Two major points about the budget plan the Obama administration has out there (from the Heritage Foundation):
Spending: Obama’s budget proposes $1.13 trillion in regular discretionary spending for 2010. This is a full 12% increase over the 2009 spending baseline. On top of this the Obama budget increases entitlement spending by another $700 billion. The proposed post-recession spending level of 22% of GDP has been exceeded only 8 times in the post-war era. And these numbers do not include the spending priorities of the unchecked far left in Congress.
The Chicago Tribune reports today “President Barack Obama will break a campaign pledge against congressional earmarks and sign a budget bill laden with millions in lawmakers’ pet projects … Taxpayers for Common Sense, a watchdog group, identified almost 8,600 earmarks totaling $7.7 billion.”
Deficits: The Obama budget claims to cut the deficit in half by 2012, but relies on audaciously optimistic economic forecasts that no one believes in. Adding the “stimulus” bill to a realistic budget baseline yields a projected 2010-2017 cumulative budget deficit of $8.4 trillion – 2.5 times the size of President Bush’s deficits over the same 8-year time period. Before the recession, revenues were 18 percent of GDP and spending was 20 percent. After the recession, President Obama would maintain revenues at 19 percent of GDP, and spending at 22 percent. In other words, all new tax revenues would finance new spending, rather than deficit reduction. President Obama’s structural budget deficit would exceed President Bush’s.
So you have, in the time of economic contraction and massive deficit, a 12% increase over the 2009 spending baseline in discretionary spending. 12%. And entitlement increase of $700 billion. In an 8 year time period (should he be re-elected in 2012) Obama plans to add 8.4 trillion to the debt – a full 2.5 times larger than the huge debt George Bush added. This is a phenomenal and eventually crippling level of borrowing and spending. There is no end in sight. Where the Bush administration spent 2% above the revenue, even with an increase in revenue from increased taxation, the Obama administration plans on maintaining a 3% spending gap of revenue/spending.
Untenable, unsustainable and ultimately, utterly destructive to a market economy.
A lot of high-fives on the left concerning a portion of the budget dealing with energy. The Center For American Progress, in a post entitled “Energy Budget Is Sunlight After Eight Years of Darkness” says:
The most significant energy proposal in this budget is the inclusion of revenue in 2012 from the auction of all greenhouse gas emission allowances to major polluters under a cap-and-trade system. The budget assumes that this program will raise $646 billion between 2012 and 2019. Some of these funds would create jobs via a $120 billion investment in clean energy technologies over the same period. The auction revenue would pay for a “global warming tax cut” for working families with $526 billion. It would fund Making Work Pay, which provides a refundable income-tax credit for low-income working families. Any remaining funds would go to other families and businesses to offset higher energy prices.
In other words, CAP believes that adding huge additional costs onto the already high cost of producing goods, services and energy will “create jobs” to offset those lost apparently. And the money collected will be redistributed to make things fair.
As so-called members of the “reality based community”, you have to wonder if they’ve ever bothered taking off the rose colored glasses and glanced around the real world.
Alan Wood in Australia asks:
CAN the Senate save Kevin Rudd and Penny Wong from their global warming folly? It can, and it might, if it rejects the Government’s attempts to prematurely lock Australia into a flawed carbon trading scheme. Ask yourself, do you believe that the worst global recession since the Depression, with job losses accelerating, is the time for Australia to introduce a carbon trading scheme that will squeeze growth, jobs and investment? Business certainly doesn’t.
Is there anyone in the Congress who can do the same for Barack Obama? Probably not. Do they understand that the carbon trading schemes in place around the world are literally melting down? Again, probably not.
And jobs? Well right here at home we can learn from the impact of the draconian regulations and resultant costs imposed on industry by such schemes and what that means. California, as usual, provides the case study:
California regulators Thursday adopted the world’s first mandatory measures to control highly potent greenhouse gases emitted by the computer manufacturing industry. “The financial impact is going to be severe,” Gus Ballis, a spokesman for chip maker NEC Electronics America Inc., a subsidiary of NEC Electronics Corp. in Japan, told the board. Ballis warned, “We’re potentially on the chopping block — whether they are going to keep us or pull our production back to Japan.”
