Michael’s post immediately below deserves to be addressed in some more detail. Not only is the TARP program pernicious to the banking and financial sector, but it’s implications go much deeper than that, and corrupt the rest of the economy as well. And most importantly, this is only the beginning.
The corruption expresses itself in a number of ways. Take a look at the GM/Chrysler situation. In both cases, the UAW emerge as the clear winners in the bankruptcy proceedings. In the case of GM, bondholders with $27 billion in bonds are supposed to accept 10% of the company’s equity, while the UAW’s retirement fund, which holds $10 billion in bonds, is supposed to receive 40%, with the Government taking the remainder of the equity. In what possible way is this supportable?
Likewise, in the Chrysler bailout, the UAW will receive 55% of the equity, while Chrysler’s bondholders receive 30 cents on the dollar for their $7 billion investment.
OF course, Chryslers bondholders are balking at this, throwing the compnay into banklruptcy court. Not that that will save them. Why? TARP. As Thomas Cooley explains:
Chrysler’s dissident lenders have on their side the “absolute priority” bankruptcy rule, which holds that value must be distributed according to the legal priorities of the stakeholders.
Unfortunately, the bankruptcy code also holds that the absolute priority rule can be modified if a two-thirds majority can convince the court that it makes legal or business sense. Two-thirds of the lenders can force the holdouts to go along with them in a procedure called a cram-down.
That is exactly what is likely to happen. Citi, JP Morgan Chase, Goldman Sachs and Morgan Stanley, all major recipients of TARP Funds, all deep in the pocket of the Treasury, agreed to the administration’s plan.
So, the government, holding TARP over the heads of the banks, can now abrogate the generally used bankruptcy rules, and force through a sweetheart deal for a favored political client, the UAW. But, in so doing, they enlarge the damage to the country’s economy by sounding a warning that government funds are dangerous because the government’s first priority is to re-write the rules to reward their special friends. The uncertaintly that creates keeps investors on the sidelines.
Many investors are sitting on the sidelines, as is much money. Why? Because it is impossible to know what the rules of the game are. And that’s because the administration and the Congress keep changing the rules in capricious ways in pursuit of larger political objectives.
Megan McArdle make some of the same points, highlighting the danger inherent in such an approach by the government.
Countries that use their banking systems this way don’t get good results. If you’re a fairly uncorrupt developed country, you get slower growth and bloated “critical” sectors that are usually more critical in providing campaign support, lavishly remunerated make-work jobs, and photo ops, than any products the public actually wants. Then, if something like Japan happens, you have a twenty-year “lost decade” while everyone pretends as hard as hard can be that everything is all right, in the sincere but misguided believe [sic] that wishing hard enough will make it so.
One wonders if Ms. McArdle now thinks back on her support of Mr. Obama during the last election as “sincere but misguided”. But I digress.
IN any event, the government has moved full steam ahead with the approach Ms. McArdle decries. And it will continue to do so. How do we know this? because of the way the Chrysler bankruptcy is being handled.
I heard repeatedly from progressives, in the run-up to the bankruptcy case, that the holdouts were unreasonably holding out for a trivial improvement–about 500 million dollars. But if it was so trivial, why didn’t the government just put the extra money in, rather than jeopardizing confidence in the bankruptcy system–and the creditworthiness of a large swathe of unionized firms? $500 million is about the price of one cup of coffee per American, a trivial sum relative to the overall budget. This move has shown potential partners that government funds are dangerous, and potential lenders that union firms are risky bets; both have probably cost American citizens more than they saved. So why did the government risk so much for so little gain?
You know the answer, don’t you? Because they’re planning to do it again.
And to the extent they keep doing so, and keeping the financial sector in line via the TARP funds, investors will increasingly keep their money out of the game. Why should they do otherwise? Any investment in any entity with any relationship to TARP, either directly, or via creditors, is a target for the government to re-write the rules of investment and bondh0lding to ensure their special friends get a nice cut of the action.
True, it’s hard to have much sympathy for either GM or Chrysler. But the issue now goes far beyond them. Cooley, again:
There is at least some poetic justice in this outcome. The unions, whose years of work rules, and pension and health care deals helped sink the company, will have to eat their own cooking from now on. But their future success needs not only labor but capital.
Why would private capital get involved when the rules of the game are so capricious? No one would take that gamble when it is clear that, in dealing with the government, private capital will always take a back seat to politically powerful entities.
