WingRight

 
Excellent op-ed in today’s Wall Street Journal by Arthur Laffer discusses bail-out politics and economics. A sample quote:

Giving more money to people when they fail and taking more money away from people when they work doesn’t increase work.

The stock market is obviously no fan of second-term George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons.

These issues aren’t Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren’t.

I was on the White House staff as George Shultz’s economist in the Office of Management and Budget when Richard Nixon imposed wage and price controls, the dollar was taken off gold, import surcharges were implemented, and other similar measures were enacted from a panicked decision made in August of 1971 at Camp David.

I witnessed, like everyone else, the consequences of another panicked decision to cover up the Watergate break-in. I saw up close and personal Presidents Gerald Ford and George H.W. Bush succumb to panicked decisions to raise taxes, as well as Jimmy Carter’s emergency energy plan, which included wellhead price controls, excess profits taxes on oil companies, and gasoline price controls at the pump.

The consequences of these actions were disastrous. Just look at the stock market from the post-Kennedy high in early 1966 to the pre-Reagan low in August of 1982. The average annual real return for U.S. assets compounded annually was -6% per year for 16 years. That, ladies and gentlemen, is a bear market. And it is something that you may well experience again. Yikes!

Then we have this administration’s panicked Sarbanes-Oxley legislation, and of course the deer-in-the-headlights Mr. Bernanke in his bungling of monetary policy.

There are many more examples, but none hold a candle to what’s happening right now. Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.

Read the whole thing here.

Tags: Economy, Taxes by Publius
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There’s a lot of good commentary about the conversation between Joe the Plumber and the Obama. My favorite so far is from Claudia Rosett.

But I haven’t heard anyone talk about Joe the investor. As a predicate for his question, Joe said he was thinking about buying a business that would generate $250,000-$280,000 per year and wanted to know why Barack would increase his taxes. Joe has worked his tail off for 15 years and has put together enough money, perhaps with the help of his local banker (who I hope still has money to lend), to buy a plumbing business. Being a careful investor, Joe wants to know what the tax landscape is going to look like if he buys this business.

There has been some discussion about whether any part of the current market crash is based upon the anticipation of investors that they’re going to get taxed more under an Obama administration. If they believe they will, they will want to adjust their investments to minimize or eliminate the increased tax.

I think that Joe is an excellent example of a main street investor who is in the process of doing exactly that. He doesn’t want to sink a lot of money into a business if the profits he earns through his hard word are headed to Washington. It appears that Joe has determined that, given the current tax structure, it makes sense for him to buy the plumbing business, but he doesn’t want to get locked into that decision if Obama and a Democrat congress are going to raise his taxes.

I suggest that all over the country, Joes and Janes are doing exactly the same thing and that we’re seeing a small preview of the consequences of an Obama administration right now.

What a shame that is. I don’t know if Joe’s a good plumber or would be a good manager, but he seems like a smart guy, the kind of guy who is likely to make a success of a plumbing business.

What does the country lose if Joe doesn’t follow his dream? Everyone has focused on Joe’s future income, but that’s only a small part of what is lost. Joe’s plumbing business is going to hire and train more plumbers. These are good-paying jobs. In a small business, each of his employees is going to know that Joe started out just like they did, but through hard work and saving his money, he bought the business and is doing well. Joe’s employees are going to think about doing the same thing themselves. Some will be happy to continue to work for Joe, but some are going to try to do just what they’ve seen Joe do and start or buy their own businesses. These little Joes are going to hire more plumbers, etc., etc.

So, which is better for the American economy and the American taxpayer? Joe buying the business or Joe not buying the business? Over the course of a 20-year run, Joe’s plumbing business is going to contribute millions of dollars to the economy and pay millions in taxes at non-Obama tax rates. If Joe doesn’t buy the business, he probably won’t pay any of Obama’s higher taxes and both the economy and government tax revenues will suffer.

Tags: Economy, Liberal "Solutions", Obama, Taxes by Publius
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Just briefly, when responding to a voter question at a town hall, the real Barack showed himself. From Investors Business Daily

But on a campaign stop in Toledo, he couldn’t assure self-employed 34-year-old plumber Joe Wurzelbacher to his face that he would get a tax cut. Poised to buy a $250,000-a-year firm, the working-class plumber of 15 years confronted Obama.

“Your new tax plan is going to tax me more, isn’t it?” he asked.

Obama responded with the promise of a 50% tax credit for health care, but the senator conceded that Wurzelbacher’s income taxes would indeed rise.

“It’s not that I want to punish your success,” Obama told him. “I just want to make sure that everybody who is behind you — that they’ve got a chance at success too.”

