Tag: obama

A Laffer Curve Warning about the Economy and Tax Revenue for President Obama and other Class Warriors

Being a thoughtful and kind person, I offered some advice last year to Barack Obama. I cited some powerful IRS data from the 1980s to demonstrate that there is not a simplistic linear relationship between tax rates and tax revenue.

In other words, just as a restaurant owner knows that a 20-percent increase in prices doesn’t translate into a 20-percent increase in revenue because of lost sales, politicians should understand that higher tax rates don’t mean an automatic and concomitant increase in tax revenue.

This is the infamous Laffer Curve, and it’s simply the common-sense recognition that you should include changes in taxable income in your calculations when trying to measure the impact of higher or lower tax rates on tax revenues.

No, it doesn’t mean lower tax rates “pay for themselves” or that higher tax rates lead to less revenue. That only happens in unusual circumstances. But it does mean that lawmakers should exercise some prudence and judgment when deciding tax policy.

Moreover, even though I’m a strong believer in the importance of good tax policy, it’s also important to understand that taxation is just one of many factors that determine economic performance. So lower tax rates, by themselves, are no guarantee of economic vitality, and higher tax rates don’t necessarily mean the world is coming to an end.

With those caveats in mind, take a look at this table from the Congressional Budget Office’s most recent Budget and Economic Outlook. Taken from page 109, it shows what will happen if the economy grows just a tiny bit less than the baseline projection. Not a recession, by any means, just a drop in the projected growth rate of just 1/10th of 1 percent.

As you can see, the 10-year impact is $314 billion, mostly due to lower tax receipts, though there is some impact on outlays because of higher interest costs and a bit of additional entitlement spending.

So why am I sharing these numbers? Because let’s now think about President Obama’s proposed class-warfare tax hike. He wants higher tax rates on investors, entrepreneurs, small business owners and other “rich” taxpayers. And he wants more double taxation of dividends and capital gains. And a higher death tax rate, even higher than the ones imposed by France and Venezuela.

I think some opponents are exaggerating when they claim that this tax hike will cause a recession and cripple the economy. But I do think that it’s reasonable to contemplate the degree to which the Obama tax hikes will slow growth. More than 1/10th of 1 percent? Less than that? Would the damage occur in the first few years? Would it be spread out over time?

Those questions are hard to answer. Ask five economists and you’ll get nine answers, but there is compelling evidence that higher tax rates do have a negative impact.

But some people assume that taxes don’t matter at all. Using models that, for all intents and purposes, naively assume a simplistic linear relationship between tax rates and tax revenue, the number-crunching bureaucrats in Washington estimate that Obama’s proposed tax hikes will generate about $800 billion over 10 years.

I’m not going to pretend I know the economic impact of those higher tax rates, but for the sake of argument, let’s assume that the impact is minor. Indeed, let’s assume that it’s only 1/10th of 1 percent. Based on the CBO sensitivity analysis above, that means that about 40 percent of the projected deficit reduction will fail to materialize.

And that’s not even considering the fact that politicians will probably increase the burden of government spending because of the expectation of additional tax revenue.

Just something to keep in mind as this debate unfolds.

P.S. I actually shared this exact same data when testifying to the Senate Budget Committee earlier this year. Needless to say,  in some cases I think my testimony went in one ear and out the other.

P.P.S. The revenue-maximizing tax rate is not the ideal point on the Laffer Curve.

Feds May Not Have ObamaCare Operational on Time

The Washington Post reports:

By the end of this week, states must decide whether they will build a health-insurance exchange or leave the task to the federal government. The question is, with as many as 17 states expected to leave it to the feds, can the Obama administration handle the workload.

“These are systems that typically take two or three years to build,” says Kevin Walsh, managing director of insurance exchange services at Xerox. “The last time I looked at the calendar, that’s not what we’re working with.”…

The Obama administration has known for awhile that there’s a decent chance it could end up doing a lot of this. Now though, they’re finding out how big their workload will actually become.

Betcha didn’t see that coming.

Part of the reason the workload is so heavy? “Buying health insurance is a lot more difficult than purchasing a plane ticket on Expedia.” You don’t say. But I thought that’s why we needed government to do it.

A Four-Picture Indictment: Final Pre-Election Jobs Report Is Not Good News for Obama

In some sense, President Obama is fortunate. I predicted a long time ago that he would win re-election if the unemployment rate was under 8 percent.

Well, the new numbers just came out and the unemployment rate is 7.9 percent.

So even though his stimulus failed, and even though his class-warfare tax policy is like a dark cloud over the economy, and even though his plans to further increase the burden of government spending will accelerate America’s descent into a Greek-style fiscal quagmire, he may dodge the proverbial bullet.

You can see my latest election prediction by clicking here, and you can even cast a vote in my reader poll. But let’s set aside the crystal ball nonsense and focus on public policy.

Below are four images that summarize Obama’s dismal performance.

We’ll start with a chart showing what President Obama claimed would happen to unemployment if we enacted his so-called stimulus compared to the actual real-world results.

As you can see, the joblessness rate currently is more than 2.5 percentage points higher than Obama claimed it would be if we implemented his Keynesian plan.

Now let’s look at some updated images of how this “recovery” compares to previous recoveries in the past six decades, based on data from the Minneapolis Federal Reserve Bank. We’ll start with the unemployment rate. Take a wild guess which president has presided over the red line at the bottom.