And that is the larger worry that current policy has neglected. Firms and markets can function quite well within a framework of rules. Indeed, rules are good for the orderly conduct of business. But when rules get imposed or dispensed with willy-nilly in the interests of politics, it is very dangerous. We have should have learned this lesson long ago.
But, apparently, we didn’t. Don’t worry, though. I’m fairly certain we’ll re-learn it in due course.
What really offends me the most in all this is not that the government is acting in the interest of favored clients, although that’s extraordinarily offensive. That’s what governments do.
I think the thing that offends me the most is the sheer stupidity of the thing.
Down economy? Tax revenues in the toilet? Don’t worry Bunky, government will always find a way to keep it’s revenue stream full:
The days of buying online to avoid paying sales taxes may soon be over.
A bill is expected to be introduced to Congress this week that would force retailers like eBay and Amazon.com to start collecting sales taxes on behalf of states from people who shop online or through mail order.
Of course if you know anything about government you also know this was inevitable. However, it is lines like the following which make my blood boil:
“This would be fiscal relief for the states that wouldn’t require any money from the federal government,” said Neal Osten, a senior policy analyst with the National Conference of State Legislatures, which is drafting the bill.
Osten pointed to a recent study that said state sales tax collections fell to their lowest levels in 50 years at the end of 2008.
My earnings are not there to be “fiscal relief” for profligate states who find themselves with budget shortfalls due to poor budgetary practices. Osten seems to think this is some sort of money tree he’s discovered. More importantly, he seems to view the money as rightfully the government’s, not that of the wage earner. And notice, it is a lobbying group with a vested interest in the outcome writing the legislation. What happened to that promise about “no lobbyists” the new administration made? Special interest democracy is alive and well.
Of course a recession is a great time to pass tax legislation like this – why not cool another segment of the economy by giving priority to government tax collections over spurring economic growth?
The more I observe these lunatics and consider their blinkered and ignorant view of the economic world, the less confidence I have that they’ll figure out that the way out of a recession is to cut taxes, not pass new ones.
Very interesting opinion survey from the Center For Consumer Freedom. Essentially it’s about price control. Check out the first three questions and the responses:
B1 Do you think Congress should cap the interest and fees charged on short-term loans at 75 cents a week for a $100 loan?
* YES 56%
* NO 36%
* DON’T KNOW 8%
B2 Cell phones and other mobile devices can be expensive. Would you support a bill in Congress to cap the costs of cell phone service so that lower income families are able to afford these products?
* YES 57%
* NO 41%
* DON’T KNOW 2%
B3 AUTOMOBILES have risen in price dramatically over the PAST TEN YEARS. Inexpensive, high-quality vehicles are harder to find.
Would you support a bill in Congress to cap the costs of certain kinds of cars so that more families can purchase a safe, reliable vehicle?
* YES 55%
* NO 42%
* DON’T KNOW 2%
So, when it comes to items which are expensive and (and I’m guessing here) the public identifies as an industry which makes too much profit (or has been vilified as such), they’re all for capping the price on them (apparently never watching TV and seeing the competing commercials for all of this, indicating market competition has most likely pared those profits down considerably).
Speaking of TVs, and coffee as well, suddenly the public isn’t so hot on capping prices:
B4 COFFEE prices have risen dramatically over the PAST DECADE, with many locations charging more than $3.00 for a basic cup of coffee.
Would you support a bill in Congress to cap the costs of coffee and other hot beverages to a more reasonable level?
* YES 39%
* NO 59%
B5 The price of televisions has risen in the past few years. The government should cap the price that electronics companies can charge for new televisions, since many new technology changes require a new television. Would you say you strongly agree, somewhat agree, somewhat disagree or strongly disagree with this statement?
[RECORD ONE ANSWER]
1. STRONGLY AGREE 18%
2. SOMEWHAT AGREE 21%
3. SOMEWHAT DISAGREE 24%
4. STRONGLY DISAGREE 32%
56% disagree that TVs should have prices capped. And 59% say “no” to capping the cost on a cup of coffee.
I would love to see the reasoning behind the answers given on this survey, because it would appear that if you believe that government should be controlling prices, you wouldn’t differentiate between cell phones and coffee, and certainly not between TVs and cars.
I have to go with my first inclination here – the public is more likely to call for price controls on the products of industries which have been vilified by the press and government. Banks (loans), auto makers and telecommunications have all suffered from various levels of vilification rencently and in the recent past.
Coffee, however, is still “Juan Valdez”.
