The American Spectator : The Devil Is in the Deficits

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The Devil Is in the Deficits

By Peter Ferrara on 3.10.10 @ 6:08AM

Under the Obama no-recovery, they will continue to deepen, and if it's lucky the economy might even sputter. But who's to say its luck can hold out?

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President Obama proposes as well to increase the capital gains tax rate by 33% to start. But his health care takeover bill would also extend the 2.9% Medicare payroll tax to capital gains, for a total capital gains tax rate increase of 53%. The same 53% rate increase would apply to corporate dividends, an income source for many retirees.

Moreover, the President would restore the death tax at a rate of 45%, another layer of taxation on capital income. He would also slam business with another $425 billion in tax increases, including the $90 billion bank tax, nearly $40 billion on oil, gas and coal producers, $122 billion to essentially double tax the foreign earnings of American companies, plus all the tax increases on business in the health takeover bill. And we have not even considered yet the cap and trade tax President Obama also supports, which would involve another $1 trillion to $2 trillion in increased taxes.

None of this is going to raise the revenue projected. Increasing tax rates reduces incentives for productive activity because producers are allowed to keep less of what they produce. So they produce less, and the tax rate increase raises less revenue than expected as a result. Double taxing the overseas earnings of American companies will result in less overseas earnings to tax, with some American companies transforming into foreign companies as a result, taking their earnings with them. Taxing businesses by $3,000 per uninsured worker will mean fewer jobs, and lower worker earnings to tax.

The CBO and the Joint Tax Committee (JTC) on which it relies for such revenue estimates take none of this into account in their revenue projections, and those projections are often way off as a result. For example, over the last 40 years every time capital gains tax rates have been increased, revenue has fallen. But CBO and JCT wrongly projected every time that revenue would rise as a result.

Less revenue than expected means federal deficits and the national debt will be even higher, which means interest payments will be even higher, which will increase the deficits and debt even more. Moreover, if interest rates on the national debt, growing to $20 trillion to $25 trillion and more, rise by more than the modest amounts CBO now projects, federal interest expenses for that debt will soar further, which will raise federal deficits and debt even more, in a Greek-like fiscal death spiral.

Then there is the health care takeover fiasco. House Republican Budget Chief Paul Ryan explains why under the true cost of the health takeover legislation the federal deficit will actually increase by $430 billion over 10 years, and $1.4 trillion over the 10 years after that. But there is something else enormous that even he does not take into account.

The health bill includes costly government subsidies for the purchase of health insurance by those who do not have employer-provided coverage, for families earning up to $88,000 per year. CBO assumes that only 30 million workers will receive these subsidies, with 162 million continuing to receive employer-provided coverage, and so not eligible for the subsidies. Employers who do not provide health insurance for their employees will have to pay a tax of $3,000 per worker under the currently pending Obama plan. But the average cost of employer-provided family health insurance is over $10,000 per year per worker. With premiums likely to rise substantially under Obamacare, many employers can be expected to drop their coverage and pay the $3,000 tax per worker instead. Those workers will then become eligible for the health insurance subsidies. The cost of Obamacare will soar as a result, and so will the deficits under the program.

What Do You Think a Stimulus Is?

Last week, Senate Majority Leader Harry Reid enlightened us as to the February unemployment report. "Today is a big day in America," he said. "Only 36,000 people lost their jobs today, which is really good" (emphasis in original).

More than two years after the recession officially began -- in December, 2007 -- to still be losing jobs is not really good. The average recession since World War II has been 10 months. The longest recession since World War II previously was 16 months. It now has been 27 months since the latest recession began.

The army of the officially unemployed is stuck at nearly 15 million Americans, with an unemployment rate of 9.7%. About 40% of those -- 6.1 million -- are now long term unemployed, out of work for 6 months or more. The unemployment rate for blacks is 15.8%, Hispanics 12.4%, and for teenagers, President Obama's base, 25%, aided by the soaring minimum wage.

The Bureau of Labor Statistics (BLS) reports, "The number of persons working part-time for economic reasons (sometimes referred to as involuntary part-time workers) increased from 8.3 million to 8.8 million in February, partially offsetting a large decrease in the prior month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job."

Another 2.5 million Americans "were marginally attached to the labor force in February, an increase of 476,000 from a year earlier," the BLS adds. "These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months."

Adding all of this together leaves a total underemployment rate of 17.1%. That is not really good at any time, let alone 27 months after a recession began. But President Obama can't be bothered with that. He is busy with health care, adding one last crushing entitlement burden to the historic Democrat legacy, just before we repeal it in the sweeping fundamental reform of all the untouchable Democrat legacy entitlements in 2013. Obama's real legacy will be cratering the braindead Democrat party, which hasn't offered America a fundamentally new idea since the 1930s.

