Posts Tagged ‘investment’

Misery Index HIGHEST EVER, Hiring Only 70% Of 2006 Levels, And Boy Do We Ever Need A New President

May 16, 2011

Economics statistics are well on their way to becoming a Department in the 1984-style “Ministry of Truth.”

We start with misery, and the real apples-to-apples misery index that we can compare to the misrule of Jimmy Carter.  From Economic Policy Journal:

John Williams, over at Shadow Stats, compiles economic data for inflation and unemployment the way it used to be calculated pre-1990. Based on that data, the CPI inflation rate is over 10%, and the unemployment rate is over 15% (see charts). The Misery Index is the sum of the current inflation rate and the unemployment rate.  If it were to be calculated using the older methods, the Index would now be over 25, a record high. It surpasses the old index high of 21.98, which occurred in June 1980, when Jimmy Carter was president. Most believe the height of the Index along with the Iranian hostage crisis is what caused Carter to lose his re-election bid.

 

 

Using current calculation methods, April unemployment came in at 9.0% and the annualized April CPI number came in at 4.8%, for a Misery Index reading of 13.8.

The last time the Index came in with a higher reading with this index reading was in March 1983, with a reading of 13.90.

Ronald Reagan, of course, was president in 1983.  Reagan had a monster that Jimmy Carter largely created called out-of-control inflation.

As I previously explained:

The numbers told the sad story of the Jimmy Carter presidency: interest rates of 21%; inflation at 13.5%, and an unemployment rate of 7%.  And a relatively new economic device called “the misery index” – the combination of the unemployment and inflation rates which Carter had himself used to great effect in his 1976 campaign to win election – was at a shocking 20.5%.

And those who went through those dark and difficult times may soon be looking back to that period as “the good old days.”

Welcome back, Carter.

When Ronald Reagan took office from Jimmy Carter, inflation was at a meteoric 13.3% and the country was in the throes of a fierce recession. There was a real question as to whether workers’ wages would keep up with the costs of living, which made people afraid to either spend or save. And nobody knew how to control inflation – which had risen from 1.4% in 1960 to the aforementioned 13.3% in 1980 – causing a real erosion of confidence in the future. Jimmy Carter answered a reporter’s question as to what he would do about the problem of inflation by answering, “It would be misleading for me to tell any of you that there is a solution to it.”

But Ronald Reagan had a solution.  And by the time he left office, he had solved the problem of creeping inflation increases and had actually reversed the trend: he left behind a healthy inflation rate of 4.1%.

Reagan’s policies set the trajectory for growth that would last for 20 years.

Jimmy Carter didn’t have an answer for the economy, so he just made it worse and worse and WORSE.  Reagan had an answer.  He not only made it better; he established a trajectory of economic success.

And of course, we’re heading right back to that time of shocking inflation.  The cost of EVERYTHING is going up.  And there is absolutely no indication whatsoever that Barack Obama has an answer that is working.  Which is only going to make the pain last longer and the solution more difficult.  Presuming there is another Reagan waiting in the wings for that time when the American people overwhelmingly abandon Democrats and revile them for the failures that they are and basically always have been.

So what does the mainstream media do with that?

They create the propaganda that somehow Obama is a new Reagan, despite the fact that Obama reviles everything Reagan stood for, just as Reagan would have reviled everything Obama stands for.

Then there’s the enemployment beast.  How’s THAT hope and change working out for you?

Here’s some new news about hopey changey from the Wall Street Journal:

 MAY 16, 2011
Why the Job Market Feels So Dismal
The number of hires is the same today as it was when we were shedding jobs at record rates.
By EDWARD P. LAZEAR

Why don’t American workers feel that the labor market is on the mend? After all, the May 6 jobs report could suggest that the labor market is improving. Nonfarm employment rose by 244,000 and employment growth over the last three months is averaging over 200,000 per month. With unemployment at 9%, employment is still down many millions from where it should be, but up from its recession lows.

The fact is the jobs numbers that create so much anticipation from the business press and so many pundit pronouncements do not give a clear picture of the labor market’s health.  A better understanding requires an examination of hires and separations, or what the Bureau of Labor Statistics calls Job Openings and Labor Turnover Survey (JOLTS) data. Here are some surprising facts:

First, the increase in job growth that occurred over the past two years results from a decline in the number of layoffs, not from increased hiring. In February 2009, a month during which the labor market lost more than 700,000 jobs, employers hired four million workers. In March 2011, employers hired four million workers. The number of hires is the same today as it was when we were shedding jobs at record rates.