The painful loss of 1850 jobs at Pacific Brands in NSW, Victoria and Queensland is more than a byproduct of the global recession. The main reason for shifting to China, chief executive Sue Morphet said on Wednesday, is that manufacturing in Australia “is no longer a competitive advantage” to the company. The Prime Minister owes it to businesses large and small, as well as to Labor’s core constituency, workers, to re-evaluate the impact on employment of his emissions trading scheme, especially in mining, where Australia has such a strong comparative advantage.
The German biofuels industry is facing bankruptcy according to their industry association, despite millions of state-sponsored subsidies in recent years. “It is five to twelve, but few politicians understand,” said the chairman of the Association of German Biofuel Industry (VDB), Kurt Stoffel. “The biodiesel market for trucks has come to a complete halt,” said Stoffel.
Britain said on Thursday it backed the building of new coal plants and would make a decision soon on whether these must have expensive, climate-friendly technologies fitted called carbon capture and storage (CCS). “We will need new fossil fuel plants including coal if we are going to maintain diversity in energy mix and energy security….”,
Yet here we are getting ready to implement a scheme that is already seen to be worsening the economic conditions around the world (and being abandoned by those realing the losses). Unsurprisingly our implementation would most likely occur just as we are beginning to see an end to the recession.
The administration certainly seems to be aware of the cost of such legislation but still plans on pursuing it:
Steven Chu, President Barack Obama’s new Secretary of Energy, told The New York Times earlier this month that reaching agreement on emissions trading legislation would be difficult in the present recession because any scheme to regulate greenhouse gas emissions would probably cause energy prices to rise and drive manufacturing jobs to countries where energy was cheaper.
Yet, with blinders fully in place, and giddy at the prospect of sticking it to evil corporations while redistributing their ill-gotten gains, the left applauds a plan which will cripple our economy for decades to come.
If ever there were budget proposals poised to send us into darkness, it is this plan put forward by the Obama administration.
Barack Obama is about to submit his first budget to Congress.
Finally, because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget. – President Barack Obama to a joint session of Congress, Feb 24, 2009
That’s the promise. The reality, as the Washington Post observes, isn’t quite in keeping with the promise:
President Obama’s spending plan is built on the assumption that lawmakers can resolve some hugely contentious issues — and it relies on a few well-worn budget tricks.
The tricks? The usual stuff – calling something what it isn’t and inflating future spending numbers to make the future real numbers appear to be “savings”. For instance:
And though Obama told Congress on Tuesday that his budget team has “already identified $2 trillion in savings” to help tame record budget deficits, about half of those “savings” are actually tax increases, administration officials said. A big chunk of the rest of the savings comes from measuring Obama’s plans against an unrealistic scenario in which the Iraq war continues to suck up $170 billion a year forever.
The tax increases, of course, include an increase in taxes on the top 2%. And further savings are based on pretending that the Bush administration planned on spending $170 billion (seems like a small number when compared to the numbers being thrown around these days, doesn’t it?) beyond 2011 when it planned on pulling the bulk of the troops out of the country.
“It’s a hollow number,” said Sen. Judd Gregg (R-N.H.), the senior Republican on the Senate Budget Committee, who recently withdrew as Obama’s nominee to head the Commerce Department. “You’re not getting savings if you’re assuming spending that isn’t actually going to occur.”
What accounts for the other major source of income?
But to pay for it, the president counts on a big infusion of cash from a politically controversial cap-and-trade system, which would force companies to buy allowances to exceed pollution limits.