Unfortunately, even if true, it means that a majority of Americans have no problem with government price controls – it just means they require the industry to be out of favor before they do. And industry “vilification”, as we’ve witnessed lately, that’s certainly something this administration is more than willing to do. Above are your results.
In addition to Bruce’s post below, chartng the rise in debt since Pres. Obama took office, I think it’s important to look at whether we can find historical parallels, and try to identify how closely such parallels may apply to the current economic situation in the US. Fortunately, a historic parallel–and a very close on at that–comes easily to hand.
The chart on the right is a comparison of how Japan’s increase in debt since 1989 compares with the performance of the Nikkei stock index.
As the authors of the chart point out:
[I]f large increases in government debt were the key to economic prosperity, Japan would be in the greatest boom of all time. Instead, their economy is in shambles. After two decades of repeated disappointments, Japan is in the midst of its worst recession since the end of World War II. In the fourth quarter, their GDP declined almost twice as fast as that of the U.S. or the EU. The huge increase in Japanese government debt was created when it provided funds to salvage failing banks, insurance and other companies, plus transitory tax relief and make-work projects.
In 2008, after two decades of massive debt increases, the Nikkei 225 average was 77% lower than in 1989, and the yield on long Japanese Government Bonds was less than 1.5% (Chart 6). As the Government Debt to GDP ratio surged, interest rates and stock prices fell, reflecting the negative consequences of the transfer of financial resources from the private to the public sector (Chart 7). Thus, the fiscal largesse did not restore Japan to prosperity. The deprivation of private sector funds suggested that these policy actions served to impede, rather than facilitate, economic activity.
They say that insanity can be defined of repeating past actions with the expectation of a different outcome. If so, how do we characterize the current government activity in response to the economic situation?
Happily–if that is the appropriate word–we may be able to put to rest fears of hyperinflation.
The bottom line, however, is that it is totally incorrect to assume that the massive expansion in reserves created by the Fed is inflationary. Economic activity cannot move forward unless credit expansion follows reserves expansion. That is not happening. Too much and poorly financed debt has rendered monetary policy ineffective.
So, we’ve got that going for us.
I put economics is [“”] for a reason. And that has to do with the fact that there was little about the first 100 days which had much to do with economics and certainly wasn’t economical. Feast your eyes on this. Yes, it’s from the GOP, but “numbers is numbers”, folks, and check out the quote attached to the chart:
Heritage also weighs in with a few trenchant observations:
In his first 100 days, President Obama will have quadrupled the budget deficit he inherited while pledging to cut it in half, which would still leave a deficit double the size it was in January 2009.
Make sure you get that – quadrupled the budget deficit within 100 days. Promised to cut budget deficit in half. Even if he does that, it will still be twice the size of the budget deficit in Jan 2009 when he made the promise. Yup, smoke and mirrors.
The President came into office promising a “net spending cut” then signed the stimulus bill, which will dump $9,400 in new debt on the average American household. Under CBO’s estimate, if some programs become permanent, this would skyrocket to $26,600 per American household.
And we are reminded that there is nothing more permanent than a temporary government program (REA anyone?).
Just to give this all a little more perspective:
In his first 100 days, President Obama proposed a budget that would dump a staggering $9.3 trillion in new debt—$68,000 per household—into the laps of American children. This is more debt than has been accumulated by all previous Presidents in American history combined.
And yeah, for the lefties that includes the “selected but not elected” George W. Bush among all the president’s combined. Or said another way, 44 is spending more than the previous 42 combined (and no I didn’t screw up, Grover Cleveland was president twice at two different times).
So while you see the informationally deprived “celebrating” the “accomplishments” of his first 100 days, don’t forget that those yet to be born aren’t going to be quite as enamored with Obama as the present spendthrifts who think he’s doing such a great job economically.
Sometimes math is actually pretty easy. For example, when someone, say some MIT professors, writes a report claiming that a tax on certain businesses will raise a specific amount of revenue for the government ($366 Billion to be exact), and that revenue is divided by an estimated number of American households (117 Million), there isn’t any doubt about how much money per household that tax represents ($366 b./117 m. = $3,128.21). Unless, that is, there are politics involved. Then the math becomes Bistromathic, which allows one of the progenitors of the original numbers to declare “you’re doing it wrong!” and almost everyone will believe him. Unfortunately for them, real math operates on real facts, and thus reality is destined to intrude upon their fantasy.