We added jobs because hires exceeded separations, not because hiring increased. There were 4.7 million separations in February 2009. In March 2011 that number had fallen to 3.8 million. The fall in separations reflects a decline in layoffs, which went from 2.5 million per month in February 2009 to 1.6 million per month in March 2011. One small piece of good news is that the just-released April data showed hires up about 2% over last year’s average and 12% above the low reached in January 2010.

The decline in layoffs is not unexpected and does not necessarily reflect labor-market health. Layoffs tend to occur early in a recession. When an economy has reached bottom and has already shed much of its labor, layoffs slow. But that doesn’t mean that the labor force is recovering. We could have high unemployment and a stagnant labor force even when layoffs are low. Isn’t the fact that hires exceed separations indicative of a healthy labor market? Unfortunately, no.

At any point in the business cycle, even during a recession, American firms still hire a huge number of workers. That’s because most of the action in the labor market reflects “churn,” the continual process of replacing workers, not net expansion or contraction of employment. The lowest number hired in any month of the current recession was 3.6 million workers. Even during the dismal year of 2009 there were more than 45 million hires.

Bear in mind that the U.S. labor force has more than 150 million workers or job seekers. In a typical year, about one-third or more of the work force turns over, leaving their old jobs to take new ones. When the labor market creates 200,000 jobs, it is because five million are hired and 4.8 million are separated, not because there were 200,000 hires and no job losses. When we’re talking about numbers as large as five million, the net of 200,000 is small and may reflect minor, month-to-month variations in the number of hires or separations.

The third fact puts this in perspective. In a healthy labor market like the one that prevailed in 2006 and early 2007, American firms hire about 5.5 million workers per month. Recall that the current number of hires is four million and it has not moved much from where it was two years ago. The labor market does not feel like it is expanding if hiring is not occurring at a recovery-level pace—and that means at least a half million more hires per month than we are seeing now.

The combination of low hiring and a large stock of unemployed workers, now 13.7 million, means that the competition for jobs is fierce. Because there are now many more unemployed workers, and because hiring is only about 70% of 2006 levels, a worker is about one-third as likely to find a job today as he or she was in 2006. It is no wonder that workers do not feel that the labor market has recovered.

One final fact is worth noting. Healthy labor markets are characterized not only by high levels of hiring, but also by high levels of separations. Although it is true that the importance of quits relative to layoffs rises during good times, even the number of layoffs was greater in the strong labor market of 2006-07 than it is now. No one would suggest that layoffs are good for workers, but what is good is a fluid labor market, where workers and firms constantly seek to produce better products and to find more efficient ways to produce them. High labor market churn is a characteristic of a strong economy. It generally means that workers are moving to better jobs in growing sectors that pay higher wages and away from declining sectors that pay lower wages.

Allowing maximum flexibility encourages fluidity and means that employers are willing to hire workers who lose their jobs elsewhere. Many European countries have restricted mobility by imposing severance pay penalties on employers that lay workers off. More than reducing layoffs, these rigidities make employers reluctant to hire because of the penalties that they will later incur if a layoff is necessary. Such restrictions are in large part responsible for the chronically high rates of unemployment that have been prevalent in many European countries.

The prescription for the American labor market is simple: low taxes on capital investment, avoidance of excessively burdensome regulation, and open markets here and abroad. We must create a climate in which investment is profitable, productivity is rising, and employers find it profitable to increase their hiring rate. These are the mantras that economists have chanted in the past. But they are our best bet for ensuring a dynamic and growing labor market.

Mr. Lazear, chairman of the President’s Council of Economic Advisers from 2006-2009, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow

Wait a minute.  What was that one sentence again?

Because there are now many more unemployed workers, and because hiring is only about 70% of 2006 levels, a worker is about one-third as likely to find a job today as he or she was in 2006.

Yeah, but George Bush was bad by mainstream media propagandist definition, and Obama is good by the same standard.

If you want welfare, vote for Obama.  You’ll get it until United States of America implodes into a failed banana republic.  And then you’ll get the Marxist-fascist hybrid the left has been dreaming of for the last fifty years.  You want a job?  Vote for a conservative Republican.

Advertisements

Lest We Forget: OBAMA Is America’s Sputnik Moment

January 26, 2011

Obama talked about America facing a “Sputnik moment” last night.  For the record, “Sputnik” was a Soviet successful satellite that stunned America out of its complacency.  America entered the space race with a vengeance, and won it by a knockout.  Obama exploited that moment,  pointed out that America is watching the world go past us, and says we need to be competitive by pursuing massive government spending oops I mean “investment.”