The promise that energy costs are going to skyrocket seems one promise he’s bent on keeping. That of course will require more spending to offset the consequences (but don’t figure on being in on the subsidy, you probably won’t qualify). And then there’s the redistributionist “spread the wealth” bonus to be realized from cap-and-trade:
Obama also wants to use the money to cover the cost of extending his signature Making Work Pay tax credit, worth up to $800 a year for working families. That credit, which will cost $66 billion next year, was enacted in the stimulus package, but is set to expire at the end of 2010.
Cover the cost is a way of saying, making the program permanent.
Then there’s the deficit promise. Obama has set a goal of cutting the deficit in half by the end of his first term. As observers say, there’s absolutely nothing difficult about reaching that goal:
This year’s budget deficit is bloated by spending on the stimulus package and various financial-sector bailouts, expenses unlikely to be repeated in future years. The nonpartisan Congressional Budget Office recently predicted that the deficit could be halved by 2013 merely by winding down the war in Iraq and allowing some of the tax cuts enacted during the Bush administration to expire in 2011, as Obama has proposed. That alone would cut the deficit to $715 billion, according to the CBO.
Notice that final number, folks. That’s “half” of the deficit. In other words he’s going to be running a deficit north of $700 billion dollars and trying to convince you how well he’s done. In fact, all he’ll have done is add several trillions to the debt with several trillions more to come if reelected.
The era of big deficit financed government isn’t just back, it’s back on steroids sitting in a rocket sled pointed at economic hell.
Perhaps you’ve heard about Joe Biden’s latest gaffe regarding his task of overseeing the Recovery Act:
How can the public know that the money is allocated correctly? That’s the question CBS’s Maggie Rodriguez asked.
“We’re going to put every bit of this transparently up on a website. You’re gonna know. You’ll be able to go on a website. Every single bit of this will be on a website,” he explained.
“You know, I’m embarrassed. Do you know the website number?” he asked looking offstage. “I should have it in front of me and I don’t. I’m actually embarrassed.”
He was able to get the website “number” from someone off camera.
“Recovery.gov. It’s Recovery.gov. It’s up and running,” he said with newfound confidence.
If that doesn’t inspire confidence, then maybe you should just go visit the “number” VP Joe suggested. Before you do, however, keep in mind that, from far to wide and low to high, the Obama administration has been touting not just the need for transparency,
Orzag said the two goals are to spend stimulus money “quickly” and “wisely,” adding, “We have to go beyond normal procedures to a higher level of transparency.”
But also on the determination and ability of the administration to deliver it:
“I [Pres. Obama] am also proud to announce the appointment of Earl Devaney as Chair of the Recovery Act Transparency and Accountability Board. For nearly a decade as Inspector General at the Interior Department, Earl has doggedly pursued waste, fraud and mismanagement, and Joe and I can’t think of a more tenacious and efficient guardian of the hard-earned tax dollars the American people have entrusted us to wisely invest.”
Apparently, the whole point of Recovery.gov is to show where your tax dollars are going, and what they are being spent on. So let’s have a gander.
On the front page, my eyes were immediately drawn to the large graph dominating the left side of the page:
Wow! According to that chart, the largest expenditure by far ($288 Billion) is going to tax relief. Heck it’s twice as much as the next category of State and Local Fiscal Relief which is only get a paltry $144 Billion. That’s fantastic news. I feel so bad now for thinking that the bill was nothing more than a huge wealth transfer and goodies giveaway. Tax relief is always a good idea when it comes to pulling ourselves out of a recession.
But wait? What’s that asterisk? I click on the chart and am taken to a lovely bubble graph that displays the same information. But with more bubbles, which are always nice. And bubble are transparent too, right?
Yep. There it is again, that $288 Billion in tax relief, dwarfing all the puny spending bubbles. Of course, being an intelligent person, I know that you have to add all of the spending bubbles together to see how they compare to the tax relief, but it’s strangely comforting to see that giant, transparent bubble named Tax Relief making all the other bubbles seem, somehow, insignificant.
