Talking Points vs Reality

Investor’s Business Daily recently posted an editorial about the impact of President Trump’s proposed tax cuts. The editorial notes that the Democrats sudden concern for deficits is a bit disingenuous after the impact President Obama had on the deficit during the past eight years. The editorial also notes that President Trump’s tax plan will not increase the deficit, but will probably decrease the deficit due to the economic growth created by lowering taxes.

The editorial includes the following chart:

The editorial explains:

According to the Congressional Budget Office, the House tax bill would boost deficits over the next 10 years by a total of $1.4 trillion. The added interest on the debt would kick that up to $1.7 trillion.

That looks like a lot of money. Except that equals just a 17% increase in total deficits projected over the next decade.

And that increase is a wild exaggeration, since it doesn’t allow for any extra economic growth from the GOP‘s pro-growth tax cuts — a premise that even some honest liberal economists don’t believe. The actual deficit boost, if there is any, will be far smaller than what the CBO says.

But let’s accept the CBO’s numbers as gospel truth.

Look more closely at the data and you see that what’s driving deficits ever upward isn’t the Republican tax cuts. It is out-of-control spending.

Over the past 50 years, despite all the myriad changes in tax laws, revenues as a share of GDP have remained remarkably close to the average: 17.4%.  In fiscal year 2017, which ended in September, the share was 17.3%. In Bush’s last in office, it was 17.1%. When Bill Clinton took office in 1991, it was 17.3%.

What happens if the Republican tax plan goes into effect? According to the CBO, taxes as a share of the economy in 2027 will be … 17.9%.

That’s right. Even with an allegedly budget-busting tax cut, the federal government will claim a greater share of the nation’s economy in 2027 than it does today, and that share will be above the average for the previous 50 years.

The only reason deficits continue to climb over the next decade is because federal spending is going up at an unsustainable rate.

The editorial concludes:

But the bigger problem is that any reasonable attempt to rein in any of the entitlement programs is met by fierce and unrelenting opposition from all those Democrats who now claim to worry about deficits. They will viciously demagogue any Republican who dares to propose real reforms of these programs, and then brag about any resulting election victories.

So, the next time you hear Democrats pretend to be deficit hawks, ask them what their plan is to bring entitlement spending under control.

 

The Trump Economy

There are no guarantees in the economy. There are certain things that the government can do that historically have aided growth and certain things that the government can do that have inhibited growth. We have history as our guide as to what works, but sometimes people have a political bias that tends to ignore history.

Real Clear Politics posted an article today about the Trump economy. The article was written by Stephen Moore. The economy is not booming, the workforce participation rate is still too low for it to be considered booming, but it is definitely improving. The title of the article is, “Why the Left Has Been So Wrong About the Trump Boom.”

The article reports:

Time magazine‘s cover story for the week of Nov. 6 is a classic. It blares: “The Wrecking Crew: How Trump’s Cabinet Is Dismantling Government As We Know It.” The New York Times ran a lead editorial complaining that team Trump is shrinking the regulatory state at an “unprecedented” pace.

Meanwhile, last week the stock market raced to new all-time highs; we had another blockbuster jobs report with another fall in the unemployment rate; and housing sales soared to their highest level in a decade.

The article at Time magazine fails to recognize that those two facts are related.

The article at Real Clear Politics further notes:

But so far the Trump haters have missed the call on the economy‘s trajectory. Doubly ironic is that the same Obama-era economists who are trashing Trump’s increasingly realistic forecast of 3 percent growth are the ones who predicted 4 percent growth from the Obama budgets. Obama never came anywhere near 4 percent growth, and at the end of his second term, the economy grew at a pitiful 1.6 percent.

Under Obama, free enterprise and pro-business policies were thrown out the window. What was delivered was the weakest recovery from a recession since World War II, with a meager 2.2 percent average growth rate. Middle America felt it, which is why Trump won these forgotten Americans.

One reason that economist Larry Kudlow and I and others assured Donald Trump that 3 to 4 percent growth was achievable was that Trump could capitalize on the underperformance of the Obama years. Under Obama, business investment fell almost two-thirds below the long-term trend line — thanks to higher taxes on investment. Now, partly in anticipation of the tax cut, business spending keeps climbing.