A write up from Slate:

But he did evoke a huge defense issue from a half-century ago—the signal wake-up security call that marked the years of transition from Dwight Eisenhower to John F. Kennedy, the single word that has symbolized ever since the fear of slipping behind in a dangerous world: Sputnik.

“This is our generation’s Sputnik moment,” Obama said. As a result, we need to fund “a level of research and development we haven’t seen since the height of the space race.”

Well, at the heart of Obama’s State of the Union speech were many contradictions.  And I’ll get to them.  But his “Sputnik moment” thing was the worst one of all.

Allow me to cite a couple of my own articles to document just how stunningly pathetic Obama’s analogy truly is:

Space Program: Obama’s Strategy To Turn America Into Banana Republic Moving Like Clockwork

When American Greatness Is Gone, And When NASA = ‘National Aeronautics and Sharia Administration’

The first article above documents how Obama has been GUTTING the space program, and in fact RETURNING AMERICA to the pre-Sputnik vulnerability.  To the disgust and open contempt of former NASA heroes.  And the second documents how Obama has turned the now disgraced NASA into yet another tool for political correctness.

And to make sure you realize how pathetically laughable Obama’s analogy is, let’s make sure we understand that Sputnik was a Russian threat, and then let’s make sure we understand how Obama has helped undermine American interests to advance the Russians with yet another title:

Obama’s Treasonous Lies Help Russia Punk America

That one documents how Obama has undermined America’s missile defense program.  And the actual Sputnik moment was all about dealing with Russian missiles.

This guy’s talking about our Sputnik moment?  Seriously?

Conservatives had already debunked many of Obama’s lies last night before he even told them.  I’ve debunked those lies right here.

This is why Senator Jim DeMint said after Obama’s latest speech, “It’s hard to take the president seriously.”

But sadly we must take Obama seriously.  Because Obama’s real political genius comes down to one simple thing: he realized that the people who support him are stupid and ignorant, don’t know a damn thing that the incredibly biased media machine doesn’t tell them, and that he can therefore spit out anything and not get caught by much of America in his deceit.

Obama is our Sputnik moment.  By which I mean, this turd-in-chief and his policies are the reason that we are failing and falling behind while other nations around us rise up and overtake us.

One of the other major contradictions of Obama’s speech are that he is essentially acting as if the previous two years didn’t happen.  “Nothing to see over there, folks, now if you don’t mind looking this way.” Obama is saying that we need a major new “investment” (which is a tidy euphemism for yet more government pork), when in fact he has already “invested” well over a trillion dollars with absolutely nothing to show for it but more debt and more deficits than this nation has ever seen before.

Which is why DeMint said:

When asked about President Obama’s statements about government investments, DeMint said, “Now the president is promising more spending, which he calls investments, when the time is to cut spending in Washington.. The president needs to tell the American people the truth.. That its time for the federal government to do less.”

Let’s look at Obama’s trillions in “investment” and see what effect it has had on our “competitiveness”:

Why Is American Unemployment Under Obama Rising Faster Than In Other Countries?

The Dirty Secret About Our Unemployment Rate

Obama Stimulus Is Reason Why Our Unemployment So Much Higher Than Others

In other words, there is an inversely proportional comparison to Obama’s stimulus and American “competitiveness.”

And US government spending has little or nothing to such competitiveness.  Take a look at our education spending:

U.S. tops the world in school spending but not test scores

WASHINGTON (AP) — The United States spends more public and private money on education than other major countries, but its performance doesn’t measure up in areas ranging from high-school graduation rates to test scores in math, reading and science, a new report shows.

That dates back to 2003.  Look before that, look after that, and the results are the same.  We spend and spend and spend while our kids get dumber and dumber and dumber.  To the extent that right now only a third of our kids are considered proficient in major subjects.

Here’s the problem: liberals call for more and more and more spending, but liberals make sure that all the largess goes to them, and goes to their politically connected interests.  Like the liberal teachers unions that are the REAL reason our country is falling behind in education.  And to the extent we spend more, we only feed the beast that is the REAL source of our dilemma and help build it into an even BIGGER problem as it uses its vast resources to protect the status quo.

Obama wants to spend billions on “green energy.”  What that means is that he wants to subsidize incredibly expensive and NON-Competitive energy sources while our rivals continue to run circles around us with cheap and efficient oil and coal.  And the more and the faster we spend, the more and the faster we fall behind.

The real sputnik moment, epitomized in the person of Obama himself, is this: America is spending itself into extinction.  It is not wise spending, because we are sucking money out of the efficient private sector, giving to an incredibly inefficient and wasteful federal government, and then doling it out on the basis of political patronage rather than common sense.

