Taking the low road Tax tax tax kill the economy...the obama way

iamnothere 2012/05/21 17:09:05
May 21, 2012 12:00 A.M.
Raise Taxes, Growth Be Damned
Cut spending with a scalpel now or with a cleaver later.

By Michael Barone

In the run-up to this weekend’s G-8 summit at Camp David, journalists have unfavorably compared European “austerity” with Barack Obama’s economic policies.

European spending cuts, the argument goes, have hurt people and are arousing political opposition, while Obama’s proposals to keep federal spending at 24 percent of gross domestic product indefinitely are likely to succeed.

Evil Republican spending cuts, in contrast, would deny the economy needed stimulus and wreak havoc on ordinary people.

But the facts undermine the storyline. Veronique de Rugy of the Mercatus Center at George Mason University took a look at what “austerity” in Europe actually means.

What she found is that government spending has increased or not appreciably declined in Britain, France, Italy, Spain, and Germany. The only significant spending reductions are in Greece, where the bond market cut off funding.

In the other countries, the big adjustment has been an increase in tax rates. European “austerity” is an attempt to reduce government budget deficits largely by increasing taxes and only to a small extent by reining in spending.

Which, when you come to think about it, is the policy not of House Republicans — who actually passed a budget — but of Barack Obama.

Over the past three years, Obama has pursued the goal of higher tax rates as relentlessly as Captain Ahab pursued the great white whale.

Never mind that by some measures the United States, even with the “Bush tax cuts,” already has the most progressive tax system in advanced economies. About 40 percent of federal income-tax revenues come from the top 1 percent.

And we know from experience that when top rates are increased above Bill Clinton’s 39.6 percent, the intake is always less than projected. Since World War II, federal revenues have never risen much over 20 percent of gross domestic product, whether the top rate was 28 percent or 91 percent.

The reason is that when rates get high enough, investors’ animal spirits (John Maynard Keynes’s term) are directed less at increasing productivity and creating wealth and more at avoiding taxes. And without increased productivity, you don’t get robust economic growth — which hurts everyone.

There’s another problem. High tax rates mean a volatile revenue stream, as California governor Jerry Brown is finding out. When times are bad, revenues dry up just when government needs money. California’s budget deficit has zoomed from $9 billion to $16 billion in a few months.

Barack Obama doesn’t seem to care about these things. In the 2008 campaign, ABC News’s Charlie Gibson asked him whether he would increase the capital-gains tax rate even if it meant reducing government revenue, as has happened in the past.

Yes, Obama said, “for purposes of fairness.” He wants to take away money from people who have earned it even if government gets less to spend.

Obama argues that government spending can generate growth. But money spent propping up state and local public-employee unions and funding supposedly shovel-ready projects — major features of his 2009 stimulus package — didn’t do much for the economy.

In contrast, Obama’s former chief economist Christina Romer and her husband, David Romer, in a 2010 academic paper wrote that “exogenous” tax increases, like letting the “Bush tax cuts” expire after the recession is over, are “highly contractionary.”

“Our estimates suggest that a tax increase of 1 percent of GDP reduces output over the next three years by 3 percent,” the Romers wrote. “The effect is highly significant.”

Higher taxes are the prime ingredient of European austerity. The danger is that, with sluggish growth, revenues will languish and the bond market will shut down, as in Greece. Then spending gets cut with a meat cleaver, not a scalpel.

House Budget chairman Paul Ryan understands this. House Democrats’ “balanced approach” — with tax-rate increases — “just means let’s start European austerity right now,” he told the Washington Examiner last week.

Ryan’s budget, which passed the House, would cut tax rates but would also eliminate tax preferences. Many high earners would end up paying more. But because they wouldn’t face higher rates on the next dollar they earn, there would be no incentive to seek tax shelters.

You can find Democrats who agree with this approach, though they’d differ with Ryan on details. But they won’t speak up as long as their leader keeps pursuing that great white whale.
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  • JCD aka "biz" 2012/06/03 14:21:08
    JCD aka "biz"
    Cutting public expenditures in a recession is a recipe for disaster.