The article at Real Clear Politics concludes:

Maybe the liberal economists and their shills in the media should show some humility. They should acknowledge they were dead wrong about how much Obamanomics was going to grow the economy and about how Trumponomics would crash the economy and the stock market. Or better yet, maybe the rest of us should all just stop listening to them.

The other conclusion that can be reached is that the free market works every time it is allowed to work. Government interference has a very negative impact on economic growth. We need to send President Obama’s economic advisors and a good number of Congressmen back to school to study basic economics.

Perspective On The Tax Plan

The Canada Free Press posted an article today about some of the benefits of President Trump‘s proposed tax package. The article points out some basic economic principles that should be considered when analyzing the tax proposal.

The article points out:

1. The corporate tax cut will free up approximately $200 billion in capital every year to be reinvested into the economy.

2. The transfer of this wealth from control of politicians to business people will ensure that capital fuels real, profit-driven productivity rather than simply being transferred to politically favored constituencies. In other words, if you want some of that capital, you’ll have to do something productive to earn it. That’s how economic growth happens.

3. A company that earned $100 million in profits will now save $15 million on its federal tax bill. What can a company that size do with a suddenly found $15 million? How many people can it hire, products can it develop, machines can it buy, facilities can it expand?

4. The professional service industry should benefit tremendously from this tax change, particularly smaller practitioners. Why, you ask? They don’t pay massive taxes, after all. You’re right, they don’t. But the massive corporations they’d like as clients do. Many of these corporations view the services of such professionals as a luxury they would like, but can’t afford when margins are too tight. Freeing up extra cash for big corporations will give professional service providers more opportunity to secure large corporate contracts.

5. Wages will increase, but not for the reason some people think. Many of the arguments liberals make against corporate tax cuts is that corporations will just pocket the money and won’t share it with their workers. But that’s not how business works. The goal of a corporation is to be more productive and profitable, and you need capital to invest in productivity. When productivity rises, wages follow because workers can provide more value. Corporations aren’t going to raise wages just because there’s more money sitting around, nor should they. They’ll raise wages because the greater capital availability will make it possible to increase productivity.

6. Liberals argue that the government would spend the $200 billion as well, so it would be reinvested back in the economy regardless. The government would spend it, but businesses will spend it more wisely because they’re accountable for the result of the spending. Also, you always spend money more wisely when it’s money you earned as opposed to money you simply confiscated from someone else. That’s why lottery winners so often end up in bankruptcy.

Unfortunately, many Americans are not familiar with the basic economics that will make this tax plan work. The Democrats have already begun yelling ‘tax cuts for the rich,’ and many people will believe them. The basic concept here is that the tax cuts should go to the people who are paying the taxes. Since almost half of Americans do not pay income taxes and will not pay taxes under the proposed plan, why should they resent those who are paying taxes getting a small break?

What Tax Reform Can Do

President Truman is quoted as saying, “It’s amazing what you can accomplish if you do not care who gets the credit.” He also said, “You can’t get rich in politics unless you’re a crook.” We are seeing the truth in both of those observations in the current tax debate.

This is a picture of America‘s Gross Domestic Product (GDP) in recent years from the balance:

You might remember that 2012 was the year the tax increases to pay for ObamaCare began. In 2013 the Capital Gains tax increased for high income earners, and the increase in the medicare payroll tax also began in 2013. Obviously raising taxes did not help the economy.

This is the laffer curve:

As you can see, there is a point where tax increases no longer generate revenue.

I am going to assume that Democrats are going to try to block President Trump’s tax reform. I think that is rather obvious. So the question becomes, “Do Democrats not understand economic principles and economic growth (e.g. the Laffer curve) or do they simply want to enslave the American worker?” At this point it is a valid question.

I can understand high-tax states not wanting to give up the benefit they reap in the current tax code. I can also understand all the lobbyists tearing their hair out because their special interest will no longer get a tax break, but at some point Congress needs to do what is best for the country and for the American people. Economic growth is struggling under the current tax burden. Every American who works is giving the government a higher percentage of what they earn than the Medieval surfs paid their lords. That is a scary thought. At the same time, many people who choose not to work are driving expensive cars and living better than the people who do work. The poverty in America that the government is now supporting currently owns a nice car, a big-screen television, an ipad, a smart phones, and central air conditioning. I am all for helping people in time of need, but I think we have lost our way.