Previously, I’ve compared Obamanomics and Reaganomics,but this image may be even better because it shows all business cycles and confirms that the Obama years have been the worst in post-World War II history.

And we see something similar if we look at GDP growth. Once again, go out on a limb and guess who is responsible for the weakest recovery since World War II.

Last but not least, this info-graphic is a bit dated, but Obama’s dismal track record would not change if we added the past few months of data.

Defenders of the White House argue that all these bad numbers are a legacy of the dismal situation that Obama inherited. That’s partially true. Obama should not be blamed for the depth of a recession that began before he took office.

But he should be held at least somewhat accountable for an anemic recovery—particularly since he promised “hope” and “change” and then continued the big-spending, pro-cronyism policies of the Bush years.

The moral of the story, needless to say, is that free markets and small government are the keys to growth and prosperity.

Trick-or-Treat at 1600 Pennsylvania Avenue

I shared a cartoon last Halloween that made fun of those who support class-warfare tax policy.

Now we have a related cartoon, featuring a stop at the White House.

The next two cartoons are almost identical. We’ll start with this one from Michael Ramirez.

Ramirez is one of my favorite cartoonists, incidentally, and you can see more of his work here, here, here, here, here, here, here, here, here, here, herehereherehereherehere, and here.

Here’s a Gary Varvel cartoon with the exact same message.

Instead of great minds thinking alike, this is a case of great cartoonists thinking alike. Though they probably have great minds as well.

But I don’t want to make too many fawning comments since I would modify both of these cartoons so that the kids were looking at papers that said “Medicare” and “Social Security” instead of “debt.”

It’s always important to focus first and foremost on the disease of spending, after all, and not the symptom of red ink.

Last but not least, I can’t resist linking to this comedian’s video, which includes some very good economic insights about work incentives.

Sort of like this Wizard of Id parody featuring Obama.

Dissecting Obama’s Record on Tax Policy

The folks at the Center for Freedom and Prosperity have been on a roll in the past few months, putting out an excellent series of videos on Obama’s economic policies.

Now we have a new addition to the list. Here’s Mattie Duppler of Americans for Tax Reform, narrating a video that eviscerates the President’s tax agenda.

I like the entire video, as you can imagine, but certain insights and observations are particularly appealing.

1. The rich already pay a disproportionate share of the total tax burden - The video explains that the top-20 percent of income earners pay more than 67 percent of all federal taxes even though they earn only about 50 percent of total income. And, as I’ve explained, it would be very difficult to squeeze that much more money from them.

2. There aren’t enough rich people to fund big government - The video explains that stealing every penny from every millionaire would run the federal government for only three months. And it also makes the very wise observation that this would be a one-time bit of pillaging since rich people would quickly learn not to earn and report so much income. We learned in the 1980s that the best way to soak the rich is by putting a stop to confiscatory tax rates.

3. The high cost of the death tax - I don’t like double taxation, but the death tax is usually triple taxation and that makes a bad tax even worse. Especially since the tax causes the liquidation of private capital, thus putting downward pressure on wages. And even though the tax doesn’t collect much revenue, it probably does result in some upward pressure on government spending, thus augmenting the damage.

4. High taxes on the rich are a precursor to higher taxes on everyone else - This is a point I have made on several occasions, including just yesterday. I’m particularly concerned that the politicians in Washington will boost income tax rates for everybody, then decide that even more money is needed and impose a value-added tax.

The video also makes good points about double taxation, class warfare, and the Laffer Curve.

Please share widely.

An Insider’s Account of the White House’s Unseemly Tactics in the Chrysler Bailout

A Wall Street Journal editorial this morning points out that Indiana Republican Senatorial candidate Richard Mourdock is getting pounded by his Democratic rival for having opposed the Chrysler bailout.

Mourdock opposed the bailout on principle, but at that time he was also the Indiana state treasurer and fiduciary for several state pension funds, including two holding the retirement resources of Indiana police officers and school teachers, which owned about $42 million dollars of “secured” Chrysler debt in 2009. When Mourdock rejected the administration’s offer of $0.29 for each dollar of debt held, his position was publicly excoriated by President Obama as greedy, unpatriotic, and reflecting and unwillingness to ”sacrifice for the greater good.”  There’s much more to this story.

If you are interested in a first hand account of the strong-arm tactics, threats, and intimidation employed by the White House to get its own Chrysler bankruptcy plan rubber stamped through the process in 2009, you will want to see this video of Mourdock speaking at a Cato event.  It is truthful and chilling.

Romney’s Misplaced Obsession with Chinese Currency Manipulation

More than anything else, Mitt Romney’s zealous determination to pin a scarlett “CM” on the Chinese government’s lapel has defined his trade platform.  And that draws an unfavorable contrast for Romney, since President Obama’s repeated decisions not to label China a currency manipulator make him look the more cautious, circumspect, risk-averse business executive that Romney portrays himself to be.

In any event, the currency issue is very much last decade’s battle.  By continuously harping about it, Governor Romney evokes tales of old Japanese soldiers, left behind on South Pacific islands, still fighting WWII well into the 1960s.

As I noted in this piece on Forbes yesterday, if Romney is elected he will  have to renege on this silly commitment (substantively, at least), and change focus:

If Mitt Romney believes in “free trade,” his focus with respect to China should be on correcting that government’s failures to honor all of its commitments to liberalize and on the misguided efforts by U.S. policymakers to thwart legitimate commerce between Chinese exporters and American consumers.