Unfortunately, that asterisk is still there as well. I follow it down to the bottom of the page where, in tiny print, I see these words:
* Tax Relief – includes $15 B for Infrastructure and Science, $61 B for Protecting the Vulnerable, $25 B for Education and Training and $22 B for Energy, so total funds are $126 B for Infrastructure and Science, $142 B for Protecting the Vulnerable, $78 B for Education and Training, and $65 B for Energy.
I think my bubble has burst. But that’s how government works now I guess: making bubbles bigger than they ought to be.
First the Obama speech. My overall impression was that of a campaign speech. High flying rhetoric, intentions hidden in comfortable rhetoric that Americans find more acceptable than other and contradictions which were so evident that I’m surprised the media let them pass (ok, not really, but I thought I’d jab them a little). However, in reality, it was much more than that as I’ll cover a little further on. But, as usual, very well delivered.
The Jindal speech, on the other hand, suffered by comparison. And, in fact, it suffered badly. Whoever helped him put that together should have skipped the “folksy” stuff and gotten down to business. By the time he finally got to the point, I was slack jawed with stupification. Having just sat through a 45 minute Obama speech I wanted a quick “give it to me now” response. 5 minutes into the Jindal speech we still didn’t know where he was going with it. My guess is by that time, most people who had thought about watching him had thrown up their hands, hit the can and were raiding the liquor cabinet.
Back to the Obama speech. As I thought about it more I realized he’d very carefully hidden the intention of his administration and the Democrats to convert this country into a cradle to grave European-style socialist country. Seriously. It’s all in there, but you have to carefully pick it out. While he never came right out and said it, he sure hinted around the edges. Probably the closest he came to actually laying it out was this:
That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education –- from the day they are born to the day they begin a career.
The same basic message was given concerning health care. When speaking about the budget he made this statement:
It includes an historic commitment to comprehensive healthcare reform –- a down payment on the principle that we must have quality, affordable healthcare for every American.
Two things to note – he didn’t say “health insurance” for every American. He said “health care”. And he also seems to have backed off of not making this mandatory.
He hit it again when talking about the two largest entitlement programs we have:
To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive healthcare reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans. [So those “savings accounts” of old W’s weren’t so bad after all, huh? – ed.]
And here is where one of the glaring contradictions comes out. While claiming that the government’s version of health care will be much more efficient and less costly than the private version, he contradicts himself when he says we must get the spiraling Medicare and Medicaid costs under control. I’ll remind you of what we were promised Medicare would cost when it began, and I’ll further remind you that the real cost ended up at least 6 times that amount. I’ll also remind you that each year, that program has about 60 billion in waste, fraud and abuse. One of the efficiencies Obama claims will bring cost down is the elimination of that waste, fraud and abuse. That promise is as old as politics and still unfulfilled.
Last night, during the liveblogging, when Obama got to the auto industry, and started throwing “we” around, I asked “who is the ‘we’ he keeps talking about? Of course when you read the passage, I’m sure you will be able to figure it out:
As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices. But we are committed to the goal of a retooled, reimagined auto industry that can compete and win.
I bet “we” are. The question is, will the “we” who are known as the public be willing to buy these autos designed and “reimagined” by government?
And, of course, the populist Obama was present as well . That’s a very old and tired political trick which still manages to work unfortunately. A method of creating an emotional distraction while you propose things which are much worse:
This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.
Just hearing a President of the United States say such a thing should send shivers up your spine. Instead it was one of the major applause lines of the night.
And this too should have caused those who love freedom to pause and understand the underlying promise of the words spoken:
A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market.
Transfer wealth to the wealthy? How by letting them keep more of their money? How is that a “transfer”? Well, it becomes a transfer if you believe it really isn’t theirs at all. And the spending spree the Democratic Congress and the Obama administration are embarking upon certainly makes that case. With the lie about “no earmarks” in the “stimulus” bill again given voice, and with a 410 billion omnibus spending bill with 9,000 earmarks and another trillion being thrown into the financial sector, not to mention the cost of health care “reform”, S-CHIP and the coming cap-and-trade system, there’s no question where the “transfer of wealth” will be going during the next 4 years is there?
