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Posts Tagged ‘Federal Spending’

Obama’s Tax Hikes to Soak-the-Rich Won’t Work

The Wall Street Journal          APRIL 14, 2011          By ALAN REYNOLDS
Income tax revenues have been remarkably stable at 8% of GDP,

regardless of tax rates.

 The way to increase revenue is to grow the economy.

President Obama’s response to congressional efforts to curb runaway federal spending is to emphasize, once again, his resolve to greatly increase tax rates on married couples whose joint incomes are above $250,000. This insistent desire to raise taxes—which he repeated in a speech yesterday while complaining about “trillions of dollars in . . . tax cuts that went to every millionaire and billionaire in the country”—is a distraction. It won’t solve our nation’s fiscal problem.
Preliminary estimates from the Congressional Budget Office (CBO) project that federal spending under the president’s 2012 budget plan would average 23.3% over the coming decade—up from 19.7% in 2007 and 18.2% in 2001.

Even if the president could persuade Congress to enact all of his proposed tax increases, in addition to surtaxes already included in ObamaCare, the CBO finds we would still face endless budget deficits averaging 4.8% of GDP.

“Federal debt held by the public would double under the President’s budget,” says the CBO, “growing from $10.4 trillion (69% of GDP) at the end of 2011 to $20.8 trillion (87% of GDP) at the end of 2021, adding $9.5 trillion to the nation’s debt from 2012 to 2021.”

And yet, enormous as they are, these deficit and debt estimates assume that the higher tax rates called for under the president’s 2012 budget plan do no harm to the economy, that interest rates stay unusually low, and that the economy avoids recession for a dozen years. Those assumptions require taxpayers to behave much differently than they ever have before.

The revenue estimates are even more unbelievable. According to the Office of Management and Budget, total revenues would supposedly exceed 19% of GDP after 2015, rising to 20% by 2021—a level briefly reached only at the height of World War II (1944-45) and the pinnacle of the tech-stock boom (2000). Moreover, these unprecedented revenues would supposedly come from the individual income tax, which is even less plausible.

It is not as though we have never tried high tax rates before. From 1951 to 1963, the lowest tax rate was 20% to 22% and the highest was 91% to 92%. The top capital gains tax rate approached 40% in 1976-77. Aside from cyclical swings, however, the ratio of individual income tax receipts to GDP has always remained about 8% of GDP.

The individual income tax brought in 7.8% of GDP from 1952 to 1979 when the top tax rate ranged from 70% to 92%, 8% of GDP from 1993 to 1996 when the top tax rate was 39.6%, and 8.1% from 1988 to 1990 when the highest individual income tax rate was 28%. Mr. Obama’s hope that raising only the highest tax rates could keep individual tax receipts well above 9% of GDP has been repeatedly tested for more than six decades. It has always failed.

Federal revenue from the individual income tax exceeded 9% of GDP only eight times in U.S. history—during World War II (9.4% in 1944), the recessions of 1969-70, 1981-82 and 1991-92, and the tech-stock boom-bust of 1998-2001. Revenues were a high share of GDP during the three recessions because GDP fell.

The situation of 1997-2000 was unique. Individual income tax revenues reached an unprecedented 9.6% of GDP from 1997 to 2000 for reasons quite unlikely to be repeated. An astonishing quintupling of Nasdaq stock prices coincided with an extraordinary proliferation of stock options, which the Federal Reserve’s Survey of Consumer Finances found were granted to 11% of U.S. families by 2001, and with a reduction in the capital gains tax to 20% from 28%, which encouraged much greater realization of taxable gains through stock sales. Revenues from the capital gains tax rose to 10.8% of all individual income tax receipts in 1997 and 13% by 2000. The unexpected revenue windfalls in President Bill Clinton’s second term were largely a consequence of lower tax rates on capital gains.

Using IRS data, Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California at Berkeley have estimated that realized capital gains accounted for just 13%-22% of reported income among the top 1% of taxpayers from 1988 to 2006, when gains were taxed at 28%—but that fraction swiftly reached 29%-32% in 1998-2000, when the capital gains tax fell to 20%.

The average tax rate of such top taxpayers was mechanically diluted by the greatly increased realizations of capital gains after 1997 and 2003, since a larger share of reported income consisted of capital gains. Yet the amount of taxes paid by top taxpayers reached record highs for the same reason—there was more revenue to be had from taxing many gains at a low rate than from taxing fewer gains a high rate. Nobody can be forced to sell assets in taxable accounts. To complain that a low tax on realized capital gains is “unfair” is to suggest it would be fairer for affluent investors to sit on unrealized gains, as though an unpaid tax is morally superior to one that collects billions.

