Tag Archives: taxes

Anger in the EU

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But it’s misplaced, and perhaps driven by embarrassment.  Great Britain refused, a few days ago, to go along with a proposal to alter the fundamental European Union treaty to allow for the creation of a fiscal union, touted as a solution to the existing EU sovereign debt crisis.

The petulance of others of the EU leadership is illustrated with these examples:

Le Canard Enchaine (The Chained Duck) reports that French President Nicolas Sarkozy called Great Britain’s Prime Minister, David Cameron, a “stubborn child.”  Apparently, Sarkozy went on: Cameron had only one goal, that of “protecting the (London) City, which wants to continue to behave like a tax oasis.”  As if either of these—protecting his capital city, and maintaining a tax oasis (if that’s what he was doing)—were a bad thing.

And this: Guy Verhofstadt, the head of ALDE (Alliance for Liberals and Democrats for Europe), a liberal group in the European Parliament, spoke on the matter in his native Flemish Wednesday: he didn’t think English would be an “appropriate language.”

Others have insisted that Great Britain now must quit the EU.

But Cameron isn’t so alone (at least not yet) as his detractors insist.  Ireland has said that it must submit the matter to a national referendum.  Recall that the continent had a negative attitude toward the Greek government’s attempt to refer bailout terms to their people for consent or rejection.  Similarly, the Czech Republic and Sweden now insist on involving their respective parliaments in any decision to go along with a fiscal union.  Indeed, the Czech Republic has gone further, insisting that any union should apply only to members of the euro zone, and Hungary has joined them in this assessment.  Both the Czechs and the Hungarians also are on record as rejecting coordinating—”harmonizing”—national tax policies, a key parameter of a fiscal union.  Such a thing, they say, can “bring nothing positive, nothing good.”  The Czech Republic has gone yet further: they will discuss the matter, but they will take no decision for or against the union until they know the details of the pact—including those heretofore undefined “sanctions.”

Given that the proposed fiscal union cannot succeed and does not actually address the present crisis (it can only face the inevitable next one), and given that part of the demand for the treaty change involved demands for tax changes that would have hit Great Britain disproportionately, Prime Minister David Cameron was right to make the moves he did.

And given that the proposed fiscal union cannot succeed and does not actually address the present crisis, and these are becoming increasingly clear as other members of the EU share British concerns about the efficacy of the pact, the detractors are beginning to see the blunder they’ve committed with this “union.”  They’re expressing their embarrassment as anger and frustration—a sign, not of their obstinacy, but of their continued failure fully to realize their error.  That realization is only just beginning.

Do-Nothing…Congress?

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That’s the mantra of President Obama, Progressives generally, and the NLMSM.  But what’s actually going on?

In the Senate, we’ve had no budget offering, despite a legal requirement for one, for 900 days.  Indeed, the Senate has actively refused to propose a budget for those two and a half years.  We see legislation offering tax cuts blocked unless those cuts can be “paid for” with tax increases elsewhere.  We see active suppression of legislation encouraging pipeline infrastructure development which would produce tens of thousands of jobs promptly.  We see legislation sent directly to the floor of the Senate, bypassing committee opportunities for debate, with debate on the floor further blocked, thus rendering the legislation’s movement to a vote impossible.

In the House, we have a budget passed that actively cuts spending and offers reform for Social Security and Medicare so those programs can survive.  We have 17 separate jobs-related bills passed.  We have 5 bills related to American energy independence passed.  We see active support for fiscal moves that contribute both to reducing the nation’s debt and eliminating the annual budget deficit (a necessary prerequisite to lowering the debt).  We have a procedure that requires committee debate followed by floor debate.

The budget, the jobs bills, and the energy bills sit idle in the Senate, as the world’s greatest deliberative body refuses to consider them in any way.

Do-nothing Congress, indeed, but is it Congress as a whole, or one house of Congress that is bent on doing nothing?

Hmm….

Debt and Taxes

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The price of our burgeoning national debt is this.  As our debt grows, more of our national income must be taken out of our economy and spent: at minimum, on the interest payments due; if we’re to actually pay off the loans, even more on principle payments.  But as we make the payments, if we borrow still more, still more money must be taken out of our economy for the additional payments.

In essence (to beat this horse a bit), money taken out of our economy to pay our increasing debt is money not available to our economy for use in productive things: capital investment, R&D, consumption, hiring, and so on.  Our nation’s debt, in the best of times, is a drag on our economy, but when it gets out of hand, it’s worse—it generates a negative feedback loop that actually contributes to shrinking our economy.  The more money taken out to make the payments, the less money for growth; the less growth, the less capacity for absorbing the removal of money, and the more that same removal amount hurts.