Taxes, as the saying goes, in that both are certain to come to us all. The corollary is that once government spending outpaces tax receipts by a significant enough amount, then taxes will inevitably rise. Or, at least, that should be the corollary.
The first of several stimulus packages has just passed but it is just the beginning of our efforts to address our immediate and long-term economic problems.
After 2010, the federal operating budget will face trillion-dollar deficits as far as the eye can see. They have to be addressed for the long-term prosperity of our country and our future credit-worthiness in the world.
Eventually every American has to dig in and pay more taxes to help our country and our fellow citizens. We must put in place the laws and mechanisms to steadily increase taxes after 2010. We have to owe up to our massive public and private financial messes. Cutting federal earmarks and waste will not eliminate even half the annual deficits. The federal budget gap will require increasing taxes by over $500 billion by 2011. Fiscally irresponsible and spoiled children hate to hear this news but it’s our only choice for our collective long-term prosperity.
It is true that people don’t want to hear this, and I don’t think that is limited to “fiscally irresponsible and spoiled children.” Indeed, the inevitable raising of taxes was one of the arguments against the stimulus package, so I’m not sure to whom Pascal is referring.
A number of prominent publicly-minded millionaires and billionaires including Warren Buffet have recommended higher income taxes on themselves and their friends for several years. Certainly Mr. Buffet has been right more than most politicians and it’s time to effectuate his recommendations. Their altruistic economic view may simply be a rational response for their long-term preservation and that of the nation as a whole.
Actually, their view is not altruistic at all. The very rich, with the financial means to hire the very best in tax advice, are quite skilled at arranging their affairs so as to minimize their tax burden. When Warren Buffet clamors for raising taxes on the rich, you can be sure that he does not intend to pay as much as he possibly can to the federal government. However, those in the middle income brackets surely will. Buffet and brethren simply hope that those taxpayers will somehow be mollified by the fantasy that “the rich are paying their share too.”
On to the plan:
The Bush tax cuts should expire by their own terms by 2010 and marginal income taxes will return to the rate of 39% for incomes over $250,000. Additionally, and instead of capping executive pay, we should create a new marginal tax rate of 49% for earning over $1 million.
That is actually a somewhat more reasonable plan than some that have be floated, but still a pipe dream in terms of raising tax revenues to cover the trillions in spending contemplated (and as yet revealed) over the next four years. Even if the rich were to pay every possible penny of their income above $1 Million in taxes at that rate, how long to do you suppose they would do it for? If you had a choice of living quite comfortably and making around a million dollars, knowing that you’d keep something close to 70% – 75% of the money, would you really continue working hard enough to earn more than that if you knew you would only receive 50 cents on the dollar?
If there are any short-term tax cuts, they should be combined with long-term tax increases. The 2009 FICA payroll tax for social security is a 6.2% tax rate on every dollar earned up to a gross annual income of $106,800. For more than a decade, everyone has agreed that to save social security (without increasing the retirement age, the tax rate, or lowering the average monthly benefits of just under $1,000 per person) the best solution is to raise the taxable income limit so the wealthy contribute more to the entire system. We could provide both a short-term economic stimulus to the majority of Americans and save social security for the long term.
Let’s lower the FICA social security tax rate for rest of 2009 and all of 2010 to 5.5% but raise the income limit to $250,000. In 2011, let’s raise it to 5.75% and set the income limit to $500,000. By 2012, the rate would be 6% and the taxable income unlimited. This would simply parallel the 1.45% FICA tax for Medicare and Medicaid imposed on all earned income. Its rate will probably have to be raised to 2% after 2010 to pay for existing programs and any expansions of benefits.
Again, not an entirely unreasonable plan considering the alternatives. But what’s never mentioned when someone suggests raising the income level for FICA is that, while more tax revenue would be raised, federal liabilities would also be increased. That’s because the government is simply taking more money now and promising to pay more benefits upon retirement. That does nothing to reduce the burden of current spending, which was supposed to be the point of the tax increases.
