings size of government to 20 percent of economy by 2015, allowing the private sector to grow and create jobs

National Security

 Slashes defense spending by nearly $500 billion; Threatens additional cuts by refusing to specify plan of action to address the sequester; Forces troops and military families to pay the price for Washington’s refusal to address drivers of debt Prioritizes national security by preventing deep, indiscriminate cuts to defense; Identifies strategy-driven savings, while funding defense at levels that keep America safe by providing $554 billion for the next fiscal year for national defense spending

Health Security

 Doubles down on health care law, allowing government bureaucrats to interfere with patient care; Empowers an unaccountable board of 15 unelected bureaucrats to cut Medicare in ways that result in restricted access and denied care for current seniors, and a bankrupt future for the next generation Repeals President’s health care law; Advances bipartisan solutions that take power away from government bureaucrats and put patients in control; No disruption for those in or near retirement; Ensures a strengthened Medicare program for future generations, with less support given to the wealthy and more assistance for the poor and the sick

A couple of comments are in order (I’ll ignore the political hype in the characterizations in both sides of this table and address only the actual data provided).

First, notice that President Obama’s budget (about which neither he nor his Senate Democrat minions are serious; this is just a campaign speech) both increases Federal spending an enormous amount and increases taxes even more.  This certainly is one way to balance the budget (IFF the tax revenues resulting from those increases actually occur; however, raising taxes actually lowers tax revenue flowing by reducing the economic activity that produces those revenues), but it does so at the expense of our economy’s ability to function.  It constitutes $3.4 trillion dollars taken away from individual Americans and our businesses, either directly—those taxes—or indirectly by taking our spending decisions away from us and putting them into the hands of the Federal government.  It says that we Americans are utterly incapable of making our own money allocation decisions; we must yield those to our Betters in government.

The House budget blueprint, though (it’s certainly true that it could serve as a campaign speech, but it has the added—and critical—advantage of being an actual, workable budget blueprint), recognizes two fundamental things: the money involved is ours, not government’s; we only allocate some of our money to government to spend on our purposes (and not on government’s purposes).  Secondly, the government does not need the money, it does not need those taxes; government does need to spend less.  Period.  It really is that simple.

My second comment concerns the two plans’ attitude toward the appropriate size of government and from that their attitudes toward us Americans.  Obama wants to expand government, not only in size but in authority over our lives.  Government is the answer to our problems, and so the Progressives seek to increase our dependency on government.  Moreover this increase in dependency is not limited to those of us who already are government dependents.  Progressives want to make us all government wards.  We cannot be trusted to work out our own solutions, to make our own decisions.  We’re just not good enough at it.

The House blueprint, in stark contrast, shrinks the size and power of government.  This blueprint respects and trusts us Americans to make our own decisions, and to do a better job for each of us individually, as well as for any groups of us, than government can ever hope to do.  After all, at best, government is limited either to a one-size-fits-all solution (which perforce actually fits no one) or to a collection of “solutions” tailored to groups of us (groupings defined by government, mind you, not by us) that demands an army of bureaucrats to administer and another army of lawyers to interpret and defend.

The choice, then, is clear: whom should we elect this fall?  A collection of politicians who don’t trust us with our own lives, or a collection of politicians who are looking actually to reduce government’s—and their—power over us?

Private vs. Government Economic Stimulus

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The New Orleans writer Douglas McCollam, in a recent The Wall Street Journal op-ed, described a New Orleans organization that is having an impact on that city’s economic welfare.  The nonprofit organization, Idea Village, it seems, has in its 10 years of existence helped raise $2.7 million

in seed capital for more than 1,100 local entrepreneurs, creating more than 1,000 jobs and $83 million in annual revenue—and these days helping the city’s unemployment rate stay about a point to a point-and-a-half below the national average.

That’s money raised from private sources and voluntarily paid in, not tax money collected by a government.  In addition to Idea Village’s efforts, health care and education are benefitting from private enterprise efforts, rather than government handouts:

Today about 80% of the city’s public schools, formerly among the nation’s worst, are charter schools competing on performance to attract students.  The city’s antiquated Charity Hospital will soon be replaced by a state-of-the-art medical center, part of a larger, 2.4-square-mile medical corridor anchored by a new cancer research facility and BioInnovation Center.

With tax incentives (read tax cuts), New Orleans is about to replace New York City as the second largest venue for making feature films (Los Angeles remains No. 1).

Look again at Idea Village.  In its 10 years, it’s returned on those $2.7 million 30 times that amount in annual revenue.  And those jobs have cost $2,700 per each.

How does that private stimulus money raising and spending compare with government stimulus money taxing and spending?

President Obama and Vice President Biden are constantly claiming that Obama’s Stimulus spending has “created or preserved” millions of jobs in just three years.  They have steadfastly refused, though, to provide any evidence that that’s true, or that jobs created or preserved are the result of that trillion-dollar spending spree in 2009 and not the result of a struggling, otherwise ordinary, business recovery cycle—beyond anecdotal claims from state agencies beholden to the Obama administration for that money and for other billions they each hope to get in the future.

Let’s accept arguendo that the Obama claims are reasonably accurate, though.  $1 trillion dollars from the Stimulus Bill of three years ago has created or saved 3.2 million (the most frequently tossed about number) jobs in these last three years.  That works out to $312,500 per job created or saved.  Sorting out only the created jobs (were that possible) would drive that cost per job even higher.

And the return on those trillion dollars isn’t at all positive.  Meanwhile, the unemployment average remains, three years after Obama’s promise, above 8%.

Hmm….