I’ll end with this: Obama is using a “mangled multiplier” as his basis for the need for more government spending.  On Obama’s and the Democrat Party’s distorted view, for every dollar the federal government spends, we get a $1.55 “bang for our buck.”  But it isn’t true.  Unless you really think building tunnels for turtles, bridges to nowhere and studying cow flatulence is going to make America great.  On the International Monetary Fund model, which just makes more sense in addition to being less ideologically biased, we only get back 70 cents for every dollar spent.  See this article for the documentation on that, and check out this graph:

In his SOTU speech, Obama provided an airplane metaphor that went:

“Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may feel like you’re flying high at first, but it won’t take long before you’ll feel the impact.”

On Obama’s metaphor, government is the engine that flies our economy.  And if you reduce government spending, you eliminate the engine and the plane crashes.  But that simply isn’t true; it is PRIVATE spending that flies our economy.  And sucking money out of the private sector to create more government bureaucracy and more pork-barrel spending is foolhardy.  It is actually OBAMA who is actually removing the engine from our economy.

If we really want to experience a “Sputnik moment” and surge back to greatness, what we need to do is wake up and vote out Obama and the Democrat Party.

Obama Keeps Lying About The Economy

August 12, 2010

“Fish story.”  “Such statements hurt his credibility.”  Let’s just call it what it is: a pile of lies from a profoundly dishonest man.

JULY 21, 2010
Obama’s Economic Fish Stories
On unemployment, the president claims that the stimulus bill was several times more potent than his chief economic adviser estimates. Such statements hurt his credibility.
By MICHAEL J. BOSKIN

A president’s most valuable asset—with voters, Congress, allies and enemies—is credibility. So it is unfortunate when extreme exaggeration emanates from the White House.

All presidents wind up saying some things that make even their own economists cringe (often the brainchild of political advisers unconstrained by economic principles, facts or arithmetic). Usually, economic advisers manage to correct these problematic statements before delivery. Sometimes they get channeled into relatively harmless nonsense, such as President Gerald Ford’s “Whip Inflation Now” buttons. Other times they produce damaging policies, such as President Richard Nixon’s wage and price controls. The most illiterate statement was President Jimmy Carter’s late-1970s plea to the Federal Reserve to lower interest rates to combat high inflation, the exact opposite of what it should do. Not surprisingly, the value of the dollar collapsed.

boskin

Martin Kozlowski

President Obama says “every economist who’s looked at it says that the Recovery Act has done its job”—i.e., the stimulus bill has turned the economy around. That’s nonsense. Opinions differ widely and many leading economists believe that its impact has been small. Why? The expectation of future spending and future tax hikes to pay for the stimulus and Mr. Obama’s vast expansion of government are offsetting the direct short-run expansionary effect. That is standard in all macroeconomic theories.

So, as I and others warned in 2008, the permanent government expansion and higher tax rate agenda is a classic example of what not to do during bad economic times. Worse yet, all the subsidies, bailouts, regulations and mandates are forcing noncommercial decisions on the economy, which now awaits literally thousands of new diktats as a result of things like ObamaCare and the financial reform bill. The uncertainty is impeding investment and hiring.

The president does not say that economists agree that the high future taxes to finance the stimulus will hurt the economy. (The University of Chicago’s Harald Uhlig estimates $3.40 of lost output for every dollar of government spending.) Either the president is not being told of serious alternative viewpoints, or serious viewpoints are defined as only those that support his position. In either case, he is being ill-served by his staff.

Mr. Obama’s economic statements are increasingly divorced not only from competing viewpoints but from those of his own economic advisers. It is surprising how many numerically challenged pronouncements come from this most scripted and political of White Houses. One slip is eventually forgiven, but when a pattern emerges, no one believes it is an accident.

For example, on the anniversary of the stimulus bill, Mr. Obama declared, “It is largely thanks to the Recovery Act that a second Depression is no longer a possibility.” Yet his Council of Economic Advisers just estimated the stimulus bill’s effect on GDP at its trough was 1%-2%.

The most common definition of a depression is a long period in which GDP or consumption declines at least 10%. The decline in GDP in the recent recession was 3.8%, in consumption 2%. No one disputes the recession was severe, but to reach a 10% GDP decline requires tripling the administration’s estimate (three times their 2% effect) added to the actual 3.8% decline. On the alternative consumption standard, the math is even more absurd. The depression statement isn’t credible. The stimulus bill has assumed certain mystic powers in administration discourse, but revoking the laws of arithmetic shouldn’t be one of them.