As near as I can tell, this part of the plan would have the effect of hastening the looming entitlements crisis in exchange for perhaps pushing the current one off down the road a bit. The end result looks more like a perfect budgetary storm as the bills we’re racking up today and the entitlements we’ve promised in the future, begin to overlap.
Across the political spectrum, most people agree that our various transportation, water/sewer, and electrical grid infrastructures have been long neglected. Infrastructure spending is the best use of government stimulus money because more jobs are created both quickly and over the long term. Just to modernize our existing infrastructures systems will cost at least 2 trillion dollars over the next 10 years. Furthermore, we must also invest in new energy technologies, mass transit and high speed rail lines – all of which will cost billions more. We can’t put off such spending and we have to be honest about paying for them over the foreseeable future without resorting to further borrowing.
This is a part of the supposedly Keynesian argument that government spending provides a greater multiplier than private spending. Of course, as Bruce has pointed out before, if that were the case then why have private spending at all?
Furthermore, I really don’t understand how government spending on infrastructure and energy technologies creates jobs.
In the infrastructure realm, once a government project is done, then the job disappears. If the job is done quickly, efficiently and completed on time then it’s not government work the job just disappears that much more quickly. And after that? How does a brand new bridge create a job after it’s built? Even worse, what happens if the project turns out like the Big Dig in Boston (which seems to be much more likely)? Sure people will have jobs for longer, but the supposed benefit of the structure will shoved further into the future and the taxpayers will be on the hook for a lot more than they signed on for. How does that sort of project stimulate the economy?
With respect to new energy technologies, I’m all for it. But with the government choosing which technologies to fund, how do we know we’re getting the best there is to offer? That’s not typically the case where government picks winners and losers. And just because something is “green” does not mean that it is efficient, beneficial to the economy, and/or capable of saving anyone money in the short (or long) term. In fact, it probably means the opposite of one or all of those things. Instead, why doesn’t government get out of the way and allow nuclear power plants to be built, thus saving taxpayers billions of research dollars. That’s technology that we already have, and it’s green. Otherwise, these sorts of proposals are little more than a massive wealth transfer from one group of people to the politically favored few. There is nothing stimulative about that.
Across Europe, the average tax per gallon of gasoline ranges from $4 to $6. The U.S. federal gasoline tax is a paltry 18.3 cents per gallon with each penny raising $850 million to $1 billion per year depending upon how much Americans drive. Only when gasoline hit $4 a gallon during last summer did we start taking mass transit, buying hybrids, shunning gas guzzlers, demanding more energy-efficient cars and buildings, and seriously considering alternative solar, wind and nuclear power, and our own oil and gas reserves. The best and only way to ensure long-term energy independence is to have a serious financial incentive that hits everyone.
OK, if we accept the premise that less fuel consumption is better for Americans, then Pascal has a good point here. Of course, I’m not sure why gas station owners or truck salesman are any less deserving of being stimulated than other Americans, but that seems to be a staple of these plans. Moreover, Pascal’s plan doesn’t look all that much different than how transportation projects are already funded at the federal level.
While we should not enact excessive gasoline taxes, we can at least impose an additional and modest oil import fee on foreign barrels of oil.
More importantly, we should increase the federal gasoline tax from 18.3 to 75 cents per gallon, by monthly increments of about 5 cents per gallon over 12 months. The overall U.S. gasoline price per gallon by the end of 2010 should still be around $3.00 but the U.S. would have $70 billion a year to pay for our many needed transportation and energy infrastructure projects. This would be the responsible, mature, and intelligent solution for raising the necessary funds for these projects.
Presumably, Pascal means that we would charge this import fee to the American refiners who distribute gasoline in the country. And Pascal does suggest that he thinks this would be a tax on everyone, which in addition to the increased gas tax it would be. Strangely, this is the sort of protectionist measure one sees where domestic industries are beset by low-cost foreign competitors, yet domestic production is practically forbidden. Instead, Pascal wants to drive demand for gasoline down, so he advocates raising the costs of gasoline indirectly. Would that have the effect of increasing demand for more domestic oil? Perhaps. But it would certainly raise costs for all Americans, whether we all buy hybrids (which are much more expensive) or not, and again I don’t see how raising prices is stimulative.
