Senin, 19 September 2011

Good Grief: Obama announces real tax hikes, phantom savings by not doing what we already weren't doing

Times are tight. You and your wife sit down with the family budget, figure that you are spending more than you are taking in thereby racking up credit card debt, and decide that you can't possibly afford that new $22,000 car you wanted. Did you just save $22,000? Let's go further and the same couple decides not to take that $30,000 luxury trip around the world you always wanted to take. Let me go one more and the same couple decides they can't build that $25 trillion rocket ship to get to Mars like they've been dreaming of. Savings: $25 trillion! Woohoo! Of course, none of those scenarios change anything. In all cases the savings do not exist. Which brings me to yet another absurd announcement by our community organizer-in-chief that the AP mislabels completely in the headlines: Obama announces debt plan built on taxes on rich
It's not a debt plan, but rather a fake deficit plan. Even if this plan were real, which it's not, all it would do is reduce the amount of overspending. That is, you will borrow on the credit card less than you would otherwise. Meanwhile, your credit card debt continues to skyrocket regardless. From the AP article:
In a blunt rejoinder to congressional Republicans, President Barack Obama called for $1.5 trillion in new taxes Monday, part of a total 10-year deficit reduction package totaling more than $3 trillion. He vowed to veto any deficit reduction package that cuts benefits to Medicare recipients but does not raise taxes on the wealthy and big corporations.

"We can't just cut our way out of this hole," the president said.
I say pass the cuts and let him veto it. It would be the final nail in his electoral coffin. And then comes the phantom savings:
The president's proposal would predominantly hit upper income taxpayers but would also reduce spending in mandatory benefit programs, including Medicare and Medicaid, by $580 billion. It also counts savings of $1 trillion over 10 years from the withdrawal of troops from Iraq and Afghanistan.
So he proposes to not do what is already slated to not be done! There is ZERO savings there! And the obligatory class warfare:
"It's only right we ask everyone to pay their fair share," Obama said from the Rose Garden at the White House.
Meanwhile, the bottom 51% pay zero federal income taxes and the bottom 40% get money back. Who's not paying their fair share?

UPDATE:From the comments section in the Macomb Daily where the above AP piece was posted:
" Chasing money out of the system.
By Thomas Sowell

via Carpe Diem
Ninety years ago — in 1921 — federal income tax policies reached an absurdity that many people today seem to want to repeat. Those who believe in high taxes on "the rich" got their way. The tax rate on people in the top income bracket was 73 percent in 1921. On the other hand, the rich also got their way: They didn't actually pay those taxes.

The number of people with taxable incomes of $300,000 a year and up — equivalent to far more than a million dollars in today's money — declined from more than a thousand people in 1916 to less than three hundred in 1921. Were the rich all going broke?

It might look that way. More than four-fifths of the total taxable income earned by people making $300,000 a year and up vanished into thin air. So did the tax revenues that the government hoped to collect with high tax rates on the top incomes.

What happened was no mystery to Secretary of the Treasury Andrew Mellon. He pointed out that vast amounts of money that might have been invested in the economy were instead being invested in tax-exempt securities, such as municipal bonds.

Secretary Mellon estimated that the amount of money invested in tax-exempt securities had nearly tripled in a decade. The amount of this money that the tax collector couldn't touch was larger than the federal government's annual budget and nearly half as large as the national debt. Big bucks went into hiding.

Mellon pointed out the absurdity of this situation: "It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to the support of his Government should remain unaltered."

One of Mellon's first acts as Secretary of the Treasury was to ask Congress to end tax exemptions for municipal bonds and other securities. But Congress was not about to set off a political firestorm by doing that.

Mellon's Plan B was to cut the top income tax rate, in order to lure money out of tax-exempt securities and back into the economy, where increased economic activity would generate more tax revenue for the government. Congress also resisted this, using arguments that are virtually unchanged to this day, that these would just be "tax cuts for the rich."

What makes all this history so relevant today is that the same economic assumptions and political arguments which produced the absurdities of 1921 are still going strong in 2011.

If anything, "the rich" have far more options for putting their money beyond the reach of the tax collectors today than they had back in 1921. In addition to being able to put their money into tax-exempt securities, the rich today can easily send millions — or billions — of dollars to foreign countries, with the ease of electronic transfers in a globalized economy.

In other words, the genuinely rich are likely to be the least harmed by high tax rates in the top brackets. People who are looking for jobs are likely to be the most harmed, because they cannot equally easily transfer themselves overseas to take the jobs that are being created there by American investments that are fleeing from high tax rates at home.

Small businesses — hardware stores, gas stations or restaurants for example — are likewise unable to transfer themselves overseas. So they are far more likely to be unable to escape the higher tax rates that are supposedly being imposed on "millionaires and billionaires," as President Obama puts it. Moreover, small businesses are what create most of the new jobs.

Why then are so many politicians, journalists and others so gung-ho to raise tax rates in the upper brackets?

Aside from sheer ignorance of history and economics, class warfare politics pays off in votes for politicians who can depict their opponents as defenders of the rich and themselves as looking out for working people. It is a great political game that has paid off repeatedly in state, local and federal elections.

As for the 1920s, Mellon eventually got his way, getting Congress to bring the top tax rate down from 73 percent to 24 percent. Vast sums of money that had seemingly vanished into thin air suddenly reappeared in the economy, creating far more jobs and far more tax revenue for the government.

Sometimes sanity eventually prevails. But not always. "
Ain't that the truth though.

UPDATE #2: Related links up at drudge:
UPDATE #3: Do Taxes on the Rich Raise More Revenue? 
Robert Frank in the WSJ:

"The debate over taxing the rich in the U.S. seems to center on “fairness” – who pays too much or too little. Yet there is little discussion about a more immediate question: Would it raise the expected revenue?

Great Britain’s recent experience may be instructive. The U.K. is imposing a new tax rate of 50% for those making £150,000 a year (about $236,000). There is a fierce battle between British Chancellor George Osborne, who wants to scrap the tax, and many Liberal Democrats, who want to preserve it.

The Chancellor has asked for a study to find out how much revenue the tax has raised, though hard numbers won’t be available until next year. It was expected to raise £2.7 billion a year.

A report from Britain’s Institute for Fiscal Studies said the tax is costing the treasury £500 million a year, instead of earning billions. The reason: High earners are simply finding ways to avoid the tax. Top earners are hiding income or moving their earnings offshore.
That would be a resounding NO!

UPDATE #3: Obama On Deficit: Not Class Warfare, ‘It’s Math’
Uh um.

UPDATE #4: OMB director: “We’re not saying there’s anything wrong with people earning a lot”
Jack Lew today couldn’t say how an additional tax on millionaires and billionaires will create jobs — and barely confirmed that he thinks such a tax will at least contribute to deficit reduction. The director of the Office of Management and Budget appeared this morning on Fox News’ “Happening Now” to defend the president’s just-announced proposals to trim the deficit — proposals that are a part of his overall jobs plan. Fox’s Jenna Lee asked Lew how the tax will reduce the nation’s high rate of unemployment.

...Lee conceded fairness in the tax code is a laudable goal, but again pressed Lew as to how the tax will grow jobs. She wondered: Which of the president’s proposals specifically will improve the jobs situation? Lew didn’t have an answer.
It's about ideology, not jobs.

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