Congress needs to pass President Trump’s tax plan. Every Congressman who does not support the plan needs to be voted out of office as soon as possible. Unless the American voters begin to hold their representatives accountable for what they do, the swamp will never get drained. The problem is in both political parties. It is time to take note of the people whose votes help America and the people whose votes hurt America.

 

Who Has Prospered Under President Obama?

Investor’s Business Daily posted an article on Friday about the growth of regulations under the Obama Administration.

The article includes the following chart:

RegulatorsThe growth of regulations under President Obama has been astounding.

The article reports:

Total spending on federal regulatory activity has jumped almost 18% in real terms since Obama took office, reaching $56 billion this year. That outpaced overall economic growth, which has climbed a total of 13% since 2008.

Over those same years, the number of jobs at these regulatory agencies climbed by 11.8% — to almost 280,000 workers — while the number of private sector jobs has growth by 8.5%.

To put these numbers in perspective: If GDP had grown as fast as the federal regulatory budget, the economy would be $696 billion bigger today. If private sector employment had kept pace with the growth in regulatory jobs, there would be 3.7 million more people at work.

 The study, published jointly by the Weidenbaum Center at Washington University in St. Louis and the Regulatory Studies Center at George Washington University, also breaks down regulatory spending into “social” and “economic” categories. Social regulations cover health, safety and environment, and include agencies such as the FDA, Homeland Security, the EPA, the National Highway Traffic Safety Administration.

The thing to remember here is that regulations cost money. They are an extra burden on small businesses and slow down the growth of the economy.

The article notes:

Based on the administration’s own figures, these Obama-imposed rules cost the economy a total of $108 billion a year, but as Heritage notes, the actual costs are much higher because federal regulators routinely lowball compliance costs.

This is no way to run an economy.

The Path To National Prosperity

 

Investor’s Business Daily posted an article today citing the results of a recent National Bureau of Economic Research study by MIT economist Daron Acemoglu and University of Chicago economist James A. Robinson.

The study reports:

It’s long been a truism that democracy brings benefits and flexibility to an economy that help boost growth. But some theoretical work “suggests that not all the mechanisms unleashed by moving political institutions from autocratic to democratic are positive for economic growth.” The economists built a model that controlled for possible unexpected influences — such as recessions and negative economic shocks, which often take place before a nation turns democratic. It’s tricky.

After doing the necessary number fiddling, what they found was pretty remarkable: “Our central estimates suggest that a country that switches from autocracy to democracy achieves about 20% higher GDP per capita over roughly 30 years.” That’s a huge difference.

The article mentions that after the fall of the Berlin wall, there was a movement around the world toward democracy. Unfortunately, some of the countries that attempted to become democracies have slipped back to their totalitarian ways. Russia, Venezuela, China and Argentina have all encountered major financial crisis since moving away from democracy. The statistics indicate that one of the most basic solutions to those financial problems would be a move toward democracy. The other kingpin of national prosperity is private property rights (rightwinggranny). That is an area where Americans need to be paying attention to what their government is doing. Less private property rights means less prosperity for the citizens of a country. Freedom breeds prosperity. We need to make sure we guard our freedoms.

 

 

Government Policies Do Impact The Economy

John Hinderaker at Power Line posted an article today about the latest economic numbers showing that the Gross Domestic Product numbers are not good.

The article includes the following chart:

Screen Shot 2015-05-29 at 11.07.02 AM

As you can see from the chart, the economy has not shown consistent growth since 2009.

The article concludes:

The administration always offers excuses for the economy’s inadequate performance on its watch–most recently, cold weather–but the common denominator is an anti-business, anti-growth administration that spends too much, wastes too much, incurs too much debt, and imposes too many costly regulations.

Our country was designed to be governed by laws made by lawmakers who would be held accountable by the voters. Unfortunately, we have evolved into a country where regulations made by unelected officials who are not accountable to anyone have crippled economic growth. It is long past time to elect leaders who will follow the constitution and not allow unelected bureaucrats to determine our economic future.

Watch This Space

I firmly believe that at some time in the future, Senator John Thune will run for President. I’m not saying I would vote for him (or that I would not) and I am not commenting on the candidate he would be, I’m just saying that I believe that he will run someday. Just for the record, I also believe that if I were a Hollywood casting agent, I would cast him for the part. I just think there is something about him that looks presidential. He is now in the process of doing something that desperately needs to be done.

