Tag Archives: taxes

Taxes, Again

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Once again, a tax cut for Americans is being held hostage against a demand to offset that cut by a commensurate tax increase imposed on a government-disfavored group.  Senate Majority Leader Harry Reid (D, NV) has announced, at this late date,

We know there’s gonna have to be mandatory cuts, we understand that but also going to have to be something done with tax incentives, enhancements, revenues[.]

Unfortunately, this also is the wrong fight.  Both Democrats and Republicans are agreed that a two per centage point reduction in individuals’ taxes (or a three per centage point reduction both for individuals and businesses, if President Obama can be believed) is good for Americans.  Economists are agreed that temporary tax cuts, such as the proposed payrolls cuts, are not at all stimulative for the economy as a whole—a stimulus effect requires the cuts to be permanent.

The discussion, then, shouldn’t be a debate at all, nor should it concern payroll tax reductions, which serve only to further gut, and so to hasten the demise of, the Social Security system.

This discussion should be about a permanent income tax reduction for both individuals and businesses of two to three per centage points.  This much seems doable within the month since the idea of a tax cut and its present size already are agreed by all.  And who can understand the logic of “paying for” a tax cut with a tax increase (leaving aside the fact that there’s no need to pay for a reduction in the government’s receipt of something—our money—which doesn’t belong to it in the first place)?

This cut then should be followed by further discussion with a view to deeper income tax cuts.

Hypocrisy, Part II

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Health and Human Services Secretary Kathleen Sebelius has an opinion piece in USA Today.

In her apologia for an Obamacare regulation that requires health insurance programs provided by a vast range of Catholic, Protestant, Jewish, and so on institutions to provide contraception, sterilization and abortifacients in direct, open contravention of the teachings and beliefs of those institutions (and that requires those institutions to offer those insurance plans exclusively), she writes

One of the key benefits of the 2010 health care law is that many preventive services are now free for most Americans with insurance. … So is the full range of preventive health services recommended for women by the highly respected Institute of Medicine, including contraception.

So, no one is paying any taxes, or being forced to change their existing health insurance policies, to pay for this.

Nor is there any cancellation of religious teachings or thought or fundamental tenets by this Federal government, which used to be on the other side of a “wall of separation between Church & State.”  There’s an interesting view of “free.”

That’s why in the rule we put forward, we specifically carved out from the policy religious organizations that primarily employ people of their own faith. This exemption includes churches and other houses of worship, and could also include other church-affiliated organizations.

Umm, no.  Not hospitals, not doctors’ offices, not clinics.  These employ (quite properly) far too broad a range of employees to be able to fit within the carefully and deliberately narrowly drawn limits of this rule.

In choosing this [extremely narrow religious] exemption, we looked first at state laws already in place across the country. Of the 28 states that currently require contraception to be covered by insurance, eight have no religious exemption at all.

The religious exemption in the administration’s rule is the same as the exemption in Oregon, New York and California.

Of course, far be it from the Federal government to set an example.  Oh, wait….

Economic Growth: Tax Cuts or Taxing and Spending Increases?

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President Obama made his position clear in his State of the Union address (as if it wasn’t clear from his performance these last three years, already).  He wants more spending, and he wants to “pay” for it by increasing taxes on the hated rich.  He couldn’t find the energy to spend more than a sentence or two on spending cuts in his SOTUS; although he did find plenty of “green” energy for spending and tax hikes.

Indeed, when it comes to actually reining in government’s use of our money, Obama has been the czar of chimeras and false flags.  As the House Budget Committee Chairman, Congressman Paul Ryan (R, WI) has put it:

We have learned already that the president who’s had three years to try and propose real solutions to fix our fiscal crisis is ducking it….  He formed commissions and super committees, so he sort of outsourced the leadership only to decry their results.

Indeed.  Obama’s committees and study groups (I don’t share Ryan’s disdain for Obama’s use of them, per se; when one is ignorant of a subject, asking experts for advice is entirely appropriate) actually did generate some ideas worth serious discussion and which could have served as points of departure for real reform.  But for Obama, they were merely cynical tools of distraction; he blew off their recommendations without so much as a fare-thee-well.  And he’s been clear about how seriously he takes his own ideas.  Obama yukked it up over his “shovel ready jobs” chant:

…shovel-ready was not as shovel-ready as we expected.

Obama does have his apologists.  Third Way think tank’s Jim Kessler insists:

[W]hen you’re in the middle of a recession it’s very dangerous to stop priming the pump.  You know, you need to get escape velocity, get out of the atmospheric pull of recession, break loose and then let the economy go loose.

