Tax Hikes

Tax Rates Impact Economic Performance, but other Policies also Matter

Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.

I’m a big fan of fundamental tax reform, in part because I believe in fairness and want to reduce corruption.

But I also think the flat tax will boost the economy’s performance, largely because lower tax rates are the key to good tax policy.

There are four basic reasons that I cite when explaining why lower rates improve growth.

  1. They lower the price of work and production compared to leisure.
  2. They lower the price of saving and investment relative to consumption.
  3. They increase the incentive to use resources efficiently rather than seek out loopholes.
  4. They attract jobs and investment from other nations.

As you can see, there’s nothing surprising or unusual on my list. Just basic microeconomic analysis.

It’s Simple to Balance the Budget with Modest Spending Restraint

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Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.

Now that new numbers have been released by the Congressional Budget Office, it’s time once again for me to show how easy it is to balance the budget with modest spending restraint (though please remember our goal should be smaller government, not fiscal balance).

CBO issues another “fiscal cliff” warning

Back in May, the Congressional Budget Office (CBO) issued a stark warning to Congress that tax hikes scheduled to happen at the beginning of the year could trigger another recession. Since that time President Barack Obama and Senate Democrats have refused to act on extension of all current tax rates, which is the position of House Republicans. Instead, they’ve only pushed for one-year extension for individuals making $200,000 and families bringing in $250,000.

But yesterday, the CBO once again stressed that the looming tax hikes could hurt the economy if the stalemate doesn’t end:

In a fresh warning about the so-called “fiscal cliff,” the nonpartisan CBO reiterated that the U.S. economy will go into a recession next year if the Bush-era tax cuts expire and automatic spending cuts take effect. Read the CBO report.

In its latest report, the CBO predicts that the U.S. economy will grow at a 2.1% clip in 2012, but fall by 0.5% between the fourth quarter of 2012 and the fourth quarter of 2013 under the fiscal cliff scenario.

Previously, the CBO said growth would be 0.5% in 2013 under the fiscal cliff. In its new report it said the “underlying strength” of the economy is weaker.
[…]
The CBO said unemployment would jump to around 9% in the second half of 2013 from its current 8.3% if the tax increases and spending cuts play out.

Mike Lee on Tax Increases

Mike Lee

Utah Senator Mike Lee has been speaking out against proposed tax increases. He makes some great points in this article on the Daily Caller last week.

Lee points out first that it’s a partisan issue. It seems like everything these days in Washington is strictly partisan. The bickering between parties gets old (especially when both parties are saying the same thing), but I don’t think this is typical Republican finger pointing. Lee is one of a select few senators who isn’t utterly useless; he is the type of senator who would call out his Republican colleagues if this weren’t specifically an issue of Democrats being ridiculous.

Despite his would-be willingness for exposing hypocrisy within his party, Lee does make a few points the Republicans would like you to remember as we head toward November.

For example, the pushing of tax increases to push class warfare, or, in Lee’s words, “dividing Americans by income and pitting them against one another.” Lee even goes as far to say that these calls for higher taxes are out of desperation because “the electorate realizes Democrats are out of ideas.”

He also says that the responsibility for fixing budget woes lies with the Congress, not with the American people, and that the proposed tax increases will stifle job growth. He’s right on all accounts, but this is all buzzword stuff that every Republican  regurgitating through November.

Lee is one of the strongest members of the Senate on fiscal issues, and though he included the big buzzwords, he was exactly right when he said, “The proposal does not solve the problem of out-of-control deficits and debt.”

Debt and deficits. There’s the real problem.

Economy barely growing, Obama still pushing tax hikes

If you were hoping that the recent economic report would bring a change in direction from the White House on taxes, you were no doubt let down. The Commerce Department reported on Friday that gross domestic product (GDP) grew by only 1.5% in the second quarter of the year and consumer spending was down, once again showing the weakness of the economic recovery.

When pressed on whether or not the weak economic growth would bring a change in direction from President Obama, who is trying pushing tax hike proposal through Congress, White House Press Secretary Jay Carney insisted that tax hikes during a slow economy weren’t a bad idea. Alan Krueger, President Obama’s top economic adviser, also said that the reason the economy was lagging was because state governments need more stimulus spending.

It seems, however, that not only will the White House push more stimulus gimmicks, they are going to continue to push a tax hike that will have anywhere from a 1.3% to 2.9% contraction in the economy.

But Keynesians pushing a tax hike during tough economy times is question, one that would probably earn the ire of the man himself. Christina Romer, who served as an economic adviser to President Obama, once noted that tax hikes hurt the economy:

Obama rolls out another budget the Senate won’t pass

As expected, President Barack Obama rolled out his budget proposal for FY 2013, which, as we noted yesterday, comes with a $1.33 trillion budget deficit. As you can imagine, there is a lot to parse through it the proposal, which has been all but declared dead-on-arrival in Congress.