"What do you think a stimulus is?" President Obama laughed at the Republicans who objected to his almost $1 trillion stimulus bill last February, and the resulting soaring deficits. Obama was operating under the throwback Keynesian economics of the 1930s to 1970s, under which economic growth is stimulated by increased government spending, deficits and welfare. It didn't work in the 1930s, didn't work in the 1970s, and it hasn't worked now. But Obama was so deeply lost in his 30-year-old time tunnel that anything other than unreconstructed, retro, braindead Keynesianism was a joke.

The completely overlooked truth is that the soaring deficits that Obama says are Bush's fault are actually Obama's official economic recovery policy, Keynesian deficit spending. Nobody in the throwback, braindead, lamestream, Democrat talking point media has been able to figure this out. As Sarah Palin might say, "How is that retro Keynesian stuff working out for ya?"

In 2008, America thought we were electing a modern, forward-looking President advancing a new agenda of progress. Instead we get the failed Keynesian economics and make-work policies of the New Deal, and the stagnation economics of the 1970s. Instead of freeing us to go forward, he is desperate to take us back, to the socialized medicine he is so certain we should have had 75 years ago, to the union-run economy far-sighted thinkers thought was in our future in the 1930s, to the central planning bureaucracy that was the cutting edge dream of the turn of the century progressives (that would be the turn of the last century). It is all so retro.

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About the Author

Peter Ferrara is Senior Fellow at the Carleson Center for Public Policy, Director of Entitlement and Budget Policy for the Heartland Institute, and General Counsel of the American Civil Rights Union. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is the author of America’s Ticking Bankruptcy Bomb, now available from HarperCollins.

Letter to the Editor View all comments (37) | Leave a comment

Deborah D| 3.10.10 @ 6:29AM

That's why I call them "regressives" not "progressives." If progress is going backwards, then they need help in understanding words and directions. Save us, Obi Wan Kenobi, you're our only hope!

Bill Hussein O'Stalin| 3.10.10 @ 7:17AM

Yes, the CBO projections rely on some rather rosy outlooks, including in the employment sector. Change any of those underlying assumptions by just 1/10th of one percent and over ten years those projections could be off by 400 billion. Change them by 1% a year and you could be off by a trillion.

The underlying public enemy number one in all this spending is inflation. Inflation is the way governments steal the wealth of the public, create unsustainable business cycles and create banking disasters. In fact that's precisely what you just observed starting in 2007.

It's also how governments destroy individuals and individual freedom, simply by destroying your individual wealth.

It's a sneaky tax that doesn't need legislation and it's been used by governments over and over again.

martin j smith| 3.10.10 @ 7:52AM

This is the point that must be made with facts to back it up--BHO is purposely trying to destroy our economy. Lookat his consistant lying about "deficit neutrality,failure support real job growth,emphasis on government control and takeovers,and mafia style tactics such as the ballerino Rahm Emmanuel. And, I am not referring to this Massa guy either.

Ret. Marine| 3.10.10 @ 8:01AM

and on the day the pitch forks come out in full anger mode, they will still be wondering why and how their messiah just didn't get it.
Yeah the smartest guys in the room, right.

Roger Erickson| 3.10.10 @ 8:09AM

I'm no fan of either party, nor of Rubin, Summers & Geithner. However, well meaning, there are several places where the arguments made here stem from basic misconceptions about post gold-std monetary operations - and simply confuse things. Reality is actually quite different from what's implied in this article. Some orthogonal thinking is required, about operations, not about what's liberal or conservative. There are 1000 ways to let an economy decline, but only one optimal way forward, through logical operations.

For reference, please see the following:

http://moslereconomics.com/200.....nt-frauds/

and http://bilbo.economicoutlook.net/blog/

Roger Erickson| 3.10.10 @ 8:10AM

Additional references:

http://neweconomicperspectives.blogspot.com/

http://macroeconomicwoes.wordp.....economics/

Roger Erickson| 3.10.10 @ 8:17AM

Yet one more reference. Readers here may consider this author as a suspect liberal, yet he explains well the implications of a conservative closing the gold window back in 1971. Personally, I find economists to be incredibly isolated, but the politics of left/right makes even that profession look organized!

http://www.thenation.com/doc/20100322/galbraith

ps: I'm for banning parties from crossing state lines, and returning all politics to the local level. That alone would take out the gang-related aspects of political fund raising. Right now, it's not clear which is the greater enemy, Communists, or "the other party". We're supposed to be making a more perfect union, not tearing it apart.

martin j smith| 3.10.10 @ 11:01AM

CBO aside people are feeling the effects of Obam's economic policies--they are his not GWB's. Andit isn't pretty. But against it is time for someone of stature to say: wither you set policies to expand the job market or you are PURPOSELY DESTROYING OUR ECONOMY.

Semper Fi| 3.10.10 @ 1:07PM

Where is Bob? This stuff is rightup his alley.

