Tag: taxes

Obama’s First Tax Hike Hits the Poor

It is curious that President Obama keeps claiming that he is not raising taxes on lower-income Americans, yet a tax hike that will impose a disproportionately large burden on the poor goes into effect Wednesday

In February, Obama signed into law a large tax hike on cigarette consumers. The federal tax on cigarette consumers is jumping from 39 cents per pack to $1.01 per pack – a huge 159 percent increase. If you smoke two packs per day, President Obama has raised your taxes by a $453 annually.

Next on the Obama low-income tax hike agenda: global warming taxes of about $80 billion per year, as revealed in the Obama budget, which equals an annual tax boost of $700 for every household in the United States.

How Progressive Are You?

I’m two weeks late coming to this, but the “Democratic Wing of the Democratic Party” Obama Administration Farm Team Center for American Progress has developed a quiz aiming to answer the question, “How Progressive Are You?“  The quiz asks you to rank, on a 10-point scale, how much you agree with 40 different statements.  Now, I won’t quibble here with the misuse of the word “progressive” – having debased the term “liberal” (which in any other country pretty much means what Cato supports), the Left moves on to its next target – but the quiz highlights the false dichotomy between “progressive” and “conservative.” 

The fallacy of this linear political spectrum forces people to wring their hands and call themselves “socially liberal, fiscally conservative” – does anyone call themselves “fiscally liberal” even if they are? – or “moderate” (no firm views on anything, huh?) or anything else that adds no descriptive meaning to a political discussion.  Where do you put a Jim Webb?  A Reagan Democrat?  A Ross Perot voter?  A gay Republican?  A deficit hawk versus a supply-sider?  Let alone Crunchy Cons, Purple Americans, Wal-Mart Republicans, South Park Conservatives, NASCAR dads, soccer moms, and, oh yes, libertarians. 

And the statements the quiz asks you to evaluate are just weird.  I mean, yes, “Lower taxes are generally a good thing” (I paraphrase) gets you somewhere, but what does “Talking with rogue nations such as Iran or with state-sponsored terrorist groups is naive and only gives them legitimacy” get you?  Or “America has taken too large a role in solving the world’s problems and should focus more at home”?  What is the “progressive” response to these statements?  The “conservative” one?  I think I know what the Bush response and the Obama response would be to the first one, but how does either fit into any particular ideology? 

The Institute for Humane Studies at least gives you a two-dimensional quiz, so you can see how much government intervention you want in economic and social affairs (the “progressive” view presumably being lots of intervention in the economy, none on social issues).  And IHS poses classical debates in political philosophy rather than thinly veiled leading questions relating to current affairs.  

In any event, when you finish the quiz, it tells you your score and that the average score for Americans is 209.5.  How do they get this number?  A selectively biased survey of people who frequent the CAP website would surely score much higher on the progressive scale.  No, it’s based on a “National Study of Values and Beliefs.”  Well, ok, but, again, if those are the types of questions you ask people – or, even worse, the quiz designers code the survey responses – I’m not sure how much I care about the result.   (Incidentally, the survey reveals that “the potential for true progressive governance is greater than at any point in decades.”  Great, that’s either a banal formulation of the fact that Democrats have retaken the political branches or a self-serving conclusion.  Or both.)

In case anyone cares, I scored 100 out of 400, which makes me “very conservative.”  I suppose that won’t come as a surprise to my “progressive” friends, but then I’m always talking to them about how bad the bailouts/stimuli are for the economy, how we should actually follow the Constitution, etc.  All the folks who over the years have called me a libertine or hedonist, however, will not be amused to learn that I’m actually one of them…

Week in Review: No End to Spending and Regulation in Sight

Geithner to Propose Unprecedented Restrictions on Financial System

geithnerThe Washington Post reports, “Treasury Secretary Timothy F. Geithner plans to propose today a sweeping expansion of federal authority over the financial system… The administration also will seek to impose uniform standards on all large financial firms, including banks, an unprecedented step that would place significant limits on the scope and risk of their activities.”

Calling Geithner’s plan another “jihad against the market,” Cato senior fellow Jerry Taylor blasts the administration’s proposal:

What President Obama is selling is the idea that government must be the final arbiter regarding how much risk-taking is appropriate in this allegedly free market economy. It is unclear, however, whether anybody short of God is in the position to intelligently make that call for every single actor in the market.