    (as even "Flip flop" Romney is beginning to realize)
  • iamnothere JCD aka... 2012/06/04 17:49:36
    unlike Odumbo.. and the debtocraps.. Atleast romney has a clue about economics and business
  • sglmom 2012/05/26 13:22:47
    Someone needs to ask the question of these in the 'body politic' ..
    what happens when you run out of EVERYONE ELSE's MONEY to 'redistribute' and spend?

    But then again .. 'politics' and budget seem to be mutually exclusive terms ..
    they've not understood it for decades .. what's going to change now when they've sat there in those seats for this long?
  • JCD aka... sglmom 2012/06/03 14:18:05
    JCD aka "biz"
    You're NOT "running out of everyone else's money to redistribute and spend".

    Please google "taxes international comparisons".
    You will realize that taxes in America are low relative to those in other developed countries.
  • sglmom JCD aka... 2012/06/04 02:18:26
    Awww ....
    When you look at External Debt to GDP ..
    by NATION world wide ..
    you can easily see that the world itself ..
    doesn't have the ability to sustain the DEMANDS placed by the 'body politic' ..
    time to stop the nonsense ..
    and look clearly at what Government ..
    GOVERNMENT should and should not do ..
    there's no way to 'redistribute' everything ..
    and STILL not have overburdening debt .. upon the backs of everyone alive ..
  • JCD aka... sglmom 2012/06/04 16:13:28
    JCD aka "biz"
    How exactly does redistributing money increase the debt?

    And please google "taxes international comparisons".
  • iamnothere JCD aka... 2012/06/04 17:54:56
    suggest you consider this.. money removed from the private sector Laundered thru the public sector with them siphoning off trillions which has to be borrowed... you know BORROWED meaning it has to be paid back with interest from those dumb enough to lend the money.. (just look at what is happening in greece Spain portugal itally ireland and tell me the money does not come without consequences.. How stupid these countries are in dealing with their own debt.. is an indicator that sucking the life out of the economy to give away to those who dont contribute and expecting a positive outcome should give you an idea of how stupid redistribution really is.

    Should you continue to toss good money after bad.. and expect positive results shows that perhaps you really have zero concept of basic economic principles that those on the left continue to espouse
  • JCD aka... iamnothere 2012/06/04 22:32:11
    JCD aka "biz"
    Redistributing money is taking money from the private sector, and giving it to the private sector - just not to the same people. How it increases public debt, I fail to understand.
    And again, you might want to compare the tax load in America and in most other developed countries.
  • iamnothere JCD aka... 2012/06/05 00:29:12

    between thousands of new employees who are earning over 6 figures. plus all of the costs of benefits.. then add in the inefficiencies that are inherent just because government does nothing well. Think GSA Think TSA think homeland insecurity

    Then consider the rampant fraud.. how much is really going on from medicare to Medicaid to waste thru out the government
  • JCD aka... iamnothere 2012/06/07 19:30:23
    JCD aka "biz"
    I heard that overhead costs in Medicare are far lower then in private health insurance companies.
    Private bureaucracies are sometimes, or often, less effective than public bureaucracies.
  • iamnothere JCD aka... 2012/06/07 22:51:01
    and the compensation rates are so low that it is becoming harder and harder daily to find a doctor willing to take the compensation.. they loose money on their patients so have to over bill just to break even.. health insurance companies atleast compensate well enough that doctors can afford to perform their services
  • iamnothere JCD aka... 2012/06/05 00:30:19
    tax load.. when one looks at local state and federal tax load.. your comment is odd
  • JCD aka... iamnothere 2012/06/07 19:33:34
    JCD aka "biz"
    No, no.
    I'm talking about the overall tax load.
    Just google "taxes international comparisons".
    The tax loas in America is around 25% of GDP. In most of Europe, it's 35-45%.
  • iamnothere JCD aka... 2012/06/07 22:51:54
    keep believing that.. hum.. you must not drive a car or own a house or go out to eat .. or any of a myriad of place you are taxed
  • JCD aka... iamnothere 2012/06/08 10:54:51
    JCD aka "biz"
    Why don't you try to google "taxes international comparisons"?
    You might be surprised.
  • iamnothere JCD aka... 2012/06/07 22:55:47
    many people between the other taxes have 3 -12 % state taxes and dont forget if you smoke.. 75% of every dollar goes for taxes.. darn near that much for alcohol then there are fishing license tax boat tax car tax housing taxes. yes you pay even if you rent.. just rolled into the cost..
  • sglmom JCD aka... 2012/06/05 00:45:21
    You comment is odd indeed ..
    'redistributing' .. when all is redistributed from the private sector .. it is 'washed' through several agencies/departments indeed ..
    the OUTFLOW .. is larger than the inflow .. that is a given across worldwide ..
    when the OUTFLOW is bigger than the inflow .. where do you go to find the 'redistribution'?
    BORROWING .. Borrowed dollars .. which increases the debt ..
    those Borrow Dollars have a PRICE ..
    the price is called issuance, handling fees, distribution fees, and yes, Interest fees too .. as well as rollover costs .. retirement and reissue costs .. and the debt machine rolls on ..

