Free Markets, Free People

Obama budget

Obama’s Orwellian budget claim in pictures

Orwellian, in that his claim is as follows:

President Obama is marketing his new budget by saying it has “more than $2 in spending cuts for every $1 of new revenue.” Is this true?

In a word, no.

In fact, his spending increases and advertised spending cuts cancel each other out—leaving only a massive tax increase.

Here’s a graphical representation of the point:

Yeah, I know … big surprise.

A politician lied again.

Wow.

~McQ

Easy come, easy go

Today, Rep. Mike Pence and Rep. Cathy McMorris Rodgers, the Chair and Vice Chair of the House Republican Conference, led a blogger conference call. The representatives stayed on point throughout the call:

  • On the economy generally and on the Democrats’ budget proposal specifically, they repeatedly said the Democrats are spending, borrowing and taxing too much.
  • They hammered on the Democrats’ proposal as bad for families and small businesses, including family farms.  They emphasized the role of small businesses in job creation.
  • They said they believed in free markets, fiscal restraint and tax relief as the keys to growth.
  • To that effect, they said Senate and House Republicans would be cooperating closely to promote those messages over the next several weeks and then unveil an alternative budget proposal of their own, which they promise will be a bold, clear contrast with that of the Democrats.

I expected something along these lines, and I don’t object to the sentiment or disagree with their diagnosis of the Democrats’ budget. They’ve identified what’s wrong with the Democrats’ plan, they’ve developed a strategy for responding with their own alternative, and they want to get everyone on record as either supporting the Democrats’ messy bill or the ideal Republican vision.

The first question went to Quin Hillyer over at AmSpec, who asked how unified we can expect the GOP response to be if a Republican leader like Lamar Alexander broke to vote for the omnibus spending bill. Pence acknowledged that he and Sen. Alexander had a difference of opinion on that one, but hastened to add that Sen. Alexander had voted for all the limiting amendments and had voted against the stimulus, etc.

For my part, I asked the representatives why, in light of Republicans’ so-far unsuccessful attempts to bring “clean” Republican versions of bills to the floor for debate, their alternative budget would be different.

Rep. Pence answered that Republicans would be given the opportunity on this one. The Republican House leadership is working closely with the budget committee, and specifically with Rep. Paul Ryan, the ranking Republican on that committee. There are some limitations on how quickly they can move their alternative and get a CBO estimate done on it, but they’re going to use the interim to expose problems with the Democrats’ budget before unveiling their alternative.

Rep. Morris Rodgers said that it was important that it goes to the House floor for debate, and that they wanted the difference in approach to be clear to the American people, too.

As I said earlier, this is about what I expected – when your party is some 70 seats down in the House and retains only the most meager leverage in the Senate, having lost all credibility, you need to remind people that you at least remember what a conservative is supposed to want.

I just hope that’s not all they have in their playbook. It’s much easier to present a principled image when you’re out of power and have no sway over whether a given bill will pass.

Assurances that the GOP will remain so principled when they regain a measure of power won’t carry a lot of weight without some kind of binding commitments – changing the structure and practices of the party rather than the short-term tactics. After all, misbehavior that receded smoothly when the majority last changed hands can come back just as readily. Easy come, easy go.

* Cross-posted from The Next Right

Tax the Rich and What Do You Get?

Another day older and deeper in debt. Of course, that’s because you plan to spend $3.6 Trillion on budget over the next year.

WASHINGTON – President Obama laid out his first budget plan, a bold $3.6 trillion proposal that would transfer wealth from rich taxpayers to the middle class and the poor, and predicts a stunning federal deficit of $1.75 trillion this year – nearly four times last year’s record.

Obama blamed the expected federal deficit explosion on a “deep and destructive” recession and recent efforts to battle it, including the Wall Street bailout and the $787 billion stimulus plan.

[...]

