As the former go up the latter will come tumbling down.
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Economist Kurt Hauser was the first to establish from the historical evidence that the maximum federal tax paying capacity of the American economy was probably no more than Paul Ryan’s long-term, postwar, historical average. Hauser showed that since World War II the top income tax rate has been as high as 92% in the early 1950s and as low as 28% in the late 1980s, and the share of federal taxes as a percent of GDP remained relatively stable all of that time at roughly 18-19% of GDP. This is known as Hauser’s Law.
That resulted because the higher tax rates repressed incomes so much that even at the higher tax rates no more in revenues was produced as a percentage of GDP. But the lower tax rates produced such a boom in incomes that even at the lower rates no less in revenues was produced as a percentage of GDP.
So President Obama can pile all the tax increases on the top 1% he wants. Until federal spending is brought back down to its long-term historical average, deficits and debt will continue to soar above their manageable, long-term, postwar, historical average as well. Indeed, the budget will not be balanced until federal spending is reduced to the same long-term, postwar historical average as revenues.
Suppose the Democrats were able to go whole hog and confiscate all the incomes of all the millionaires and billionaires President Obama disparages. As the Wall Street Journal reported on Monday, that would raise only $938 billion, little over half of the deficit President Obama projected for this year in his 2012 budget released in February. Indeed, considering what these taxpayers are already paying, the net gain in revenues would be less than half the deficit.
For those left-wing vampires to whom this may seem like a tasty meal, recognize that this can only be done once. Facing a 100% tax, none of these taxpayers will produce any income at all to confiscate the second year, leaving the federal budget in an even deeper hole. Much worse, with none of these people working, none of the workers they hire would be working either. The resulting catastrophic loss of jobs would be much worse than the Great Depression, even with nothing stopping the homeless from continuing to employ everyone they currently hire.
Indeed, with the expiration of the Bush tax cuts in 2013 for those making over $200,000 per year, the new Obamacare taxes in 2013, the continued burden of the world’s highest corporate tax, and any of the other tax increases President Obama seeks enacted, along with President Obama’s high cost energy policies and other excessive regulatory burdens, the result in 2013 is quite likely to be a renewed double dip recession. That would mean much less in federal revenues rather than more, and much more in soaring federal deficits and debt as a result.
At best, the trillion dollars of additional tax increases President Obama proposed in his budget speech last week will never materialize, for all of the reasons above. To get his supposed $4 billion in deficit reduction over 12 years, President Obama assumed another trillion dollars in interest savings from the supposed deficit reduction. But with interest rates at historic lows for years now, interest rates are undoubtedly headed up, not down. And higher interest rates mean more federal spending, deficits and debt, not less.
The other $2 trillion was supposed to come from supposed spending cuts. President Obama claims that the agreement for $38 billion in cuts for the 2011 budget to avoid a government shutdown will add up to $750 billion over 12 years, even though CBO just said that adds up to only about $350 million in spending cuts for this year. The President called in addition for another $400 billion in defense spending cuts, on top of the $400 billion in such cuts he bragged had already been adopted over the past two years. That’s after he just got us involved in a third military conflict in the Middle East.
Finally, the President called for another $500 billion in spending cuts to Medicare, through the health care rationing that he and his far left supporters have denied was involved in Obamacare all along. The President said, “And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services seniors need.” In other words, a faraway, central planning bureaucracy in Washington, not your own doctors, will decide what health treatments are best for you, adding up to another $500 billion in savings over the next 12 years. And if that turns out to not be enough, President Obama proposes to empower a commission of unelected Washington bureaucrats to cut and ration Medicare even more.
Notice that even these supposed spending cuts don’t add up to $2 trillion, even over 12 years, but $1.65 trillion. After telling us for over two years that meaningful deficit reduction requires addressing entitlements, President Obama in his budget speech made no mention of entitlements, except to attack Paul Ryan’s proposed entitlement reforms, in completely unreasoned, inaccurate terms.
These are the reasons why Standard & Poor’s on Monday effectively graded President Obama’s deficit speech with an F by downgrading the outlook for U.S. government debt from “stable” to “negative,” indicating the possibility that America would lose its AAA credit rating within 2 years. As the Wall Street Journal said yesterday, “S&P is simply connecting the political dots after last week’s un-Presidential tirade against the GOP.”
Tax Piracy Takes Your Jobs
What President Obama failed to recognize in his speech last week is that tax policy should be driven not by who “needs” a tax cut, but by incentives for economic growth, investment, production, and job creation. All of his job-killing tax increases would ultimately harm working people the most, as they would lose the jobs and wages they need for basic economic survival.
With the revival of inflation President Obama’s policies are creating, real wages for working people are falling today. African Americans are suffering unemployment around 15% or above into their third year. Hispanics are suffering double-digit unemployment into their third year as well. Teenagers are being spanked by Obamanomics with unemployment over 20% for the same period, and black teenage unemployment over 40%.
These people are suffering a Great Depression under Mr. Obama. That is why the Census Bureau reports poverty at record levels, with more Americans suffering in poverty than ever before since the Census began keeping poverty records over 50 years ago.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?