But what Kessler, et al., don’t understand is that that “atmospheric pull” actually is government interference in our economy.  We can’t “get escape velocity,” to mix metaphors, with the government’s enormous sea anchor dragging us back.

How has Obama’s Progressive policies of higher taxes and more spending been working out?

His first installment, nearly a trillion dollars’ worth, failed to reduce unemployment or deliver the shovel-ready jobs he promised.  Of course he’s demonstrated how seriously he took his “shovel-ready” claim, even as he was making it.  His profligate spending, while succeeding in exploding the Federal deficit and the Federal debt—which now our grandchildren will have trouble paying down—beyond anyone’s worst nightmare at the start of the Panic of 2008, have done nothing else but hold back a normal cyclic recovery that has been struggling since the official end of that recession in the spring of 2009—nearly two years ago—just as similar Keynesian foolishness did for the Depression.

For his second try, he wanted to spend even more, and now he wants to raise taxes on a narrow group of Americans of whom he disapproves.  Ryan suggests checking the numbers.  Doing so exposes the depth of Obama’s cynicism in continuing to push for higher taxes.

All these tax increases that the president is talking about, they only cover 8 percent of his proposed spending increases. The other 92 percent of the president’s spending increases are borrowed money.

Ryan is being polite.  Those 92% are actually fantasy money—that’s the level of seriousness with which Progressives take other people’s money.

Here’s an alternative: reform our tax structure, including reducing rates, closing loopholes, and ending subsidies and credits.  To paraphrase Ryan’s argument, with Progressive tax increases hitting small businesses disproportionately (and hitting all of us—individuals and businesses of any size—too hard, simply by existing), comprehensive tax reform is far better than arbitrarily and capriciously raising taxes.

And then cut government spending to below the tax revenue generated.

One step currently under consideration, with both Republican and Demoncrat support, is the continuation of the temporary payroll tax holiday.  But this is a chimera; it will produce no effect on our economy.  It will, though, continue defunding an already dysfunctional Social Security system.  With the Progressives already having agreed that a 2 percentage point cut in taxes is good (and with Obama originally calling for a 3 percentage point cut in payroll taxes for both individuals and businesses), Republicans are blowing an excellent opportunity to begin serious reform.  The better place to put these cuts is as permanent income tax cuts for individuals and businesses, and as a first step toward larger income tax cuts and tax reform, generally.

Arthur Laffer suggests a more specific tax reform in a column in The Wall Street Journal.  As Laffer points out, and as thinking Americans have understood for a long time,

Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn’t create resources but redistributes resources.

Laffer goes on to suggest that a flat tax is the optimum reform.  Although he uses Newt Gingrich’s version (an optional 15% flat tax for individuals, with the option being to continue paying under the present system, and a 12.5% flat tax for business) as his example for discussion, Laffer’s point is generally valid.

Laffer argues

Fairness in taxation means that people and businesses in like circumstances have similar tax burdens.  A flat tax, whether on business or individuals, achieves fairness in spades.*  A person who makes 10 times as much as another person should pay 10 times more in taxes.  It is also patently obvious that it is unfair to tax some people’s income twice, three times or more after it has been earned, as is the case with the death tax.

The current administration’s notion of fairness—taxing high-income earners at high rates and not taxing other income earners at all—is totally unfair.

Progressives—led by Obama—argue that it’s the rates that have to be progressive in a fair tax system, not just the amounts actually paid.  But concern with rates paid rather than amounts paid fails to achieve equal treatment at the start—at the point of equal opportunity; “progressive” tax rates only look to create equal outcomes, after the differing levels of ability, work ethic, and so on have been applied by the people involved, folks who behaved voluntarily according to their own imperatives.  Progressive rates punish hard work and success while subsidizing lesser effort.  There’s no fairness in this.

Finally, as Laffer points out,

[A] flat tax proposal is not revenue-neutral, nor should it be.  If there’s one truism in fiscal policy, it’s this: Wasteful spending will always rise to the level of revenues.  Whether you’re in Greece, Washington, D.C., or California, overspending is a prosperity killer of the first order. [A] flat tax…would put a quick stop to overspending and return America to fiscal soundness.

 

*I fully anticipate that Laffer will be called racist for using this term, and I’ll be similarly accused for repeating it.  Understand, though: only a racist will actively look to create racism where none exists, so he can cry, “Racist!”

Project 100,000

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In a throwback to the ’60s, and to a similar program, it seems that the present administration really is serious about helping those who are incapable of helping themselves.  Where that prior program centered on helping those who lacked the capacity for measuring up to the rigors of a military life, though, the present incarnation is centered on helping those who lack the capacity to measure up to the rigors of paying their taxes.