Some of the budget proposals are familiar. President Obama is once again pushing tax hikes on individuals earning more than $250,000 — more than the millionaires and billionaires he so frequently targets. James Pethokoukis has a run down of the tax hikes in the budget:

Obama’s new budget isn’t about economic growth or cutting debt or creating a “built to last” economy. The Obama campaign is built around the idea of reducing inequality. So in his budget, Obama takes the populist whip to the wealthy and to business:

1. The top income rate would be raised to 39.6 percent vs. 35 percent today.

2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.

3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.

4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.

5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.

6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.

CBO: Deficit to exceed $1 trillion in 2012

On the campaign trail and during the third presidential debate with Sen. John McCain (R-AZ) in 2008, then-candidate Barack Obama promised that Americans would see a “net-spending cut” during his presidency.

The claim was met with a boatload of skepticism given that Obama was proposing massive expansions in healthcare and non-defense discretionary spending; however, we all crossed our fingers that he would follow through, but we didn’t hold our breath.

The skepticism proved to be justified. Just a couple of months after coming into office, President Barack Obama told Americans that under his budget that there would be trillion dollar deficits as far as the eye can see.

He wasn’t kidding. The Congressional Budget Office released its budget report for this current fiscal year yesterday, predicting yet another trillion dollar budget deficit and unemployment hovering around 9%:

The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.

The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.
[…]
If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

Tea Party Debt Commission booted from Senate hearing room

Our friends at FreedomWorks had hoped yesterday to release the findings of the Tea Party Debt Commission at the Russell Senate Office Building in Washington. Despite being sponsored by Sen. Mike Lee (R-UT), Senate Democrats shut down the event, forcing them move to nearby Hillsdale College.

Congress has not passed a budget — one of its most basic functions — in 933 days, including two years of overwhelming Democratic Party majorities in both chambers while also controlling the presidency. FreedomWorks President Matt Kibbe and Sen. Lee were understandably frustrated by the actions of Senate Democrats, but were undeterred (as you can see in the video above).

In a statement from FreedomWorks, Kibbe said:

“The Senate hasn’t been able to pass a budget resolution three years running. They have been unable to do their job, and now the Rules Committee is trying to prevent the American people from doing it for them,” said Matt Kibbe, president of FreedomWorks

Super Committee is a Super Failure

The Budget Control Act of 2011 created the Joint Select Committee on Deficit Reduction (a.k.a. The Supercommittee) on August 2nd, 2011. The panel of 12 members, 6 Democrats and 6 Republicans is tasked with closing the deficit between revenues and spending by $1.2 Trillion over 10 years, the standard CBO measuring stick. This could be achieved in several ways: Cut spending by $120 Billion in year one – leading to more than $120 Billion in deficit reductions. A combination of revenue increases and cuts to equal the total of $1.2 Trillion over 10 years, or by completely covering the deficit with new revenues. Keep in mind however, that reductions could include a reduction in CBO projected expense year over year. Meaning that instead of increasing the spending budget for a given arm of expenditure by say 5%, they only increase it by 3%.

Currently, some Presidential candidates have put some bold ideas on the table: Ron Paul has promised to cut $1 Trillion from the 2013 budget, and Gary Johnson has promised to submit a balanced budget for 2013. Making this deficit reduction solution seemingly small, a “five minute job” if you will. However, the liberty minded among us have searched deep to try to find some sort of sign that a panel of 12 would do anything other than promise fake cuts and increase taxes. Frankly, the Supercommittee seems more like a way to deny culpability than anything else. It seems designed to fail. It seems designed to keep the status quo rather than effect real change. A term familiar to those who elected Barack Obama.

In a Newsmax.com article, Newt Gingrich agrees:

End the War on the Rich

There are more and more people out there pissed at the rich.  I certainly understand where they’re coming from, but they’re wrong.  The rich per se aren’t the problem.  It’s time to quit fighting against the rich.  Occupy Wall Street has been wanting to smack the rich, and making a lot of noise about it.  The problem is they’re wrong.  The rich are not now, nor have they ever really been, the problem.

No, the problem is the corporatists.  Those are the people we need to stand united against.

Corporations are a tool, a way to organize businesses.  They’re not the enemy either.  However, the people who seem to believe that corporations deserve tons of special breaks, including government bailouts, are.  They are the reason people are pissed.

Ezra Klein has a piece where he outlines many of the complaints of the OWS-ers.  Most of them are debt related.  A lot of it is student debt, debt that Presidents through the years told them to take on for a better life.  I understand that anger…to a point.

But you look around and the reality is not everyone is suffering. Wall Street caused this mess, and the government paid off their debts and helped them rake in record profits in recent years. The top 1 percent account for 24 percent of the nation’s income and 40 percent of its wealth. There are a lot of people who don’t seem to be doing everything they’re supposed to do, and it seems to be working out just fine for them.


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