Overall Mr. Pascal’s tax proposal is not altogether outlandish, and certain elements of it are almost certain to come to pass. What’s so horrible is that these sorts of plans are only necessary (and inevitable) because the government has been spending far more than it takes in for quite some time now. Even if you think that the Bush tax cuts “cost” the federal government money, you have to admit that the one thing that every administration has had in common, whether Republican or Democrat, is that federal spending never decreases. Regardless of whether tax-and-spend is better/worse than cut-taxes-and-spend, the situation we find ourselves in today is precisely because spending never seems to drop, not because tax rates go up and down.
To be sure, there is nothing evil per se about deficit spending. Whether it’s bad or not depends on where the money is going, and how the costs are intended to be recouped. But at some point the piper must be paid, and when that time comes one would hope that all the spending had created some wealth with which to pay him.Obviously taking money from Peter and giving it to Paul (minus a transfer fee, of course) won’t accomplish that goal. And neither does building a new bridge from Paul’s house to Peter’s. Indeed, unlike people, the government can’t work harder in an effort to “do something” and create wealth, because that’s not what governments do. The only things that government is any good at is making rules and enforcing (some of) them. Although those two actions can protect wealth and the opportunities to create wealth, neither action actually creates wealth.
Thus, we’re left with the unshakable propositions that (1) government spending necessitates taxes, (2) deficit spending necessitates tax increases, (3) tax increases necessitate higher prices, (4) higher prices produce less consumer spending, (5) less consumer spending results in less business revenues, (6) less business revenues means fewer jobs and less wages, (7) fewer jobs, less wages and less business revenues means less tax dollars, and (8) fewer jobs, less wages, less business revenues and less tax dollars means … more government spending is necessary?
If you believe that last one, then I have a bridge I’d like to build you. It will be ready for use immediately upon the check clearing.
We touched on the fact that there are some tax protests popping up around the country in last night’s podcast.
William Jacobson says:
The beginning of a protest movement against Barack Obama’s redistributive policies is underway. Though still small, every movement starts somewhere. While called the “Tea Party” after the Boston Tea Party, this movement is similar to movements throughout history where the producers of society refuse to have their property and income confiscated.
We all agreed that at this particular moment the movement is mostly a creature of the right-wing. That’s not to say it will stay that way, but certainly it is partly outrage over the so-called stimulus bill and partly an opportunity to engage in a little payback for the last 8 years of the left’s shenanigans.
Will it gain supporters? Will it gain power? I frankly don’t know at this point. But as Debra Saunders points out, if you think it is bad here, in terms of the financial crisis, you ought to be in Europe.
And what is going on in Europe? Well if the UK is any indication, things may be heating up rather quickly there:
Police are preparing for a “summer of rage” as victims of the economic downturn take to the streets to demonstrate against financial institutions, the Guardian has learned.
Britain’s most senior police officer with responsibility for public order raised the spectre of a return of the riots of the 1980s, with people who have lost their jobs, homes or savings becoming “footsoldiers” in a wave of potentially violent mass protests.
Interestingly the Brits would be late-comers to the European protest movement:
In recent weeks Greek farmers have blocked roads over falling agricultural prices, a million workers in France joined demonstrations to demand greater protection for jobs and wages and Icelandic demonstrators have clashed with police in Reykjavik.
So, will the burgeoning tax-protest movement here take hold and grow?
If Europe is any indication (you know, the Europe that was supposed to be so much better off than we are according to some?), yes, it might. In fact, if, as promised, the situation here gets worse and worse, I think we can pretty much count on it.
Will it have an effect? Well that’s an excellent question.
I’ll ask one in return.