The present administration’s program began with the hiring of Timothy Geithner to be the man in charge of the national treasury, bringing him over from the IMF, where he had shown his inability to pay his self-employment taxes, despite having been repeatedly advised in writing by the IMF of the obligation.

Now we learn that 36 of Obama’s current staffers have been brought on board through the same program of outreach to the incapable.  These 36 owe nearly $1 million in back taxes for the 2010 tax year.  It’s not like they’re hurting for the money, either: Obama’s 1%, his staff of 457 aides, were paid a total of $37 million last year.

There’s more: the same IRS report that revealed the deficiencies of Obama’s staff also said that “thousands of federal employees owe,” in the aggregate, more than $3.4 billion in back taxes.  It seems none of these people are capable of understanding their tax obligations.

It’s clear, now, why Obama is so hard over on those who are better off—who are capable—being required to pay more.  Someone has to pay for Obama’s 100,000.

While this administration’s program of handouts for unfortunates is admirable, can we really trust the judgment that puts such people into such positions of power and trust?

(As an aside, Obama’s EPA performs even more poorly, both in total and on a per unfortunate basis: 413 of the EPA’s incapables owe nearly $19.5 million in back taxes.  Paying taxes is harmful to the environment?  Now there’s a rule….)

Basic Economics

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A thought on Keynesian economics.  Brad DeLong offers this thought concerning our current debate over government spending:

The government purchases $100 billion of goods, issues $100 billion of bonds, and raises taxes by $3 billion a year in order to amortize the bonds.  Government purchases go up by $100 billion this year.  Private consumption goes down by $3 billion this year.  Net fiscal impetus is not $0 but rather $97 billion.  Cochrane [and other Keynesians] doesn’t understand the Ricardian Equivalence argument he is trying to make.

Keynesians think $97 billion were created through this spending and taxing program and that government spending is a good.  But having sold $100 billion in bonds generate this “demand increment,” from where would those $100 billion have come, and to where would they have gone otherwise?  The Keynesian view can be summarized in either (or both) of two ways: supply creates its own demand, or demand creates its own supply. Talk about trickle down, or building fields of fancy and hoping fanaticizers come.

No, what goes on actually is this.  Falkenblog commenter Aaron Brown explains:

The main point is…that people react to the $100 billion future tax increase (or spending cut, or reduction in value of nominal assets from inflation, or some other loss).  You might argue that people will under-react in some cases, but it’s highly implausible that they don’t react at all, or that they systematically under-react (and there’s no data supporting either implausible contention).  I think systematic over-reaction is plausible (although also has no empirical evidence) since once currency debasement begins i[t] almost always seems to accelerate.

The question of where the $100 billion would have gone otherwise is a different one.  It could come from private consumption or private investment, in either case likely making the net effect of the stimulus spending negative, even before factoring in the future costs.  Government takes money today from privately-selected uses to government-directed ones (loss of utility there) and also must take money tomorrow from privately-selected uses to repay the debt.

And since the economy continues to be depressed from the government having withdrawn so much money from it for its own spending, government must, apart from tomorrow’s taking for current borrowing, repeat the whole borrowing and taxing cycle tomorrow, also.  This continues to hold down the economy, as we saw with the government’s “stimulus” spending in the Great Depression, and as we’re seeing today.  Brown continues:

The Keynesian hope is that today’s $100 billion comes from hoarding or asset bubbles, in which case the net effect could be neutral or even positive.  The further hope would be that the future debt repayment will go to sound private investment or elimination of future wasteful spending (sort of “stuff then starve the beast”).

However “hoarding” and “bubble” are in the eye of the beholder. So even if you make the assumption people under-react to the future implications of stimulus spending, you also have to assume that the government’s judgment using other people’s money, with officials being paid whether they are right or wrong, is better than people making choices with their own money, bearing the losses if they are wrong.

If people are correctly preparing for future bad times instead of “hoarding” or correctly anticipating a rise in nominal asset prices instead of feeding a “bubble”, then the stimulus will be doubly harmful.

But the fact is, we don’t hoard.  We (both individual and business) save/invest.  We may have a good idea of why we’re saving—a new house, future retirement, or future expansion—or we may not, saving only against an inchoate reservation about the future—but this isn’t “hoarding.”  And government judgment?  We’re seeing how that’s playing out with the government’s substituting its judgment for ours in its use of our money for its entitlement programs.  Keynesians are all about the superiority of government’s judgment.  Otherwise, they wouldn’t keep taking our money and spending it for us, even (especially) when we don’t want to spend, in order to stimulate our economy (which, just incidentally, Keynesians also view as government’s economy).

h/t to Eric Falkenstein at Falkenblog.