Cato senior fellow Gerald P. O’Driscoll reveals the real reason behind the proposal:

Federal agencies have long had extensive regulatory powers over commercial banks, but allowed the banking crisis to develop despite those powers. It was a failure of will, not an absence of authority.   If the authority is extended over more institutions, there is no reason to believe we will have a different outcome.  This power grab is designed to divert attention away from the manifest failure of, first, the Bush Administration, and now the Obama Administration to devise a credible plan to deal with the crisis.

A new paper from Cato scholar Jagadeesh Gokhale explains the roots of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve’s actions to prop up the financial sector. Gokhale argues that recovery is likely to be slow with or without the government’s bailout actions.

In the new issue of the Cato Policy Report, Cato chairman emeritus William A. Niskanen explains how President Obama is taking classic steps toward turning this recession into a depression:

Four federal economic policies transformed the Hoover recession into the Great Depression: higher tariffs, stronger unions, higher marginal tax rates, and a lower money supply. President Obama, unfortunately, has endorsed some variant of the first three of these policies, and he will face a critical choice on monetary policy in a year or so.

Obama Defends His Massive Spending Plan

President Obama visited Capitol Hill on Wednesday to lobby Democratic lawmakers on his $3.6 trillion budget proposal. Both the House and Senate are expected to vote on the plan next week.

obama-budget1In a new bulletin, Cato scholar Chris Edwards argues, “Sadly, Obama’s first budget sets a course for more government bloat, more economic distortions, and ultimately lower standards of living for everyone who is not living off of federal hand-outs.”

On Cato’s blog, Edwards discusses Obama’s misguided theory on government spending:

Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Obama’s budget calls for a massive influx of government jobs. Writing in National Review, Cato senior fellow Jim Powell explains why government jobs don’t cure depression:

If government jobs were the secret of success, then the Soviet Union wouldn’t have collapsed, because it had nothing but government jobs. Communist China, glutted with government jobs, would have generated more income per capita than Hong Kong where, at least before the Communist takeover, there were hardly any government jobs, but Hong Kong’s per capita income was about 20 times higher than that on the mainland.

Multiplying the number of government jobs did nothing then and does nothing now to revive the private sector that pays all the bills, in large part because of the depressing effect of taxes required to pay for government jobs.

Cato on YouTube

Cato Institute is reaching out to new audiences with our message of individual liberty, free markets and peace. Last year, we launched our first YouTube channel, which has garnered thousands of views and subscriptions. Here are a few highlights:

Obama’s Tax Commission

The Obama administration has announced the formation of a task force to recommend major changes to the federal tax code. According to Congressional Quarterly today:

[Obama budget director Peter] Orszag said the task force will focus on three areas: tax simplification, reducing “corporate welfare” and shrinking the estimated $290 billion a year “tax gap” between taxes owed and taxes paid.

Isn’t Orzag missing something here? For goodness sakes, what about about economic growth? The economy is in the crapper, America has huge competitive challenges ahead with the rise of China, and the ratio of unproductive retirees to productive workers is soaring – it’s obvious that we need to reduce government hurdles to economic growth every way we can, and the high-rate federal tax code is one giant hurdle that policymakers need to start cutting. U.S. companies are not investing in China and elsewhere because our business tax code is too complex, but because our business tax rates are far higher than just about anywhere else.

Obama’s Spending Theory

President Obama focused on budget and economic issues in his press conference last night. One concern raised by reporters was that federal deficits were exploding and that Obama’s big spending plans would seem to make the problem worse.

Obama’s response was essentially that higher spending reduces the debt problem, which would strike most people as paradoxical to say the least:

Here’s what I do know: If we don’t tackle energy, if we don’t improve our education system, if we don’t drive down the costs of health care, if we’re not making serious investments in science and technology and our infrastructure, then we won’t grow [the economy by] 2.6 percent, we won’t grow 2.2 percent. We won’t grow. And so what we’ve said is, let’s make the investments that ensure that we meet our growth targets that put us on a pathway to growth as opposed to a situation in which we’re not making those investments and we still have trillion-dollar deficits.

First note that Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Government spending on infrastructure, education, science and energy are already at high levels. For example, infrastructure spending today is as high as it was during the 1950s, and higher than it has been in recent decades. If government worked efficiently—as liberals believe it does—then all the highest-valued uses of taxpayer money would already be funded. At the margin, the only place for Obama’s new spending would be on low-value items of less economic importance.