That, in a nutshell, is basically how the argument over costs of the Obama Administration’s cap and trade policy has unfolded. MIT’s John Reilly co-authored the original study, Republicans used the numbers to derive a cost per taxpayer, Reilly balked, and the media/leftosphere went into paroxysms of outrage about how the GOP were all a bunch of liars. But that was just the main course. For dessert, there will be crow (my emphasis):
During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade’s cost was inaccurate. The annual cost would be “$800 per household”, he wrote. “I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others).”
While $800 is significantly more than Reilly’s original estimate of $215 (not to mention more than Obama’s middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.
The $800 paid annually per household is merely the “cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases],” Reilly wrote. “So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy.”
In other words, Reilly estimates that “the amount of tax collected” through companies would equal $3,128 per household–and “Those costs do get passed to consumers and income earners in one way or another”–but those costs have “nothing to do with the real cost” to the economy. Reilly assumes that the $3,128 will be “returned” to each household. Without that assumption, Reilly wrote, “the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800].”
In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.
In short, Reilly’s claim of “you’re doing it wrong!” amounts to parsing of direct vs. indirect costs. Yes, the cap and trade taxes will be passed onto the consumers in some way, but those aren’t the “real costs” to the economy. Only those direct expenditures made necessary by the policy (the “but for” costs) are “real costs.” As long as the federal government provides a benefit to the taxpayers with the cap and trade taxes, then those higher utility bills are a wash:
In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.
He wrote in an email:
It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says “your share of GHG auction revenue”, used to cut someone’s taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the “average” household. Each of those ways of using the revenue has different implications for specific households but the “average” affect is still the same. […] The only way that money does not get recycled to the “average” household is if it is spent on something that provides no useful service for anyone–that it is true government waste.
He added later: “I am simply saying that once [the tax funds are] collected they are not worthless, they have value.”
Essentially, Reilly is making the pernicious claim that a dollar in the taxpayer’s hand is the same as one in the government treasury. But we all know that’s not true, including (I’ll bet) Mr. Reilly.
No matter how efficient the government is, it will never be able to take $X from me and return exactly $X of benefit. Indeed, at least some portion of that $X will be needed just to support the system of taking the money and providing the benefit. Already the taxpayer is at a loss.
Moreover, there is an implicit assumption in Reilly’s explanation that, in exchange for this de facto tax, the government benefits provided would be returned in proportion to their costs. But that would defy all historical precedence when it comes to the federal government which, once the money is received, tends to dole it back out to suit its own purposes. As Merv aptly states:
I really doubt the government will return any cost of cap and trade dollar for dollar. If they did it would be just an expensive money swap. To the extent the government does return any money you can bet that it will be based on conduct they want from people and not unconditionally. They will be imposing their choices on American families and their lifestyles.
To be fair, Reilly tacitly acknowledges this fact when he explains what use of his numbers would be acceptable to him:
“If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number.”
The fact is, cap and trade is going to cost taxpayers significantly more than the measly $13/week tax cut that the Democrats and the left are so excited about. While the $3,900 cost cited by John McCormack above is an accurate accounting of what Reilly’s study portends, even that is probably an unrealistically low estimate. Consider how the same policy has affected Europe:
Europe’s experiment with cap and trade has turned into a bureaucratic mess that has failed to live up to its initial expectations. A report by the GAO reveals that the supply of carbon permits has exceeded the demand causing allowance prices to fall substantially. This policy failure has caused the European economy to suffer and expectations to reduce CO2 emissions have been lowered.
Additionally, Europe’s cap and trade experiment has led to decreased employment opportunities and higher energy prices across the continent. In France manufacturers have packed up and left for Morocco. In the Netherlands factories are forced to close early to meet emissions standards. In Germany energy prices have risen 5% each year sparking widespread outrage. All across Europe evidence shows that cap and trade has hurt the economy. If the United States implements a European style cap and trade system, estimates show that it could wipe out between 1.2-1.8 million American jobs by 2020.
So the 95% of you who received a “tax cut” from Obama had better start saving that extra money up. You’re going to need every penny to service the debt required to pay for your costs of cap and trade.
Will someone please buy these people a subscription to Google or something? In trying to compare TANF and TARP spending, Nancy Folbre makes a rather glaringly error:
Robert Rector and Katharine Bradley of the Heritage Foundation, a conservative research organization, estimate that federal welfare spending amounted to $491 billion in fiscal 2008. (They don’t explain what specific programs they included in this estimate, and I’ll try to unpack it in a future post.) Even their extremely high estimate remains far below estimates of the total of $2.5 trillion spent on financial bailouts this year. The libertarian Cato Institute often emphasizes the issue of corporate welfare, but it’s remained remarkably quiet so far on the topic of bailouts.