Peter| 3.10.10 @ 1:44PM

"National debt held by the public would double in just 4 years, from $5.8 trillion at the end of 2008 to $11.6 trillion at the end of 2012. "

I just looked at www.treasurydirect.gov/govt/re.....stdebt.htm and the author has a very different view of the national debt than the treasury department. They show the national debt 0n 9/30/08 as slightly over 10 trillion.

I just prepared a slide for my government class that showed deficit/debt/GDP and both of the former as a proportion of GDP by year. I also noted party holding White House, Majority in Senate, and Majority in the House. Since 1980 none of the various combinations of party control of those institutions has stemmed the tide. No combination stands out as particularly more fiscally prudent or less prudent than the others.

California70| 3.11.10 @ 12:01PM

Peter my dear, one must go further back than 1980!

Jon B| 3.10.10 @ 1:44PM

This is interesting. Over 1/2 of this year's deficit spending comes from Bush programs and Bush mistakes. 89% of last years spending came from Bush when you include stimulus spending that everyone agrees was needed to recover from 8 years of "looking the other way" brought on in no small part because Bush blocked the feds from imposing new banking loan standards in 2005 and 2006 when they saw this crisis coming, and Bush's gutting of the SEC that also "looked the other way" during the buildup to the crisis, as ALL OF YOU KNOW.

What would've changed with a McCain Presidency? Would McCain have doubled down on the banks any more than Obama has? Unlikely for the lead member of the Keating 5. WOuld McCain have spent less on the wars? Unlikely. Would McCain ignore the economic crisis and not push a stimulus package of a similar size? Also extremely unlikely. The article reeks of non sequitur style thinking-nothing connects unless you live inside a dream.

Margie| 3.10.10 @ 2:21PM

I'm just wondering..are you able to sleep at night without also dreaming about GW Bush?
Poor dear you are so obsessed with looking backwards in order not face the present and the reality of the destruction that this President is doing to our country.
Are you just a Third partier type? Is that your point? Really, just what IS the point of your constant and incessant BS?

Jon B| 3.10.10 @ 2:23PM

The only time I post BS is when I quote you, Marge.

We are where we are today because of the last administration. People who forget history are destined to repeat it.

Margie| 3.10.10 @ 2:56PM

I see, Toddard. Oops. I meant Jon B. So how come you never got back to me with your "proof" about the over 80% of translations from the Greek to English issue, hmm?
Can't answer my questions, above either, can you?
Who would your candidate of choice be? Let me guess. Ron Paul! Is he the only "true conservative?"

Jon B| 3.10.10 @ 6:06PM

I did answer you

JimP| 3.10.10 @ 2:38PM

Another seminar commenter. So, where were the Dems when Bush was gutting the SEC? Where were the Dems while everyone was allegedly "looking the other way" on spending? Blocking Fannie and Freddie reform and protesting the war in Iraq that the Dems voted for. That's where. 89%? 89%!! Are you sure you want to stick with that figure? Why not just go for 90% or heck, make it 100%. Let me see Obama passed Stimulus Palooza $787B + the Omnibus spending bill for FY '09 that was about $450B if I recall correctly. Then there were the Detroit bailouts $30B for GM and I honestly forget how much Chrysler got. So Barry spent over a trillion, minimum, but that was only 11%. Therefore, Bush spent $10T (roughly) last year? See, this is why Dems should not be allowed to do math. Even elementary level math. Duh.

Margie| 3.10.10 @ 3:01PM

Jon B. is a liar and obfuscates for a living.

JimP| 3.10.10 @ 5:08PM

Margie: LOL. I agree. Thanks for the smile.

Jon B| 3.10.10 @ 9:56PM

Ironically, you're lying now specifically to obfuscate the issues. But then you probably think Bush's recession is Obama's fault, at the same time you wouldn't give Reagan the same credit for the 1982 recession, right?

And the one Bush handed to Obama is much worse. With the added problem of ever increasing corporate control of policy and debate, the $16 trillion back door bank bailouts are rarely, if ever mentioned here.

Jon B| 3.10.10 @ 9:56PM

blackwatch| 3.10.10 @ 10:31PM

either that or he does not have any sense. Look at his carping about global warming. What a maroon!

Todd| 3.10.10 @ 4:25PM

You find the reference for your claim about Reagan giving $425 billion to the Soviets yet? You are a ignoramus

Todd| 3.10.10 @ 4:26PM

That was meant for the ignoramus that posts as Jon B.

Jon B| 3.10.10 @ 6:13PM

Reagan gave Russia $425 Billion, that's true. It was in the National news WHEN it happened. I'll accept your apology when you realize I';m telling the truth.

As for Marge, she acts like gutter slop 1/2 the time, and somewhat calm at other times. Perhaps a disorder there?