The recession would have been worse if not for the Fed’s monetary policy and quantitative easing. Also important were the unmentioned automatic stabilizers—taxes falling more than income, cushioning declines in after-tax incomes and consumption—which were far larger than the spending and tax rebates in the stimulus bill. Arguing that all these policies (including injecting capital into banks, which was necessary but done poorly) may have prevented a depression is perhaps still an exaggeration but at least is within hailing distance of plausibility. On that scale, the effect of the stimulus was puny.

On his recent “Recovery Tour,” Mr. Obama boasted, “The stimulus bill prevented the unemployment rate from “getting up to . . . 15%.” But the president’s own chief economic adviser, Christina Romer, has estimated that the stimulus bill reduced peak unemployment by one percentage point—i.e., since the unemployment rate peaked at 10.1%, it prevented the unemployment rate from rising to just over 11%. So Mr. Obama claims that the stimulus bill was several times more potent than his chief economic adviser estimates.

Perhaps the most serious disconnect concerns the impending expiration of the 2001 and 2003 tax cuts, which will raise the top two income tax rates and the rates on dividends and capital gains. If these growth inhibiting tax increases occur—about $75 billion in tax increases next year, $1.4 trillion over 10 years—there will be serious economic damage.

In the most recent issue of the American Economic Review, Ms. Romer (and her husband David H. Romer) conclude that “tax increases are highly contractionary . . . tax cuts have very large and persistent positive output effects.” Their estimates imply the tax increases would depress GDP by roughly half the growth rate in this so-far-anemic recovery.

If Mr. Obama is really serious about a second stimulus, by far the best thing he can do is have Congress quickly extend the expiring Bush tax cuts, combined with real spending cuts set to take effect as the economy improves.

The president badly needs to make more realistic pronouncements. No one expects him to say his policies have failed (although most have delivered far less than claimed at large cost). A little candor about the results of experimentation in uncharted waters would go a long way. But at the very least, his staff needs to avoid putting these exaggerations on the teleprompter. It undermines confidence and raises concerns about competence. It’s doing nobody any good—not the economy and certainly not Mr. Obama.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

Day after day after day, Obama touts slivers of good news as magnificent, while ignoring pile on top of pile of bad news.  We keep getting these tortured numbers, cherry-picked out of a a rotten mess.  And we’re constantly told the increasingly laughable narrative that Obama’s incredible leadership is what kept everything from being even worse than it is.

The funniest aspect of all is when Obama and his mouthpiece Robert Gibbs keep assuring us that no economist disagrees with their policies when their very own chief economist is on record disagreeing with Obama’s policies.

Obama mouthpiece Gibbs declares:

I’ll let Congressman Boehner unwind his eloquent argument for preserving the tax cuts for those that are quite wealthy.  I don’t think the President believes — I don’t think there’s an economist that believes there’s a stimulative effect to — or a good reason in terms of economic growth to extend those tax cuts, particularly given the choice that one has to make about the budget deficit.

Forbes Magazine demonstrates how fallacious and even dishonest Obama’s and Gibbs’ statements have been in pointing out that the:

chairman of the Council of Economic Advisers, Christina Romer, herself a Keynesian, has done research that undercuts the Keynesian view of good fiscal policy.  Some of this research is in a March 2007 paper, “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks,” co-authored with her husband, fellow University of California, Berkeley, economist David Romer.

In their article, they find that “tax increases are highly contractionary” and that tax cuts are highly expansionary.

And Forbes goes on to conclude:

“In other words, if she believes her own research, Christina Romer should be a strong critic of her new boss’s policies.”

So maybe you guys should stop making flagrantly false statements that all the economists agree with you, when in point of fact even your own economist doesn’t agree with you.  Or, at least only agrees with you by denying her own academic research for the sake of appearances.

That may be why she’s leaving the White House.  She can finally tell the truth – something that the Obama White House would never even dream of allowing her to do.

What’s the Difference Between Democrats And Republicans?

August 27, 2008

What’s the difference between Democrats and Republicans? A lot of people are frankly pretty apolitical and frankly don’t know a lot about the two parties. I am a conservative and a Republican, but I would like to try to provide at least the accurate essence of what Democrats believe in before offering the Republican counter.

I understand that many people are not particularly involved in politics until major elections. It is not a matter of ignorance, but rather a matter of being occupied with raising children and running households. When an election rolls around, many people want to make the right decisions for themselves and for their country, but become bogged down in a morass of partisan claims and counter-claims.