David Boaz begs to differ:
Since she linked to one of our papers on corporate welfare, we assume she’s visited our site. How, then, could she get such an impression? Cato scholars have been deploring bailouts since last September. (Actually, since the Chrysler bailout of 1979, but we’ll skip forward to the recent avalanche of Bush-Obama bailouts.) Just recently, for instance, in — ahem — the New York Times, senior fellow William Poole implored, “Stop the Bailouts.” I wonder if our commentaries started with my blog post “Bailout Nation?” last September 8? Or maybe with Thomas Humphrey and Richard Timberlake’s “The Imperial Fed,” deploring the Federal Reserve’s help for Bear Stearns, on April 14 of last year?
Boaz goes onto reproduce a video compilation of Cato scholars denouncing bailouts on “more than 90 radio and television programs.” He also produces an impressive list of papers, articles and media appearances which seriously challenge Folbre’s notion of “remarkably quiet.”
Folbre doubles down here:
You’re right. The Cato Institute website has not been silent. It just didn’t meet my expectations of adequate noise.
Yeah. Too bad her post didn’t meet reality’s expectations for factual.
A level of economic government intrusion is now being contemplated like none we’ve ever seen before. If you didn’t understand the one of the main purposes of the tea parties, perhaps this will help.
But what Obama rarely says about ending the “cycle of bubble and bust” is this: he’s prepared to intervene to make sure that kind of red-hot growth doesn’t occur.
And he’s willing to do it with added government regulation if needed to prevent any one sector of the economy from getting out of balance – the way the dot-com boom did in the 1990s and the real-estate market did earlier this decade.
According to Austan Goolsbee, a key Obama economic adviser, the president plans to focus on stopping bubbles along with preventing busts. And in an interview with POLITICO, Goolsbee said the administration will be on the lookout for new bubbles, like the tech stocks or housing prices.
If new threats are spotted, he said Obama would use “regulatory oversight to prevent guys who want to make a quick buck from doing real harm to the economy. . .That is what it means to get out of the bubble and bust cycle.”
In other words, government would decide what is or isn’t a “bubble” and move to stop what it determines is a bubble. As CATO points out, one man’s expansion might be another’s “bubble”. Are you comfortable with government calling that shot?
And government would also arbitrarily decide who was or wasn’t entitled to profit from that market – it would be the final determiner of who was or wasn’t making a “quick buck” from the growth.
Any idea what that would do to any market in which the government stepped in to slow down?
Yeah, nothing could go wrong that that idea, could it?
Bottom line: you have a governing elite picking winners and losers.
Thankfully, it isn’t quite as easy as you might imagine to do what Goolsbee and Obama would like to do.
…[T]here’s not much an administration can do in practical terms to burst a developing bubble. The best way to cool things down is raising interest rates, which is the purview of the Federal Reserve. Another option would be for regulators to order banks to curtail lending to buyers of certain kinds of assets.
The lesson here, of course isn’t necessary the plan itself, but the fact that those in a position of power are contemplating this seriously. Those aren’t the plans of a moderate, and certainly not those of a capitalist. They’re the plans of a group who apparently believes that complex economies can indeed be controlled and manipulated successfully from above.
Amazing hubris. Even more amazing arrogance. Most importantly, incredibly dangerous economic thinking.
Well here we go – the government apparently plans on getting further into a business in which it has no track record of success. Yes friends, if “Amtrak” doesn’t remind you of why this isn’t a good idea, how about doubling down on it?
You remember Amtrak:
In FY 2007, Amtrak earned approximately $2.15 billion in total revenue and incurred about $3.18 billion in expenses. Amtrak relies on an annual federal appropriation, which in FY 2007 totaled $1.294 billion, including $521 million in operating funds, $495 million in capital and $277 million for debt service. While Amtrak relies on federal appropriations to support its operating and capital needs, the federal government’s investment in Amtrak was less than 2 percent of the entire federal transportation budget for FY 2007.
Only 2%? Well, we’ll take care of that:
The president’s plan identifies 10 potential high-speed intercity corridors for federal funding, including California, the Pacific Northwest, the Midwest, the Southeast, the Gulf Coast, Pennsylvania, Florida, New York and New England.