The Washington Examiner is reporting today that Senator Thune is going to fight back on the Obama Administration’s limits they are planning to place on ground-level ozone.

The article reports:

The South Dakota Republican’s bill would prevent the Environmental Protection Agency from imposing a more stringent standard until 85 percent of the more than 200 counties that have yet to comply with the current regulation do so. Sen. Joe Manchin, D-W.Va., is lined up to co-sponsor the bill, said Thune spokeswoman Rachel Millard.

The move comes as the comment period for the proposed EPA rule closes Tuesday. The House Science, Space and Technology Committee will hold a hearing on the subject Tuesday.

The EPA in November floated lowering the tolerable limit for ozone, or smog, to between 65 and 70 parts per billion, down from the level of 75 ppb set under former President George W. Bush in 2008. The agency also is taking comment on whether to set the standard at 60 ppb, though it wasn’t part of the official proposal.

I need to make it very clear that I am not in favor of pollution. What I am in favor of is fairness and practicality. It makes total sense to wait for the majority of our worldwide neighbors to comply with the current regulations before we make ours tougher. We are not a major part of the problem, and until our neighbors also take steps to cut their pollution, our efforts will not actually amount to much.

The article reports:

Industry groups and Republicans contend the updated standard would be one of the most expensive ever. They say it would throw dozens more counties into “non-attainment” zones that would restrict permitting for expanding or adding industrial emitters such as factories, refineries and other manufacturing facilities.

A National Association of Manufacturers-commissioned study by NERA Economic Consulting put the price tag for a 60 ppb level at $140 billion annually from 2017 through 2040. The study did not weigh potential benefits.

We need balance. We also need everyone to participate. Right now the move by the Obama Administration is overkill. Senator Thune is right to fight it.

Some Good News and Bad News In The October Employment Numbers

Yesterday Investors.com posted an article about the employment numbers released by the Bureau of Labor Statistics on Friday.

The jobless rate is 5.8%, the lowest since June 2008. However, the Labor Force Participation Rate (the percentage of Americans of working age who are working) is at 62.8 percent, essentially flat since April according to the Bureau of Labor Statistics website.

Despite these relatively good numbers, consumer confidence is still low, Part of the reason for that is what has happened to Middle Income family income since 2007.

The article at Investors.com reports:

Real median household incomes fell 6.6% from $55,627 in 2007 to $51,939 at the end of last year. It will take years to recoup that loss. Meanwhile, male workers’ incomes have been in a tailspin for over a decade.

Private-sector wages grew 2% from last year in October — just barely ahead of the 1.7% rise in inflation.

So lack of opportunity stemming from 2% GDP growth and slow-growing family incomes have put average Americans in a sour mood.

The article at Investors.com further reports:

It’s policy failure. We and others repeatedly warned that President Obama’s massive stimulus, cheap money and heavy-handed regulation were a recipe for stagnation. That’s exactly what happened.

Each era of big government tinkering ends with the the economy being systematically run into the ground by Keynesian policymakers — and with economists pondering whether it’ll always be this way.

“Are you better off today than you were four years ago?” President Reagan famously asked in the 1980 campaign. Today, Americans seem to be saying no.

I hope the new Republican Congress will have the courage to encourage the President (strongly) to change direction.

Time For A Change Of Economic Policy

This is a chart from today’s Wall Street Journal:

The article reports:

Gross domestic product, the broadest measure of goods and services produced across the economy, contracted at a seasonally adjusted annual rate of 2.9% in the first three months of the year, according to the Commerce Department‘s third reading released Wednesday. That was the fastest rate of decline since the first quarter of 2009, when output fell 5.4%, and matches the average pace of declines during the recession.

GDP was recession-like in the first quarter, although most other data clearly signal that the decline is an outlier,” said Jim O’ Sullivan, economist at High Frequency Economics.

In its third GDP reading, based on newly available data, Commerce said first-quarter consumer spending and exports were even weaker than previously estimated. Consumer spending growth was lowered to 1% from 3.1% previously, largely because health-care spending was weaker than previously estimated.

President Obama has been in office since 2009. His economic policies have been in place for more than five years. It is becoming obvious that those policies have not been effective in reviving the American economy. It is time to send people to Washington who have new ideas that will encourage small business growth and turn the American economy around.