It’s true enough that the Federal Reserve Bank can manipulate interest rates, so as to keep those interest payments small and less of a drag, but only to a point.  In the end, Mr. Market overrules all of us, including our government.  As our debt grows (Greece, Italy, and Spain are graciously serving as object lessons here), our ability to repay it becomes more doubtful.  It’s certainly true that the Fed also can print all the dollars it wishes to print with which make those payments.

But there’s a rub here, too.  Our dollars are only worth what they can buy, and as we print more and more of them, they can buy less and less (that’s inflation)—including the “purchases” represented by debt payments.  There will come a time, sooner rather than later, when the interest the Fed is setting on our debt no longer accurately reflects the risks inherent in our debt, both in terms of our ability finally to repay and in terms of the value received from lending to us.  Worse, it will have become impossible to determine an accurate price either of our debt or of the risk in lending to us.  At that point, who will wish to lend to us?  Ask the Greeks, Italians, and Spanish how this is working out for them.

The price of rising taxes, another leg to our government’s efforts to right our economy, is this.  Taxing, at bottom, withdraws money from our economy.  Take everything written above about debt payments subtracting from our economy’s capacity and substitute “tax collections,” and we have the same negative feedback loop.  Increasing those taxes—a need seemingly justified by our stagnating, if not fading, economy—simply exacerbates the problem, with even more money taken out, an even more constricted economy as a result, and even less revenue going to government.  And more importantly, an even less effective economy, with lower production, less investment, fewer jobs, and reduced quality of life.

There is this one additional factor.  Some of the tax revenues do find their way back into our economy, but not all.  Roughly 75-80 cents of every dollar collected in taxes is all that makes it back.  Leaving aside the fraud, waste, and abuse that is a favorite target of our politicians’ perennial “spending cut” moves, the government acts as a middle man in the transactions, and so it keeps a fraction of every tax dollar for itself for the purpose.  Additional fractions of the tax dollar are lost simply to friction.

Further, government spending is money that is significantly misallocated, if only because it’s allocated to purposes we would not have chosen had the money been left in our hands.  It’s also misallocated, though, because so much government spending is allocated to things that inherently wasteful and destructive—overregulation from EPA regulations threaten electricity-generating power plants with closure, at the costs of jobs and of increased instability of our national power grid, for instance—and misguided—subsidies for “green” energy enterprises and for oil and gas production, for instance.  These misallocations reduce the efficiency of our markets so that our economy cannot even use the reduced production effectively.

It’s the Wrong Fight

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Republicans say that any tax cuts must be paid for with spending cuts elsewhere, and this is certainly true.  But what they’re talking about in the present case is payroll tax cuts.  Certainly, these cuts also must be paid for with spending cuts from somewhere else, but the logic ends there.

Senator Dick Durbin (D, IL) even calls out the Republicans on the matter, as I’ve written elsewhere.  But why are the Republicans letting themselves be drawn into this at all?  They’re ceding the terms of the debate and the entire debate to the Progressives.

On what basis do the Republicans—or anyone—agree that funding for Social Security should be cut?  This is a program that is already widely acknowledged to be desperately in need of reform or it’s destined for failure, yet the Progressives refuse to allow any reform.  Cutting funding by cutting payroll taxes that are intended for the Social Security Trust Fund only hastens that collapse.  Instead, we get Senator Jon Kyl’s (R, AZ) lame answer that “The payroll tax doesn’t go into general revenue. It supports Social Security.”  While true, it misses the whole point.  What is the Republican’s plan for reforming Social Security (and Medicare)?  Congressman Paul Ryan (R, WI) put forward ideas for both programs in the budget the House passed in 2010 that are worth serious discussion.  Yet Republicans have barely mentioned those ideas since: were they not serious about these reforms?

More to the point, why didn’t Kyl turn the argument back on Durbin and ask him why he’s opposed to really leaving money in the hands of Americans and our businesses by supporting income tax cuts for everyone?