Wurzelbacher, who would shoulder all the responsibility and risk of such an investment, did not look impressed. Obama then let the cat out of the bag, saying:

“I think when you spread the wealth around, it’s good for everybody.”

Here’s Joe, a guy who wants to be a successful plumber in Toledo and Obama wants to spread some of his “wealth” around to other people who Obama has decided are more deserving of it than Joe, who worked for it.

The editorial says that Joe has been a plumber for 15 years. That’s 15 years of hard work, sometimes up to his knees in sewage, and now, after 15 years of 60-hour weeks, he’s in a position to make a step up and own his own business and Obama wants to tax the socks off of him because he’s “rich.”

If you want an example of putting a bullet through the head of the American dream under an Obama administration with a Pelosi house and a Reid senate, Joe the plumber in Toledo is exhibit A.

UPDATE - Here’s a video of the Obama comment:

Tags: Liberal "Solutions", Obama, Taxes by Publius
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Excellent blog post by Hugh Hewitt on what McCain should do after the Palin debate win:

His simple, closing message ought to be that the world is threatened by terrorism, and the global economy is threatened by rising taxes, chains on productivity, pressure on trade, and corrupt, self-dealing political elites at home and abroad.

McCain needs to declare that he’s been around a long time, and he’s seen all the big mistakes made and all the costs paid, and that he isn’t going to stand for it now.

McCain should pledge to be John McCut from day one in the White House:

He’ll cut taxes on new businesses and construction to jump start a flat economy and invigorate employment;

He’ll cut federal spending to make sure we have the resources for those that need it and not those who have gotten fat off of subsidies;

He’ll cut the chains that government has put on productivity, allowing builders to build and energy companies to explore and producers to make;

He’ll cut every trade barrier he can find and commit to an export economy that will surge the growth in American production of the goods and services demanded around the globe;

He’ll cut the corrupt culture of self-dealing that allowed Freddie and Fannie to pump hundreds of billions of bad loans to over-their-head borrowers and into the economy and thereby infect our financial system to the point of collapse;

And finally, he’ll cut the MSM down to size, calling them on their ridiculous double standard that sought to impale Palin while protecting Obama from his past. McCain should demand a MSM that serves that common interest, not the interest of Beltway-Manhattan elites and which holds all elected officials, not just conservative ones, to the fire. McCain should particularly demand that big media look at Fannie and Freddie and who turned them into Frankensteins and who profited thereby.

Tags: Hugh Hewitt, McCain, Palin, Taxes by Publius
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By their tax returns ye shall know them.

When it comes to managing their money, Barack Obama and Joe Biden are two peas in a pod.

Neither has any savings or investments other than their home and each is a tightwad when it comes to charitable giving.

Obama’s 2004 joint tax return shows $207,647 in income and not a cent in interest, capital gain or dividend income. His 2004 U.S. Senate disclosures reported not a single family bank or checking account with a balance of $1000 or more.

Biden’s 2004 joint return shows $234,271 in income and an impressive $129 in interest income with no dividends or capital gains.

Lest you think that this is an odd year, both Obama and Biden reported income of more than $220,000 per year in 2001, 2002 and 2003.

So these two guys are going to skillfully manage the US economy out of a serious financial crisis, dealing with issues involving complex credit instruments when they lived paycheck to paycheck and didn’t managed to accumulate any significant savings or investments when they were earning over 5 times the income of the average American household? (Median household income in 2004 was $43,389)

Maybe Obama and Biden didn’t have money for savings or investment because, being good liberals, they were dedicating a lot of their income to helping the poor. Forget that. In 2004, Obama’s tax return shows $2500 in charitable contributions (about 1%) and Biden shows $380 in charitable contributions.

HT to Hank Adler for an excellent analysis of the tax returns.

Tags: Biden, Liberal Hypocrisy, Obama, Taxes by Publius
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Following a series of cuts in the marginal tax rate that began in the Reagan era, tax rates were further decreased when the Republicans took over congress in 1994 and still further decreased with the Bush II cuts. The result of these cuts is that a very small portion of Americans pay a very large portion of the total income taxes. Unacknowledged by most Democrats, the Bush tax cuts removed millions of people from the income tax rolls.

In 2006, the top 1% of all taxpayers (those who earn above $388,806) paid 40% of all income taxes. This top 1% earned 22% of all reported income, so, even with lower top rates, the income tax system is strongly progressive.

The top 10% in income, those earning more than $108,904, paid 71% of all income taxes. It is clear that a small group of people support the large majority of all federal government expenditures.

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Tags: Economy, Liberal "Solutions", Taxes by Publius
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Here is a look at the Crystal Ball at 2:00 PM EDT:

Brain Drain

Over the weekend, Goldman Sachs and Morgan Stanley negotiated a deal with the Fed to be converted to bank holding companies. While this may have been a necessary step to continue the existence of the two organizations, it will have some significant long-term impacts on the financial industry.