This Is Not What An Economic Recovery Looks Like

Katie Pavlich posted an article at Townhall.com today about the revised Gross Domestic Product (GDP) number from the first quarter of 2014. Initially, the  GDP growth number was listed at just .01 percent. That number has been revised downward to -1 percent. If the GDP number shrinks two quarters in a row, the economy is considered to be in a recession.

It is time for the Obama Administration to examine its economic policies. One way to boost the economy would be to approve the Keystone Pipeline and begin to develop America’s energy resources.

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The Economic Recovery In One Graph

Today’s Wall Street Journal posted a story about the latest Gross Domestic Product numbers. The article included the following graph:

The Wall Street Journal reported that the Gross Domestic Product grew at a seasonally adjusted annual rate of 0.1% in the first quarter of 2014.

The article in the Wall Street Journal explains some of the factors responsible for the low economic growth. Some suggested causes were the extremely cold winter which slowed consumer spending, and the sudden drop in exports, declining at a 7.6% pace in the first quarter.

Obviously, this is not the robust economy the President has been claiming.

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The Revised Numbers Tell A Different Story

On Friday the Washington Times posted a story about the Obama economy. As I am sure you remember, when the government announced that the economy had grown 3.2 percent in the last months of 2013, economists announced that America was well on its way to prosperity. Well, not so fast.

The article reports:

However, according to a revised estimate released Thursday by the U.S. Commerce Department’s Bureau of Economic Analysis, that 3.2 percent figure was a wild exaggeration.

The U.S. gross domestic product (GDP), the broadest measure of our country’s entire economic output, grew no more than 2.6 percent in the fourth quarter — a pitifully low growth rate for the largest economy in the world.

“Averaged across the four quarters of last year, real GDP added 1.9 percent in 2013 from 2012,” said Forbes’ website reported.

So what happened? Part of the reason for the lack of growth is that personal income has not grown for several months, putting a damper on consumer demand. Also, 2013 brought higher taxes to all income levels–some hidden taxes included in ObamaCare like the medical devices tax. High earners also faced increased capital gains taxes, which slowed risk taking and job growth. In February, contracts to buy new homes fell for the eighth month in a row.

Unless something happens to cause President Obama to change his policies, we will have three more years of a non-recovery recovery., If you are not happy with the direction the country is moving in, you need to voice your opinion at the ballot box in November. A Republican Senate may be able to reverse enough of this to get the economy moving.

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At Some Point, Even Low-Information Voters Will Laugh At These Reports

Ed Morrissey at Hot Air posted an article today about recent economic growth in America. The Bureau of Economic Analysis claimed a moderate economic annualized growth rate of 3.2% last month. The Bureau has now adjusted its numbers, saying that the economy only grew at the stagnation level of 2.4%:

The article reports the following from the Bureau of Economic Analysis:

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. With this second estimate for the fourth quarter, an increase in personal consumption expenditures (PCE) was smaller than previously estimated.

Reuters reports the following:

Consumer spending was cut to a 2.6 percent rate, still the fastest pace since the first quarter of 2012. It had previously been reported to have grown at a 3.3 percent pace. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, contributed 1.73 percentage points to GDP growth, down from the previously reported 2.26 percentage points.

As a result, final domestic demand was lowered two-tenths of a percentage point to a 1.2 percent rate. The loss of momentum appears to have spilled over into in the first quarter of 2014, with an unusually cold winter weighing on retail sales, home building and sales, hiring and industrial production.

The article at Hot Air concludes:

Weather will be a factor in 2014 Q1, but it wasn’t in 2013 Q4. The economy was stagnating well before the polar vortices arrived, and has been ever since the June 2009 technical recovery. This is just more of the same.

President Obama’s economic policies are not working. Can we please try something else?

 

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The Need To Learn From Mistakes Made By Other Countries

Investor’s Business Daily posted an article today stating that the Netherlands is changing the rules of its welfare state.

The article states:

The Netherlands has been known for its generous welfare system. Three decades ago, when the U.S. was spending about 22% of its GDP on entitlement programs, the Dutch were spending more than 40%. The Financial Times named the Dutch system a “comprehensive egalitarian social model” built in the 1960s and 1970s.

…Three months ago, newly coronated Dutch King Willem-Alexander told his country that the “classic welfare state of the second half of the 20th century” was over. It would be replaced by a “participation society” because the “arrangements” the nation was operating under “are unsustainable in their current form.”