As a result of the conventional confusion between tax rates and revenues, some stories in the media have abetted the delusion that the huge gap between spending and likely revenues could be narrowed by simply increasing the highest tax rates on capital gains and/or dividends.

A recent cover story in Bloomberg Businessweek by Jesse Drucker, “The More You Make, the Less You Pay,” reported that, “For the well-off, this could be the best tax day since the early 1930s. . . . For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30% in 1995 to just under 17% in 2007, according to the IRS.”

Among the top 400 taxpayers (rarely the same people from one year to the next), the average tax rate fell to 22.3% in 2000, when the capital gains tax was 20%, from 29.9% in 1995 when the capital gains tax was 28%. But that same IRS report also shows that real tax revenues from the top 400 more than doubled after the capital gains tax fell, rising to $11.8 billion in 2000 from $5.2 billion in 1995, measured in 1990 dollars.

The same thing happened after 2003, when the capital gains tax was further reduced to 15%. The average tax rate of the top 400 fell to 16.6% in 2007 from 22.9% in 2002. Even though there was no stock market boom as in 1997-2000, real revenues of the top 400 nevertheless doubled again—to $14.5 billion in 2007 from $6.9 billion in 2002. Instead of paying less when the capital gains tax rate went down in 1997 and 2003, the top 400 instead paid much, much more.

The trendy talking point of blaming projected deficits on “tax cuts for the rich” is flatly absurd.

Both individual income taxes and overall federal taxes have long been a surprisingly constant percentage of GDP—8% and 18%, respectively— regardless of top tax rates on salaries, small business and investors. It follows that the only reliable way to raise real federal revenues over time is to raise real GDP.

Mr. Reynolds is a senior fellow with the Cato Institute and the author of “Income and Wealth” (Greenwood Press 2006).

Why Koch Industries Is Speaking Out

The Wall Street Journal

By CHARLES G. KOCH
MARCH 1, 2011

Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better

Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year—double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.

Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.

For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we’ve been vilified by various groups. Despite this criticism, we’re determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.

Both Democrats and Republicans have done a poor job of managing our finances. They’ve raised debt ceilings, floated bond issues, and delayed tough decisions.

Senior Economics Writer Stephen Moore critiques Washington’s pending budget deal.
In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.

Yes, some House leaders have suggested cutting spending to 2008 levels. But getting back to a balanced budget would mean a return to at least 2003 spending levels—and would still leave us with the problem of paying off our enormous debts.

Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion. That’s well over $300,000 for every man, woman and child in America (and exceeds the combined value of every U.S. bank account, stock certificate, building and piece of personal or public property).

The Congressional Budget Office has warned that the interest on our federal debt is “poised to skyrocket.” Even Federal Reserve Chairman Ben Bernanke is sounding alarms. Yet the White House insists that substantial spending cuts would hurt the economy and increase unemployment.

Plenty of compelling examples indicate just the opposite. When Canada recently reduced its federal spending to 11.3% of GDP from 17.5% eight years earlier, the economy rebounded and unemployment dropped. By comparison, our federal spending is 25% of GDP.

Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay.

Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.

The purpose of business is to efficiently convert resources into products and services that make people’s lives better. Businesses that fail to do so should be allowed to go bankrupt rather than be bailed out.

But what about jobs that are lost when businesses go under? It’s important to remember that not all jobs are the same. In business, real jobs profitably produce goods and services that people value more highly than their alternatives. Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.

Because every other company in a given industry is accepting market-distorting programs, Koch companies have had little option but to do so as well, simply to remain competitive and help sustain our 50,000 U.S.-based jobs. However, even when such policies benefit us, we only support the policies that enhance true economic freedom.

For example, because of government mandates, our refining business is essentially obligated to be in the ethanol business. We believe that ethanol—and every other product in the marketplace—should be required to compete on its own merits, without mandates, subsidies or protective tariffs. Such policies only increase the prices of those products, taxes and the cost of many other goods and services.

Our elected officials would do well to remember that the most prosperous countries are those that allow consumers—not governments—to direct the use of resources. Allowing the government to pick winners and losers hurts almost everyone, especially our poorest citizens.

Recent studies show that the poorest 10% of the population living in countries with the greatest economic freedom have 10 times the per capita income of the poorest citizens in countries with the least economic freedom. In other words, society as a whole benefits from greater economic freedom.

Even though it affects our business, as a matter of principle our company has been outspoken in defense of economic freedom. This country would be much better off if every company would do the same. Instead, we see far too many businesses that paint their tails white and run with the antelope.

I am confident that businesses like ours will hire more people and invest in more equipment when our country’s financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.

Mr. Koch is chairman and CEO of Koch Industries, Inc. He’s the author of “The Science of Success: How Market-Based Management Built the World’s Largest Private Company” (Wiley, 2007).