Thus, Obama’s new college subsidies might induce some added young people to attend college, but most of those people are probably pretty marginal students because the high-quality students are already going to college. The marginal students might pick up some added skills, but at the cost of higher tax burdens and less economic output in the years when those folks are out of the workforce. Liberals assume that more spending on any activity they are interested in, whether public or private, is always better, but the real goal of economic policy is to find the optimum because all spending has a cost. (And the optimum level of government spending on most things is pretty darn low, or zero, in my view).

Obama is essentially claiming that even with federal, state and local spending at about one-third of GDP, there are government spending projects left over that are so powerful that “we won’t grow” if they don’t happen.

Serious economists know that that is nonsense. Most government activities have negative effects on growth, not positive effects. Take the largest federal program, Social Security, which will consume about $660 billion in taxpayer money this year. The program is a negative on economic growth because it suppresses personal savings and the taxes to fund it create large distortions. Lots of liberal economists support such transfer programs for non-economic or “social” reasons, but few economists would argue that they expand GDP on net.

Slashed?

The Hill is reporting that Senate Budget Committee Chairman Kent Conrad (D-ND) “has slashed Obama’s proposed increases in domestic discretionary spending from 12 percent to 6, according to lawmakers who met with Conrad.”

Unemployment is rising, businesses are failing, and folks are truly “slashing” their spending habits.  But in Washington, to “slash” means to increase spending 6% instead of 12%.  I’m sure most hard-working Americans – the poor stiffs whose taxes will pay for this “slash” – wished their budgets were in line for a 6% increase this year.

Week in Review: Bailout Bonuses, Marijuana and Eminent Domain Abuse

House Approves 90 Percent ‘Bonus Tax’

Sparked by outrage over the bonus checks paid out to AIG executives, the House approved a measure Thursday that would impose a 90 percent tax on employee bonuses for companies that receive more than $5 billion in federal bailout funds.

Chris Edwards, Cato’s director of tax policy studies, says the outrage over AIG is misplaced:

While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion — an amount 7,200 times greater than the $165 million of AIG retention bonuses.

So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.

Cato executive vice president David Boaz says this type of selective taxation is a form of tyranny:

The rule of law requires that like people be treated alike and that people know what the law is so that they can plan their lives in accord with the law. In this case, a law is being passed to impose taxes on a particular, politically unpopular group. That is a tyrannical abuse of Congress’s powers.

On a related note,  Cato senior fellow Richard W. Rahn defended the use of tax havens in a recent Wall Street Journal op-ed, saying the practice will only become more prevalent as taxes increase in the United States:

U.S. companies are being forced to move elsewhere to remain internationally competitive because we have one of the world’s highest corporate tax rates. And many economists, including Nobel Laureate Robert Lucas, have argued that the single best thing we can do to improve economic performance and job creation is to eliminate multiple taxes on capital gains, interest and dividends. Income is already taxed once, before it is invested, whether here or abroad; taxing it a second time as a capital gain only discourages investment and growth.

Obama to Stop Raids on State Marijuana Distributors

Attorney General Eric Holder announced this week that the president would end federal raids on medical marijuana dispensaries that were common under the Bush administration.

It’s about time, says Tim Lynch, director of Cato’s Project on Criminal Justice:

The Bush administration’s scorched-earth approach to the enforcement of federal marijuana laws was a grotesque misallocation of law enforcement resources. The U.S. government has a limited number of law enforcement personnel, and when a unit is assigned to conduct surveillance on a California hospice, that unit is necessarily neglecting leads in other cases that possibly involve more violent criminal elements.

The Cato Institute hosted a forum Tuesday in which panelists debated the politics and science of medical marijuana. In a Cato daily podcast, Dr. Donald Abrams explains the promise of marijuana as medicine.

Cato Links

• A new video tells the troubling story of Susette Kelo, whose legal battle with the city of New London, Conn., brought about one of the most controversial Supreme Court rulings in many years. The court ruled that Kelo’s home and the homes of her neighbors could be taken by the government and given over to a private developer based on the mere prospect that the new use for her property could generate more tax revenue or jobs. As it happens, the space where Kelo’s house and others once stood is still an empty dustbowl generating zero economic impact for the town.

• Daniel J. Ikenson, associate director of Cato’s Center for Trade Policy Studies, explains why the recent news about increasing protectionism will be short-lived.

• Writing in the Huffington Post, Cato foreign plicy analyst Malou Innocent says Americans should ignore Dick Cheney’s recent attempt to burnish the Bush administration’s tarnished legacy.

• Reserve your spot at Cato University 2009: “Economic Crisis, War, and the Rise of the State.”