Big banks are necessary and beneficial institutions, but your typical I-banker is not going to be happy working in such an organization. For one thing, Goldman the bank won’t pay bonuses like Goldman the I-bank. Secondly, because of significant regulatory drag, a bank can’t rock and roll like an I-bank. One more factor is that a high percentage of recently-minted MBA’s go to work for I-banks with the intention of generating a couple of lines for their résumé, then heading elsewhere, so a lot of young talent was primed to leave even before things got touch.

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Tags: Economy, Politics, Taxes by Publius
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The Fraser Institute’s 2008 Economic Freedom of North America Annual Report is a must-read.

The Fraser Institute calculates an economic freedom index for each state in the US and each province in Canada. Quantitative measures in the following three areas are used:

1. Size of Government
2. Takings and Discriminatory Taxation
3. Labor Market Freedom

The Fraser Institute has been publishing its reports for five years. Over that five year period, the relationship between the economic freedom index and econometric measures such as per-capita GDP, per-capita GDP growth rate and, new for this year, per capita venture capital investment, has been very consistent. The relationship is the same for U.S. states and Canadian provinces.

Headlines

• As economic freedom increases, per capita GDP growth increases. A one-point increase in the economic freedom index increases per-capita GDP in the US by $6,232

• A 1.00% increase in the growth rate of economic freedom at the all-government level (e.g. from 4.00% per year to 4.04% per year measured by the combination of federal and state measures) will induce an increase of 1.08% of per-capita GDP in the U.S. states.

• Between 2000 and 2005, the five states with the worst economic freedom index grew per-capita GDP by 5%. The US as a whole grew GDP by 9% and the five states with the best economic freedom index grew by 18% per capita.

• A one-point increase in economic freedom results in:
  • an increase of $32.13 in venture capital investment per capita
  • an increase in the number of patents by 8.2 per 100,000 population
  • an increase of 4.2% in the growth of sole proprietorships

An excellent quantitative summary of the differences between Reaganomics and Obamanomics.

Tags: Economy, Taxes by Publius
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Sorry that it’s taken three posts to wrap up commentary on a New York Times paen to Obamanomics. (See here and here for prior entries)

First topic - the Corporate Income Tax

For now, the people running the party, be they in the Bush administration or the McCain campaign, evidently do not share this concern. They have responded to Obama’s tax proposals with the same kind of attacks that the party has been using since the 1980s. First, they have argued that Obama’s tax increases would end up hitting every income group. Strictly speaking, this is true. Obama’s increase on the corporate income tax would ultimately fall on all stockholders, even poor ones. In practical terms, though, most families own little enough stock that the other features of the tax plan would matter far, far more. That’s why the Tax Policy Center numbers, which include the corporate tax increase, come out as they do.

So if you don’t own stock, then a higher corporate income tax rate doesn’t hurt you? Wrong.

A high corporate income tax comes out of the pockets of the employees more than anyone else. According to a study by the Congressional Budget Office (I know they’re not very accurate, but when they find a bad tax, you know it’s bad), 70% of the corporate tax burden is borne by workers in the form of lower wages and fewer high-paying jobs.

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Tags: Liberal "Solutions", Taxes by Publius
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There is much talk among the Democrats these days about raising taxes. Barack Obama has said that he is going to “let the Bush tax cuts expire,” which will result in the largest tax increase in the history of the United States. Top-bracket tax rates will increase, the marriage penalty will return, millions of people who now pay no income taxes will pay taxes again, capital gains tax rates will increase, dividend tax rates will increase.

Obama quickly amended his tax plans. He’ll only really raise taxes for rich people, the top 1%, maybe the top 5%, and he’ll keep a lot of the Bush tax cuts after all. Oh, by the way, Obama also speaks of taking the cap off employment taxes that fund Social Security, which results in another big tax increase on “the rich” who earn salaries.

Saint Barack and the Democrats believe these actions will generate a gusher of tax revenues (from “the rich” who won’t really miss the money) that will flood the government with cash, providing funds for all sorts of big government programs.

They are wrong.

I have inserted a couple of links to articles that provide details, economic theories, etc., that support my discussion, but I am going to frame this post on tax increases in simple, human dynamics terms that even liberals can understand.

A friend of mine in college was the son of an extremely wealthy man. This was an era during which income tax rates were higher than they are now and during the course of various discussions with my friend, I learned that his father constantly had 3-4 years of tax returns being audited by the IRS. As a naïve student, I thought this was unusual and asked a question something like, “Why doesn’t your father file his returns so he doesn’t get audited?”
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Tags: Economy, Politics, Taxes by Publius
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