    now the question should be .. how are countries going to sustain those debt payments .. when the debt payments are LARGER .. far larger indeed .. than their National Gross Domestic Product (GDP)?

    In a Personal Budget .. I KNOW that I can not BORROW more than I take in .. that would be DISASTER INDEED .. so I live within my means .. pay my bills .. there's not the expensive toys, but I'm able to make ends meet (and save some for those situations/times where I need to cover bills that are unusual in nature (for example -- replacing the roof after a Couple of Major Hurricanes went through my area .. yep .. it came out of MY savings indeed))

    Time for 'body politic' to learn the term .. BUDGET ..
    and the phrase .. LIVING withIN one's means ..
  • JCD aka... sglmom 2012/06/07 19:35:10
    JCD aka "biz"
    Thank you.
    Still, don't you borrow more than you take in when you buy a house?
    Public infrastructures can also financed "on credit".
  • iamnothere JCD aka... 2012/06/07 22:56:36
    you may not have noticed.. public has NO MONEY
  • sglmom JCD aka... 2012/06/08 02:26:32
    When I purchased MY HOME ..
    I had already built my savings indeed ..
    so that I KNEW what Home I could afford ..
    specifically targeted that purchase for my comfort ..
    and yes, my HOME is fully owned by .. ME ..

    (oh, yes, Indeed .. I have good personal budgeting skills .. and yes, this started in my childhood)

    Come to the Rural areas of the USA ..
    there's a lot of OUTFLOW in terms of us paying for taxes (even such as the fuel taxes) ..
    yet .. so many rural roads are STILL Unpaved ..
    so much of rural life is barely on-grid .. or completely off grid ..
    it is not CITY where I live ..

    Public .. Government .. definitely is BROKE ..
    borrowing .. on top of already borrowed dollars ..
    flipping those borrowed into another borrowed account ..
    if you do that in your personal life .. it is called KITING ..
    and can result in Prosecution at a Felony Level ..
    (there's other scams too .. that government engages in .. )
    Quite frankly .. these "Body Politic" ..
    SHOULD be prosecuted for their actions ..
    and expect to not have to pay back at some time ..
    these borrowings ..
    and you should expect .. at some time to be FINALLY CUT OFF From all other borrowing too ..
  • wtw 2012/05/22 03:56:53
    Spending more than you take in to the tune of paying 40% interest on that debt is obscene and immoral according to Obama himself so why now is it OK?
  • JCD aka... wtw 2012/06/03 14:18:32
    JCD aka "biz"
    "40% interest"???
  • wtw JCD aka... 2012/06/03 19:24:46
    Yes--check it out--we are paying .40 cents of every dollar to pay the debt.
  • iamnothere wtw 2012/06/05 00:52:21
    it is not that the interest is 40% but that 40% of every dollar collected goes toward paying down obscene debt
  • NPC 2012/05/21 17:21:37
    Liberals only tax and spend. They do not compromise or want to balance the federal budget or cut government entitlements, unsustainable programs, czars or departments wasting citizens time and taxpayers monies.
  • das 2012/05/21 17:18:18
  • sglmom das 2012/05/26 13:20:55
    And where are the TAXES specifically designated for that used?
    Everywhere BUT Infrastructure ..
  • mrdog 2012/05/21 17:14:48

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