It also highlights potential improvements in the heavily traveled Northeast Corridor running from Washington to Boston, Massachusetts.
Of course Amtrak runs service in all of those places.
The president cited the success of high-speed rail in European countries such as France and Spain as a positive example for the United States.
And, of course, Spain and France are physically so much like the US it is frighting:
US – 9,161,923 sq km
Spain – 499,542 sq km
France – 545,630 sq km
Texas – 691,030 sq km
Travel by train has been a part of the culture of both France and Spain for literally centuries. Not so in the US. This is not an “if you build it they will come” moment.
“My high-speed rail proposal will lead to innovations that change the way we travel in America. We must start developing clean, energy-efficient transportation that will define our regions for centuries to come,” Obama said at an event near the White House.
You can read the plan here. It can pretty much can be summed up by Obama’s statement. Not a single bit of analysis about whether there is a demand, whether or not it will be profitable, and, frankly whether it’s economically viable at all. It’s all about social concerns, not how much it costs.
This is government betting your money that it can change your habits. It isn’t a business plan that’s been produced, it’s a social engineering plan.
Is this the role you’ve imagined for government? As most who understand economics would tell you, if there is a market and it is a profitable market, some entrepreneur or entrepreneurs will enter that market. But you can be assured that won’t enter a market unless there is a profit to be made – which should tell you all you need to know about this boondoggle.
And whether or not you ever board a single one of these trains in your lifetime, you will pay for it.
For those of you who believe that you can spend yourself out of debt and enjoy the same level of taxation, a little dose of economic cold water is in order, appropriately on the day after tax day.
Many economists, including some who voted for Obama, do not believe that he can indefinitely avoid imposing tax increases much further down the income scale — on the middle class.
“You just simply can’t tax the rich enough to make this all up,” said Martin A. Sullivan, a former economic aide in the Reagan administration who said he backed Obama last fall.
“Especially just for getting the budget to a sustainable level, there needs to be a broad-based tax increase,” said Sullivan, now a contributing editor at Tax Analysts publications. “If you want to do healthcare on top of that, almost certainly, it just makes [a middle-class tax increase] all the more certain.”
And toss a little “cap-and-trade” on top of that, and whoa Nellie, the sky is the limit when it comes to the taxation necessary to support all of that.
How about those that believe that taxes should be used for “income equality” (also known as “tax the rich”)?
But even economists sympathetic to tackling income inequality say it will be difficult to avoid other tax hikes.
“There’s no way we’re going to be able to pay for government 10, 20 years from now without coming up with a new revenue source,” said Leonard Burman, director of the Tax Policy Center, during a forum on Obama’s tax proposals earlier this month.
Burman said a value-added tax is “inevitable.” Burman, deputy assistant Treasury secretary during the Clinton administration, said Obama should consider using revenue from the broad-based VAT to fund his healthcare plan. That would give middle-class and lower-income people incentive to keep taxes and health costs low, he said.
Translation for those who didn’t pick up on Burman’s last point – the “incentive” provided by the VAT (or Value Added Tax) is it will discourage “middle and lower income people” from using the medical system thereby keeping “health costs low”. If you want the real short version – rationing by price, the price being the cost of a visit plus the tax. Naturally, as a percentage of income, that would hit the middle and lower income levels much harder than the higher income levels.
And that 95% tax cut for Americans?
The president’s overall tax proposals, including perpetuating most of Bush’s tax cuts rather than allowing them to expire, will lead to $3 trillion in lost tax revenue over the next decade, according to an estimate by the Joint Committee on Taxes, which provides independent projections to congressional tax writers.
So $3 trillion in lost tax revenue, but an increase in the debt and debt service requirements:
More revenue will be needed to service the growing national debt. Because annual deficits are expected to remain above $500 billion for the next decade, Sullivan expects debt payments to more than double, from about 1.2 percent of GDP to more than 3 percent.
What does that mean for that “permanent” tax cut for the 95%?
Obama’s budget proposed that his signature Making Work Pay tax credit be made permanent, but it was not included in either the House or Senate budget blueprints, partly because doing so would have increased the size of the deficit on paper.
Lies, damn lies and “permanent” tax cuts.
All the promises are BS, folks – and that’s not because I want them to be, its simply how the law of economics works. We will end up paying for all of this fiscal profligacy somewhere in the very near future. And anyone that says differently or promises otherwise is blowing smoke up your skirt.