Your Declaration of Independence from Obama and Pelosi

Do you remember the Contract with America? Millions of Americans came together to demand action from Washington on issues ranging from abortion and gun rights to out of control spending and regulation. And we won. Conservative candidates swept the polls and held back Washington’s power grabs, waste and self-indulgence for almost a decade. That was 16 years ago. Since then, politicians have abandoned America. Election after election, we see the same results. Incumbents get comfortable, outsiders become insiders, and before we know it… everything we worked for vanishes in the haze of bloated budgets, waves of illegal immigration, and outbursts of federal power. It’s time for a new Contract. We have gathered the 10 most important conservative issues into a list that we demand action and adherence to

Declaration of Independence
We, the undersigned American voters, are disgusted with the antagonism of many of our elected and appointed government officials toward American values, their violations of their oaths to uphold our Constitution, and their manifest disdain for our God-given, constitutional rights and liberty. The words and deeds which have come from such an attitude have made our federal government the most serious threat to the safety and freedom of Americans in our time.
You, our elected and/or appointed officials, are our representatives. Your authority over us is not unlimited: it is limited by our fundamental law, our Constitution. We expect you to uphold, not subvert, our fundamental values. We expect you to abide by your oath to support our Constitution. If you represent us, you should publicly support—in action as well as in speech—at least the following American principles:

Article I: Limited Government
The federal government has been given clearly limited and defined powers in the Constitution in order to preserve our freedom. The idea of Big Government running every aspect of our lives—from healthcare to the cars we drive—is revolting and unconstitutional. The founding fathers designed separation of powers with checks and balances into the Constitution to decentralize power and preserve our liberty. A constitutional amendment requiring term limits for all publically elected officials is necessary. Presidents, congressmen, senators, and judges who violate the Constitution’s limit on the powers of their offices—and do not work to prevent other officials’ transgressions of those limits—must be removed from office.

Article II: Gun Rights
The Second Amendment guarantees private citizens the right to keep and bear arms. The federal government has no authority to restrict this right in any way, shape, or form. Federal officials who do so must be removed from office.

Article III: Courts
Judges should interpret the law by studying the intentions of the framers of the Constitution and its amendments, and by adhering to legal precedents which are based squarely on those intentions. Judges who legislate—or amend our Constitution—from the bench must be removed from the bench.

Article IV: Federal Spending
Unconstitutional legislation and fiscal irresponsibility have produced out-of-control deficit spending that is crippling our future—and our children’s and grandchildren’s. The only way to bring Congress under control is to restrict how much they can tax and spend and one way to accomplish this is through a balanced budget amendment. Legislators and presidents who engage in uncontrolled spending must be removed from office.

Article V: Energy
Americans should be free to pursue energy options which use our own resources, don’t tax us to subsidize politically-favored groups, and don’t enslave us to foreign countries. We need sensible, constitutional environmental rules—not environmentalist extremism—the removal of impediments to the development of nuclear and other forms of energy, and freedom to drill in Anwar and elsewhere. Politicians who stand in the way of energy independence must be removed from office.

Article VI: Personal Responsibility
Government handouts in any form take from some to give to others and create dependence. Government does not exist to provide for its citizens and our Constitution does not authorize such legalized theft. Current federal compensation programs, including “corporate welfare”, should be phased out—and politicians who advocate such things should be removed from office.

Article VII: National Defense

A strong national defense is a constitutional as well as a practical necessity in this hostile world. Our citizens and our national interests must be protected. Terrorists should be tried in military tribunals and not given the rights of American citizens that so many of our troops have died to defend. Our military forces must be kept second-to-none: by a large margin. Politicians and officials who weaken our national defenses must be removed from office.

Article VIII: Borders
Secure borders are essential to the defense of our lives, liberty, and property. There is a legal way to come to this country and we welcome those who do so. Those who do not are breaking the law and should be treated as criminals. Amnesty is not an option for those who came here illegally. Politicians who advocate anything less must be removed from office.

Article IX: Right to Life
Human life unquestionably begins at conception. Ending the life of an unborn child via abortion is murder, is truly unconstitutional, and must be outlawed. Politicians whose character does not agree with this must be removed from office.

Article X: States Rights
The Tenth Amendment states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The federal government has usurped many powers from the state governments. These powers must be returned to the respective states—for the sake of constitutionality and of our freedom. Politicians who oppose states’ rights must be removed from office.

CONCLUSION:
We the people of these United States declare that we will support candidates who support these principles and work against those who violate them.

HELP US KEEP YOU BETTER INFORMED ABOUT THE TRICKS OF THE RADICAL PROGRESSIVE REVOLUTION PLEASE DONATE ANY AMOUNT YOU CAN