Senator Durbin has agreed that tax cuts are good for Americans (he said so with the payroll tax cuts); Republicans should be arguing for income tax cuts, and permanent ones, not just via the annual argument over extending the Bush tax cuts, or some subset of them.  Republicans should be challenging the Progressives to offer legislation that provides for permanent income tax cuts for individuals and for businesses; they have a willing ally in Senator Durbin.  Or he’ll be shown by the debate to be disingenuous.  Republican candidates for President have offered real, broad tax reform; Republicans should be discussing these ideas more—in town hall meetings, on the floor of the House and Senate, on the radio and TV talk shows, at every chance they get—and they should make chances to talk about them.  Since they don’t do any of that, I have to ask: of what are they afraid?

The US already has the most progressive individual income tax structure in the developed world.  The President is openly engaging in class warfare as he campaigns for reelection and for his More Taxes More Spending ideology.  The Progressives in the Senate have not allowed the Senate to satisfy its statutory duty to propose an actual budget—of any sort—for nearly three years.  The Progressives nearly blew up the debt ceiling negotiations over their refusal to cut spending and their demand to raise taxes.  The Progressives did succeed in blowing up the Super Committee with their nonnegotiable demand to raise taxes by $1 trillion dollars.  The Republicans need to be calling out the Progressives on all of this.

Instead, Republicans let the Democrats control the argument and limit it to a narrow, doomed to fail path.

On top of this, the only jobs program that gets debated is the Progressives’ tax and spend Jobs Bill, while the Republicans don’t even have a coherent jobs message of their own, much less an actual plan.  Oh, yeah, there’s that Ryan bill from nearly two years ago.  About which they’re absolutely silent.

By letting the Progressives have the debates on their terms—again—and by having no coherent message of their own, the Republicans are in danger of giving control of the House right back to the Progressives in 2012 and of leaving control of the Senate and of the White House in their hands, too.  We’ve seen how well that’s worked for our country.  Four more years will only extend the damage to national disaster proportions.

Distorting the Question

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There they go again.

Senator Dick Durbin (D, IL) suggests that the Republicans are being a tad disingenuous with their reluctance to extend the payroll tax “cut” of two per centage points on employee payrolls.  Pretending to not understand the reluctance, Durbin asserts

The Republican position is they’d raise the payroll tax on working families.  That just defies logic.  What we should do is to help these working families struggle through.

What defies logic, though, as Durbin understands full well, is the concept of reducing the payroll tax in the first place.  Regardless of what we might think of the present structure of Social Security and Medicare, the fact is both of these programs are within just a very few election cycles of being utterly bankrupt, and the payroll tax is the only way—by design—of funding these programs.  Reducing that funding only hastens those failures.

Americans aren’t as dumb as Progressives like Durbin would have it, either, and so we’re fully capable of seeing the foolishness of a payroll tax cut, and we’re fully capable of not confusing such a cut with an income tax cut.  Indeed, far from the jobs stimulus the Progressives claimed this would be when President Obama proposed the cut, most Americans promptly saved those few extra bucks, or used them to pay down personal debt.  Of course, since businesses had no such cuts to their payroll expenses, they received no incentive to hire, and the missing “cut” spending potentiated that lack.

Aside from this, though, the Durbin claim is little more than a Progressive distortion of the opposition party’s tax position.  To use the payroll tax reluctance in this way—as a “demonstration” that Republicans want to raise taxes in the middle of this deep recession—is to isolate one irrelevant position, payroll taxes that have nothing to do with jobs and everything to do with the way Social Security and Medicare are funded, and to ignore the whole position: that lower income and business tax rates are themselves job creators and further that they increase tax revenue through increased economic activity—producing, selling, hiring—which leads to additional hiring in a virtuous circle.  Which “help[s] these working families struggle through.”

Further, Republicans have been advocating for some time closing tax loopholes and ending subsidies as an additional means of raising revenues, another aspect of their composite tax position that Durbin carefully elides.  And his distortion ignores the fact  that the Progressives themselves insist on outright tax rate increases—to the tune of $1 trillion, as Obama threw in at  the last second to blow up an already tentatively agreed deal during the debt limit increase talks last summer, and which the six Progressives on the recently deceased Supercommittee used to blow up that group’s chances of fulfilling its mandate.

Then Durbin added a wholly irrelevant canard to explain Obama’s absence from the just concluded Supercommittee charade:

This was a congressional undertaking. And the Republicans made it clear that if President Obama weighed in, it would become another presidential issue.

Really?  In what way?  Durbin chooses to offer no facts to support his assertion.  He does choose to ignore, though, the fact that Obama has repeatedly refused Republican invitations to talk about any economic matter, preferring instead to hit the campaign trail and to dally in Bali for East Asia summit talks.