The truth is, Democrats and Republicans differ on nearly everything today. But let me focus on three categories – social policy, domestic policy, and foreign policy – and try to describe a few key differences.

(more…)

Nancy Pelosi In Bed With Government-Subsidized Eco-Boondoggle

August 13, 2008

Nancy Pelosi and demagoguing Democrats routinely demonize Republicans as being “in bed with big oil.” As recently as Aug 3, Pelosi was labeling Republicans as “handmaidens of the oil companies.”

The very worst thing you can do to liberals is to apply their own standards back to them. Because that’s when everyone gets to see what hypocrites these people truly are.

Nancy Pelosi turns out to be the “house madam of the government-subsidized eco-boondoggle.”

An investigation of her 2007 Schedule 3 Tax Filing reveals that Pelosi – who is in a unique position to drive legislation – has invested a couple hundred grand in an outfit that stands to benefit to the tune of $10 billion in government subsidies. Her investment has already increased 300% on the speculation.

As Michelle Malkin broadcasted:

dontgo reports that according to disclosure statements, “in May 2007 she invested in T. Boone Picken’s clean energy fuels corp., CLNE, which is the sole sponsor of a proposal in California to funnel $5 billion in state funds and $5 billion in Federal funs to this corporation which will indirectly help them create a giant wind farm in the Texas panhandle.”

How’s that for “being in bed” with special interests?

This hasn’t made it into mainstream news coverage yet, because, as usual with stories that harm Democrats, the media is dragging its feet. They’ll grudgingly and unfairly cover it when enough bloggers stir up the stink enough so that they have no choice but to cover it.

These liberal hypocrites decry profit as an evil word, and routinely demonize anyone who invests in oil. But who the hell are they to talk? There isn’t an industry on the planet that is as heavily subsidized as “green energy.” It’s green because it sucks up so much special interest pork money. (It doesn’t produce a whole lot of energy, but it sure sucks up a lot of money).

As usual, Democrats would probably be ashamed about the log in their eye if they weren’t so busy pointing out the speck in the eyes of Republicans.

Some other links to this story:

BrownPelican

DontGoMovement

MichelleMalkin

There oughta be a law against politicians being allowed to profit from any project that comes up in any legislation. But since there never will be, we can expect Nancy Pelosi and her ilk to keep drinking deeply out of the pig trough of government money.

When stock brokers and investors benefit from their inner knowledge of pending developments to personally profit, it’s called “insider trading” and they go to jail.  When Nancy Pelosi does the same exact thing?  Apparently it’s called “a commonsense plan.”

Why Barack Obama and Democrats Are Wrong On The Economy

July 11, 2008

Let me ask you a question: when did a poor person ever give you your job?

Let me be even more precise: when did a poor person ever give you a high paying job with excellent benefits?

Hello? Is this thing on? Do I hear crickets chirping?

The fact of the matter is this: all the Marxist-style class-warfare demagoguery of the Democrats aside, we desperately need the rich and the jobs they create by means of their education, expertise, inspiration, hard work, and investment.

How many times have you heard the phrase, “the rich need to pay their fair share of taxes?” from Barack Obama and from Democrats?

Do you have any idea how much the rich are paying in taxes?

In 2005, the top 1% paid 39.4% of the federal income tax burden. The wealthiest Americans have been increasingly paying more and more of the total tax burden. In 2000, the wealthiest 1% paid 37.4%.

According to the Treasury Department, perhaps for the first time ever, the richest 1% of taxpayers will have paid more than 40% of the income tax burden. The top 5% will pay just under 60% of the total taxes. The richest 10% will pay 70% of taxes.

The top 50% of income earners will pay 97% of the tax burden. The bottom 50% of income earners will pay only 3% of taxes. And the the bottom 45% of income earners will actually pay 0% of the federal tax burden. Americans in the bottom quintile who have jobs get reimbursed for some or all of their 15 percent payroll tax through the earned-income tax credit (EITC), a fairly efficient poverty-abatement program.

The richest 1.3 million tax-filers — those Americans with adjusted gross incomes of more than $365,000 in 2005 — paid more income tax than all of the 66 million American tax filers below the median in income. Ten times more.

If that isn’t “a fair share,” I don’t know what would be.  It is simply a fact that the rich are most definitely paying their “fair share” and then a whole bunch more.

The Democrat Party today consists of demagoguing liars, ideologically-brainwashed fools, the hopelessly naive, and the inexcusably ignorant.