Among the changes is a requirement that welfare applicants must prove they have actively looked for a job for at least four weeks before they can receive benefits.

“And once they begin to receive benefits they will either have to work or perform volunteer community service,” says the Cato Institute‘s Michael Tanner.

Other savings will be found when youth services, care for the elderly and job retraining are kicked down to the local level, which is better equipped to be more efficient with other people’s money.

The Dutch have learned that those who work cannot support those who do not work indefinitely. Eventually those who work get very tired and decide to join the non-workers. If we do not learn the lesson the Dutch have learned, we can also expect to have to make drastic changes in the near future.

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The Positive Impact Of Sequestration

On Sunday, Stephen Moore posted an article at the Wall Street Journal about the positive aspects of sequestration. The bottom line in the story is that because of sequestration the federal government is shrinking.

In fiscal 2013, the sequestration will save the government more than $50 billion.

The article explains the potential future impact of sequestration:

In other words, Mr. Obama has inadvertently chained himself to fiscal restraints that could flatten federal spending for the rest of his presidency. If the country sees any normal acceleration of economic growth (from the anemic 1.4% growth rate so far this year), the deficit is on a path to drop steadily at least through 2015. Already the deficit has fallen from its Mount Everest peak of 10.2% of gross domestic product in 2009, to about 4% this year. That’s a bullish six percentage points less of the GDP of new federal debt each year.

Discretionary spending soared to $1.347 billion in fiscal 2011, according to the CBO, but was then cut by $62 billion in 2012 and another $72 billion this year. That’s an impressive 10% shrinkage. And these are real cuts, not pixie-dust reductions off some sham baseline. Discretionary spending as a share of the economy hit 9.4% of GDP in fiscal 2010 but fell to 7.6% this year and is scheduled to slide to 6.4% in Mr. Obama’s last year in office.

There are still major problems with entitlement programs going broke (I would like to repeat myself here and say that Social Security is not an entitlement program. If you are going to call it an entitlement program, just give everyone the money they have paid into it over the years and stop payments.). Social Security, Medicare and Medicaid will eventually have to be reworked in order to make them viable, but I seriously doubt that will happen under a Democrat president. Partial privatization of all three programs would extend their viability, but would need politicians willing to take a political risk for the good of the country. Right now that’s not what we have in Washington.

 

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An Interesting Perspective On Immigration Reform

Yesterday John Hinderaker at Power Line posted an article about the economic impact the current proposals regarding immigration reform will have on the incomes of Americans.

This week in his weekly address, President Obama stated the following:

The Senate’s plan would also provide a big boost to our recovery. And on Wednesday, we released a report detailing exactly how big a boost that would be.

The report is based on the findings of independent, nonpartisan economists and experts who concluded that, if the Senate’s plan becomes law, our economy will be 5% larger in two decades compared to the status quo. That’s $1.4 trillion added to our economy just by fixing our immigration system.

Here in America, we’ve always been a nation of immigrants. That’s what’s kept our workforce dynamic, our businesses on the cutting edge, and our economy the strongest in the world. But under the current system, too many smart, hardworking immigrants are prevented from contributing to that success.

John Hinderaker points out:

And who might those supposedly “independent, nonpartisan economists and experts” be? When you check out the actual report, here is who they are:

President’s National Economic Council, Domestic Policy Council, Office of Management and Budget, and the Council of Economic Advisers.

In other words, extensions of the office of the president. His appointees–high level flacks.

That’s the first problem with that statement. The second problem is explained by a Power Line reader with amazing math skills who sent a note to Power Line which definitely disputed that claim.

The reader reports:

The claim is that aggregate GDP will be 5% higher in 20 years than otherwise, equal to $1.4 trillion in constant dollars. By simple algebra that means they are assuming a status quo future GDP of $28 trillion and therefore an immigration-enhanced GDP of $29.4 trillion. But wait! What about GDP per capita, the only meaningful measure of economic growth for the populace? Well…population will increase from today’s 315 million to about 378 million under the current immigration and population levels, and to about 410 million with the new immigration regime, conservatively estimated. [Ed.: That is a VERY conservative estimate.] Simple arithmetic demonstrates that future GDP per capita without the new immigration levels is $74,000, whereas with increased immigration it is $71,700.