You might recall that the SEC looked the other way when the bank crisis happened, using Bush's flag bearing market based philosophy. Are you so naive as to think that wasn't on purpose? Did you miss out when Federal regulators saw the crisis coming, recommended new laws, and the Bush administration along with Republicans in Congress stalled, then gutted them?

http://www.msnbc.msn.com/id/28001417/

WASHINGTON - The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

...The administration’s blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.

A lot of you are will fully ignorant.
PS:That's not my fault.

JimE| 3.10.10 @ 7:08PM

Jon, nothing about the money LBJ or clinton wasted. Wrong the past does not make it right now. You are a leftist useful idiot, no more ,no less. Get a job and start paying taxes instead of leeching of the government.

Jon B| 3.10.10 @ 8:04PM

LBJ, yeah, in Vietnam. He was quite the coward to not call out McNamara after he learned the McNamara lied to him about the Gulf of Token incident. Still, the National debt was just over $900 billion even after Nixon, Ford and Jimmy carter, but it was $4.5 trillion after 12 years of Reaganomics. This is where it really spun out of control, and we've never recovered. Instead we're stuck on delusional ideologies that do not exist in practice anymore.

Clinton? no, he's that last true fiscal conservative we've had. He actually paid off $600 billion of the National Debt, but by this time the interest was so high that it still rose.

JimE| 3.10.10 @ 10:54PM

Jon,
Once again you prove your stupidity, Clinton paid off nothing, juggling numbers and projected revenue is not retiring a debt. Moron!

Todd| 3.10.10 @ 10:13PM

I asked you for a source dumbass so where is it? It doesn't exist because the only source for it is your ignorant mind. You won't get an apology from me that is for damn sure.

Jon B| 3.12.10 @ 8:57AM

I did make a huge mistake: Reagan gave Russia $425 million, not billion. I apologize.

Jon B| 3.10.10 @ 6:15PM

You probably need a FOX link: http://www.foxnews.com/story/0,2933,460044,00.html

One of the few times FOX told the truth about anything.

DatsunMark| 3.10.10 @ 8:58PM

CBO: "Doing Algebra in a Calculus world."

Yosemeti Sam| 3.11.10 @ 1:04AM

" ... In 2008, America thought ...."

Thought?

Now that's a generous assumption of intellect.

John| 3.11.10 @ 10:39AM

The problem for conservatives, as it's very easy to prove, is that two thirds of this deficit spending is the consequence of actions taken during the Bush administration. When, as will inevitably happen, we move into full recovery mode by the spring/summer (and there are ample signs this happening so denying it just makes us look detached from reality) and the president pivots (as he will) to a need for tax increases to contain the deficit that we are making such a fuss about what will our stance be?......The fact is screaming for tax cuts while at the same time screaming about the rising deficit while refusing to participate in any efforts to contain it (even if it's window dressing) is not coherent.

Oldefarte| 3.11.10 @ 11:03AM

Let me put it in OVER simplistic terms, okay? In my lifetime, Democrats [but Republicans didn't do their jobs either] have enlarged the governmental budget historically by legislating numerous social programs [and unnecessary military weapons systems also] that INCREASED THE EXPENSE SIDE of the ledger. Never has any credible effort been made about EXPENSE REDUCTION. Democrats increased social [welfare] programs, while Republicans increased military programs; but none of them reduced/eliminated anything; with the result being the governments' budget has gradually increased over time. Sure there was Reagan's/Bush's tax cuts which economically/financially increased governmental REVENUES and thus slowed the budget defecit problem; but none of them have made serious efforts at GOVERNMENT EXPENSE REDUCTIONS. Now enters THE CHOSEN ONE who is a DEMOCRAT'S DEMOCRAT and believes in WELATH REDISTRIBUTION big time; and as a result, the typical too large budget
deficit has exploded tremendously, since his governmental spending is coupled with an governmental revenue downfall due to his programs lack of economic/financial expansion possibilities. The one and only solution for all of this is for the American voters to begin electing politicians who pledge to institute substantial budget expense reduction policies. I'm talking possibly 10-25% government expense reductions. If voters do not take this one and only political opportunity coming in November to elect such political leaders, everyone should simply kiss this country goodby, as its destruction and downfall will be inevitable!!!!!!!!!!!!

Randall Hoven| 3.11.10 @ 11:04AM

Just a nit, but that 90% of GDP number cited for 2020 is only the federal debt (held by the public). The debt used in the Harvard study is all public debt, which would include state and local government debt.

So that 90% number for the US is an underestimate. We'll likely get there well before 2020.

ez| 3.11.10 @ 11:17AM

Why do so many assume that because someone opposes Obama's spending policies that one must be in favor of GW Bush's policies? I hated Bush's spending. I was hoping for change when Obama got elected. The only thing that came out of Obama's election was a more expensive version of Bush. We haven't had a more screwed up Presidency since Johnson/Nixon.