Unfortunately, we have more liars, fools, and naively deluded, and ignorant people in this country today than we’ve ever had before. And, given the fruits of the liberal-dominated education system, we will continue to have more and more of all four of these classes of people. Liars, fools, the naive, and the ignorant constitute a powerful voter block indeed.

What is fascinating is that the tax plan that Demcocrats falsely claim “favors the rich” actually end up requiring the rich to pay the overwhelming majority of the tax burden.

Prior to the Reagan Revolution in 1981, the top marginal federal income tax rate was 70% (it is currently 35% under President Bush). At the 70% rate, the top 1% paid only 19% of the federal income tax burden, and the top 5% paid 37%. With the tax rate cut in half, the top 1% are paying more than twice as much of the total tax burden – nearly 40% – and the top 5% are paying nearly 60%.

And not only do the rich pay a higher percentage of their wealth in taxes under the lower taxes of the Bush plan, but they pay a higher ratio of their wealth in taxes than they did when the rates were higher:

for the top 5 percent and 10 percent of earners, the ratio of taxes paid compared with income earned has risen. For example, in 1980, the top 10 percent earned 32 percent of the income and paid 44 percent of the taxes—a ratio of 1.4. In 2004, this group earned more of the income (44 percent) but paid a lot more of the taxes (68 percent)—a ratio of 1.6. In other words, progressivity—in terms of share of total taxes paid—has risen. On the other hand, for the top 1 percent of earners, progressivity has declined from a ratio of 2.2 in 1980 to 1.9 in 2004.

There are several reasons for this relationship between lower tax rates for the rich and the rich actually ending up paying more taxes:

First, when one punishes hard work, creativity, and investment, the result will invariably be less hard work, creativity, and investment. Let me put it this way: I need some yard work done, liberals. How about you come over and break your back working for me, and when your finished, I’ll give you 30% of your wages, and give the other 70% to all those “poor” who didn’t do anything? Don’t like that deal. Guess what? Nobody else does either.

Another reason lowering taxes actually results in the rich paying more taxes is the reduction in sheltering assets:

Keep in mind as well that the IRS only records the income that taxpayers report. Its data don’t include income that the rich hide in tax shelters or otherwise defer. And there is evidence that lower tax rates since 1981 have caused the rich to declare more of what they earn. In 1980, when the top income tax rate was 70%, the richest 1% paid only 19% of all income taxes; now, with a top rate of 35%, they pay more than double that share. With lower rates and fewer tax loopholes after the 1986 reform, there is less incentive to shelter income to avoid tax.

With high taxes, there is a greater incentive to pay accountants to move assets around to conceal them or bury them in non-taxable locations. As long as there are taxes, there will always be tax shelters, of course, (I still remember my outrage in 2004 over learning that George Bush – who called for lower taxes – was paying the maximum tax rate of 35% while John Kerry – who called for everyone else to pay higher taxes – was sheltering his own wealth and paying less than 18% in taxes). But lowering taxes reduces sheltering, and makes it more worthwhile to invest.

A third reason that lower taxes for the rich result in the rich paying more taxes is due to the incentive to increase their investment. Stephen Moore, the senior economics writer for the Wall Street Journal editorial board, points out that the capital gains tax is essentially a voluntary tax because asset owners can avoid it by simply holding onto their stocks, homes, or businesses. This “lock-in” effect can be economically inefficient, because owners have a tax incentive to hold on to poor investments rather than drawing out the cash and putting it into assets that would be more productive. When the capital gains tax is cut, people unlock their assets and reinvest in other enterprises.

The 1997 tax reform, passed by a Republican Congress under President Clinton, reduced the capital gains tax rate from 28 percent to 20 percent, and taxable capital gains nearly doubled over the next three years. The 2003 reform brought the rate down to 15 percent, and between 2002 and 2005 there was a 154 percent increase in capital gains reported as income.

Democrats cry that gains by the rich have come at the expense of the declining living standard for the middle class. But that is simply stupid. Think of Bill Gates, the wealthiest man in America. Has Bill Gates made your life better, or worse (periodic aggravation over some stupid computer glitch aside)? Bill Gates has made the work of millions of businesses and individuals more easy and more productive. And if Bill Gates suddenly took his tens of billions of dollars and moved to France, the income distribution in America would all of a sudden appear far more equitable, but no one would be better off (except in France, which would all-of-a-sudden become tens of billions of dollars richer).