Have you seen the deficit?
Someone is going to have to pay for all of that.
Pretty sad when you have the Secretary of State soliciting funds for debt instruments:
US Secretary of State Hillary Clinton has urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis.
Ms Clinton made the plea shortly before leaving China, the final stop on a four-nation Asian tour that also took her to Japan, Indonesia and South Korea, where she worked the crowds to try to restore America’s standing abroad.
In Beijing, she called on authorities in Beijing to continue buying US Treasury bonds, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods.
“By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together,” Ms Clinton said at the US embassy here.
Of course, its absolutely necessary that China (and the rest of the world) continue to buy these bonds and fund this spending debacle or taxes will have to be raised dramatically (and not just on the ‘rich’) and/or more money will have to be printed. That’s not to say that both of those won’t be done anyway whether China continues to buy or not. My guess is it’s only a matter of time. Don’t forget, health care reform legislation and environmental legislation are yet to come. Both may end up taking even more out of the private side of the economy than the so-called “stimulus” did.
With Wall Street already showing absolutely no confidence in Barack Obama and Tim Geithner, the president is announcing tax increases in an attempt to cut the budget deficit by half in four years:
A summary of Obama’s budget request for the fiscal year that begins in October will be delivered to Congress on Thursday, with the complete, multi-hundred-page document to follow in April. But Obama plans to unveil his goals for scaling back record deficits and rebuilding the nation’s costly and inefficient health care system tomorrow, when he addresses lawmakers and budget experts at a White House summit on restoring “fiscal responsibility” to Washington.
Yesterday in his weekly radio and Internet address, Obama said he is determined to “get exploding deficits under control” and said his budget request is “sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t, and restoring fiscal discipline.”
Reducing the deficit, he said, is critical: “We can’t generate sustained growth without getting our deficits under control.”
To get there, Obama proposes to cut spending and raise taxes. The savings would come primarily from “winding down the war” in Iraq, a senior administration official said. The budget assumes continued spending on “overseas military contingency operations” throughout Obama’s presidency, the official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year.
Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent.
Obama also proposes “a fairly aggressive effort on tax enforcement” that would target corporate loopholes, the official said. And Obama’s budget seeks to tax the earnings of hedge fund managers as normal income rather than at the lower 15 percent capital gains rate.
Overall, tax collections under the plan would rise from about 16 percent of the economy this year to 19 percent in 2013, while federal spending would drop from about 26 percent of the economy, another post-World War II high, to 22 percent.
Add this to the list of “Things Not To Do During A Recession.” Soak the achievers and give absolutely meaningless tax cuts, $13 dollars a week, to the rest of us while the government continues to plunge us further into debt.
Enough with wealth envy and populism. Let’s cut taxes for everyone, cut spending and kill the corporate income tax.
What if we wanted to borrow a bunch of money and no one would lend it to us? How would that affect the “stimulus” or bailout? The government would have to either raise taxes or print money, wouldn’t it? One leads to an extended recession and the other leads to the same thing plus inflation.
Asian investors won’t buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc.
The risks are too great without a pledge that the U.S. will repay the debt no matter what, according to Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., and other bondholders and analysts in Japan, China and South Korea interviewed by Bloomberg. Overseas resistance may hamper U.S. efforts to hold down home-loan rates and shore up the nation’s largest mortgage-finance companies.
This shows a real lack of confidence in foreign investors. If you want to view it this way, this is a de facto downgrading of the credit rating of the two FMs. And, as pointed out in the final sentence, this may trip up efforts to hold down interest rates for home owners. It certainly means trouble for the plan to refinance Freddie and Fanny and for the mortgage bailout plan.
And as the problem deepens, the effort to borrow money for the FMs will only get harder. My guess is that’s just a prelude to the same problems being encountered more broadly as the government tries to borrow the promised stimulus money. This is a very dangerous, and in my estimation, unnecessary road we’re traveling. The law of unintended consequences is setting up an ambush the likes of which we’ve never seen before.