Among the budget proposals, the plan would:

extend a $400 tax credit for most workers while letting expire former President George W. Bush’s tax cuts for couples making more than $250,000 a year. The budget contains almost $1 trillion in tax hikes over 10 years on individuals making more than $200,000 and couples earning more than $250,000;

close tax loopholes for the wealthy to raise $318 billion toward a down payment on Obama’s universal health care plan;

clamp down on the Pentagon budget, which would get a 4 percent boost next year, but would then get increases of 2 percent or less over the next several years;

make permanent the expanded $2,500 tax credit for college expenses;

spend more than $6 billion on cancer research at the National Institutes of Health next year, a 15 percent hike;

spend $3.9 billion to improve the nation’s sewage treatment plants and drinking water systems; and

raise $15 billion a year, beginning in 2012, from auctioning off carbon pollution permits to help develop clean-energy and renewable-energy technologies. The administration “will work expeditiously” to get Congress to approve an 83 percent reduction in global warming emissions by mid-century. There’s also more money at NASA for space-based monitoring of greenhouse gases.

sisyphus
After reviewing some of the comments from those intended to be taxed, as well as some of the criticisms of those taxpayers’ intelligence [as an aside, I think the liberals denouncing both the story and the interviewees are playing a little fast and loose with the assumptions, since the taxpayers displayed no misunderstanding of marginal rates, and voiced concerns solely based on principles], I got to thinking about how much money will this proposed tax hike really raise. This seems important, not only because of the size of proposed budget, but also since a common refrain from those in favor of letting the top rate snap back to 39.6% (from the current 35%) is that it will only cost those taxpayers 5 cents on the marginal dollar, which is very little to worry about much less enough to change behavior, or so the argument goes.

Before looking at the actual numbers, let’s get something straight first. While it is accurate to say that raising the top rate only costs these taxpayers a nickel per extra dollar earned, that is not all that is being proposed. These taxpayers will also be losing deductions and credits that they would otherwise have, as well as paying extra taxes on anything subject to cap-and-trade taxes, should that lovely piece of legislation be passed. Moreover, if you truly believe Obama when he says that those with incomes less than $250,000 per year will receive a tax cut, then it seems ludicrous to pretend that at least some, if not virtually all, of those taxpayers near the margin will change their working behavior so as to be in the benefit group rather than the extra-taxed one.

Nevertheless, for purposes of calculating the expected tax revenues generated under this plan, I’m going to assume that nobody changes their behavior in the slightest (i.e. everyone earns as much taxable income as possible), and that the number of taxpayers and the amount of taxes paid largely mirrors the 2006 numbers (which is the most recent data available).

According to IRS figures [xls], about 50% of all taxable income came from the $200,000 and above earners in 2006. By my calculations that came to $2.056 Trillion dollars in taxable income from 3,847,241 taxpayers (about 9% of all returns). This cohort paid approximately $522 Billion in taxes, or about 62.4% of the total $837 Billion in tax receipts. These are the people upon whom the new burden will be placed according to President Obama.

In order to figure out how much taxable income is above $200K (there is no breakout for $250K and above), I took all of the taxpayers in the $200K to infinity range (3,847,241) and multiplied it by 200,000 (= 769,448,200,000).

I then subtracted that number from the (rounded) total of taxable income for the same range (@ $2.056 Trillion), and got $1,286,551,800,000. If I thought about it correctly, then that should be the amount of taxable income above $200K.

I then took my above-$200K number and multiplied it by 5 cents, figuring that the increase in marginal rate of 4.6% would lead to about a nickel per taxable dollar earned in new revenues, if everything were to remain static.

From all of that I figured that approximately $64.3 Billion in new taxes would be raised by the new tax hike … to cover a $3.6 Trillion budget.

I sent my calculations to Dale, who became so engrossed in the matter that he put together an entire spreadsheet figuring the numbers in not one, not two, not three, but in six different ways. I realized later that asking Dale to check out my math was rather like standing on one foot and excitedly calling attention to my “skill” while in the midst of an acrobat convention.

Anyhoo …

After Dale played with the numbers [xls] for awhile, he arrived generally at the conclusion that the absolute most that could be raised was in the neighborhood of $85 Billion, and at worst around $55 Billion. On average, Dale calculated that approximately $65 Billion was the likely amount of new tax revenue that could be expected if all payers in the 2006 cohort behave exactly as they did then. Sticking with the metaphor, “Yes, Michael, that’s a decent one-legged stand you have there.”

In short, a complete klutz has a better chance of joining the Flying Wallendas than the bottom 95% of taxpayers do of getting a tax cut. Instead, they will all see a significant tax hike, whether in their marginal rates, in excise taxes, corporate taxes, fuel taxes, or other forms of indirect taxation. And as those taxes begin to mount up, and the national debt does it’s best imitation of the Challenger, people will work and produce less and less, and tax revenues will dry up.

That is the plan for our recovery. Read it and weep.