Barack Obama has come out and stated that he would raise the capital gains tax. He falsely believes that only the rich pay them, but he is simply wrong. The latest polls show that 52 percent of Americans own stock and thus benefit directly from lower capital gains and dividend taxes. Reduced tax rates on dividends also triggered a huge jump in the number of companies paying out dividends. As the National Bureau of Economic Research put it, “The surge in regular dividend payments after the 2003 reform is unprecedented in recent years.” Dividend income is up nearly 50 percent since the 2003 tax cut. And money market funds, pension funds, and various other vehicles which are very invested in the rewards of lowered capital gains benefit the overwhelming majority of Americans.

Barack Obama also claims that he will lower taxes for most Americans, but the reality is that most Americans pay very little in taxes. Again, the bottom 50% are paying only an infinitesimal percentage of the taxes, so you can’t give them much of a tax cut by definition. Yet these are the people to whom the Democrats claim to want to give tax cuts. Just how much should the rich be expected to pay? How will penalizing their productivity not undermine that productivity? At the same time, Obama is committing himself to spending nearly two trillion dollars in new spending. And when the rich begin to reduce their investments, shelter their money, and conceal their assets in tax-free vehicles, where do you think he will go to get the money to fund his programs?

The simple fact of the matter is that the richest Americans are paying far more than their fair share of taxes. As Stephen Moore notes:

But Barack Obama has decided the rich still don’t pay enough. He would redistribute the tax burden even more heavily on small business owners and the entrepreneurial class (two-thirds of the tax filers in the highest income tax bracket are small-business owners.) The nonpartisan Tax Foundation’s Scott Hodge has just crunched the numbers on the Obama plan and concludes that “more than $131 billion would be redistributed from the top 1 percent of taxpayers to all other taxpayers.”

Sounds fair, no? Only 1.13 million taxpayers, out of some 128 million, would end up paying higher taxes, according to the Obama camp.

But in the real world, who ends up paying a tax is not just the person on whose tax return it falls. History has demonstrated time and again that raising tax rates on the wealthy in the name of “redistribution” leads to so much income shifting, reduced work and investment, and redeployment of money into tax shelters, that the rich usually pay less, not more taxes, at higher rates. The burden of paying for government shifts to others, including some who may not file an income tax return at all – because they no longer have jobs or no longer earn enough to pay income tax…

Somebody needs to give the Obama campaign a refresher on all this. The Tax Foundation’s Mr. Hodge wonders: “Can a tax system so focused on redistribution be compatible with economic growth?” Probably not but the Obama brain trust wants to give it a try anyway.

The Tax Foundation had this to say about the Obama plan:

“Under the Obama plan for 2009,” explains Hodge, “more than $131 billion would be redistributed from the top 1 percent of taxpayers to all other taxpayers.”

As a result, the top 1 percent of households would pay more federal taxes of all kinds than the bottom 80 percent of households. That lopsided distribution under Obama does include payroll taxes and other federal taxes, but it excludes the new payroll tax hike that Obama plans to levy on people making more than $250,000 because details about that plan are currently unclear.

“In other words,” says Hodge, “it is at this point a cautious estimate to say that in 2009, under Obama’s plan, 1.13 million Americans would pay more in all federal taxes than 128 million of their fellow citizens combined.”

This is outright confiscation. It is Democrats urging their voters to seize the assets of a minority of voters. It is “the tyranny of the masses” that our founders so rightly feared. And it is wrong.

Lower taxes for the rich result in more investment, a stronger stock market, more hiring, and more products and services that benefit people’s lives. The redistributionism favored by Democrats, on the other hand, result in counterproductive policies that hurt the very people that they propose to help.

In a Foreign Affairs article titled, “An Empty Revolution: The Unfulfilled Promises of Hugo Chávez,” Francisco Rodríguez points out that:

Even critics of Hugo Chávez tend to concede that he has made helping the poor his top priority. But in fact, Chávez’s government has not done any more to fight poverty than past Venezuelan governments, and his much-heralded social programs have had little effect. A close look at the evidence reveals just how much Chávez’s “revolution” has hurt Venezuela’s economy — and that the poor are hurting most of all.

You’ve heard that proverb: “the road to hell is paved with good intentions”? Whoever coined it probably had liberals in mind.

When President Bill Clinton took office, he initially veered to the left with the help of a Democrat House and Senate. The result was so disasterous that the largest political landslide in U.S. history occurred under his watch, with Republicans and their “Contract With America” sweeping in. And the economic strength of the mid 1990s was due far more to the resurgence of Republican ideas than it was to the wisdom of Democratic economic stratgies.

As we consider the prospect of the most liberal member of the U.S. Senate becoming president with a filibuster proof Democratic Congress, we should soberly consider the disaterous lessons of redistributionism and socialist style governments and learn from those mistakes rather than repeat them.