…Their plan is simply to import scores of millions of unskilled 3rd world immigrants, covered by a fig leaf of a few hundred thousand high skilled STEM workers, 90% of whom we can easily do without, in order to create “economic growth” — in the aggregate — by a massive population expansion from the outside–but not growth that will benefit existing native born Americans at all. And that is not counting the inevitable economic drawbacks of this grotesque giantism — overcrowding, land use issues, infrastructure deterioration, and environmental degradation, to name a few.

The ability of some of our elected leaders to lie in order to further whatever agenda they have is amazing to me. I would love to see our immigration policies reformed–they are awful. However, the current changes proposed by the Senate are not the answer. The incremental proposals coming from the House of Representatives might better solve our current problems.

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About The Rather Modest Recovery We Are Experiencing

Recently I have heard some Democrats blame spending cuts for the fact that we are in the weakest economic recovery since recoveries began. Investor’s Business Daily has a different perspective. They posted an article today with the following chart:

The article explains:

Instead, the researchers found, “the excess fiscal drag on the horizon comes almost entirely from raising taxes.”

Taxes as a share of GDP are on track to rise well above historic averages and well above rates at comparable periods in previous recoveries.

And what explains this “super-cyclical” rise in taxes?

Well, let’s see. Obama forced through a $600 billion tax hike on upper-income families at the start of this year in the name of “fairness.”

Before that, he and his fellow Democrats imposed $1 trillion of new taxes for ObamaCare, taxes that are just now hitting the economy.

As a result, federal tax revenues as a share of GDP will hit 19.3% of GDP by 2015, a level reached just six times since World War II and well above the 17.9% average over the previous 40 years.

We’d only add that Obama’s other economic policies — an out-of-control regulatory state, the looming disaster known as ObamaCare, various attempts at industrial policy among them — have also weakened what should have been a robust recovery.

Increased taxes have taken spending money out of the pockets of all Americans. Even those people fortunate enough to get raises or bonuses this year found themselves with smaller paychecks because of the increases in taxes. The combination of less spending money for the average American and the confusion many companies are dealing with regarding ObamaCare has stalled our economy. Because many of the regulations in ObamaCare only apply to companies with fifty or more employees, we are going to see many companies stop hiring at forty-nine employees until they are certain of the impact of all these regulations. We are essentially in an economic holding pattern as we wait for the current paradigm of higher taxes and more regulation to settle in. Unfortunately, if that paradigm does permanently settle in, low growth and economic stagnation will be the new normal.

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Where Is The Economy?

The economy hasn’t been in the news lately–there seem to have been a few other things going on–but the economy is something we do need to be keeping an eye on.

CNBC posted an article today describing where the country is economically.

The article reports:

GDP growth is in the midst of its longest sub-3 percent annual growth rate since 1929, the beginning of the Great Depression, according to Bespoke Investment Group. The economy hasn’t topped 3 percent since 2005—before Federal Reserve Chairman Ben Bernanke took over—and is unlikely to do so this year.

The article points out that in two months the revised economic numbers will show that the United States economy has grown to more than the currently stated $15 trillion. This has nothing to do with economic growth–it has to do with a change in the way that the size of the economy is calculated.

The article points out:

Under the new math, the government will add research and development spending, as well as the capital value of all books, movies, records, television programs and plays produced since 1929.

In jacking up the economy’s size, the revisions also will skew the ratio of debt to GDP, considered important in determining government spending.

Of course, the recent attempt at debunking a critical study of the ratio by Carmen Reinhart and Kenneth Rogoff also has dimmed the prospects for government debt-cutting. The two economists asserted that a 90 percent debt-to-GDP ratio restrained growth, but the data set they used has been challenged as faulty.

The new GDP calculations, combined with the souring on the Reinhart-Rogoff conclusions, likely will add to the thirst to keep Washington’s debt machine purring.

Meanwhile, the unemployment rate remains high.

The article reports:

Though employment has risen by 1.3 million over the past year, unemployment that counts the discouraged and underemployed, as well as the jobless (often called the “real” unemployment rate) has remained stubbornly high, at 13.8 percent of the workforce, according to the most recent count.

In fact, a state-by-state look at the numbers, released a few days ago and current through the first quarter, shows that just six states have real rates below 10 percent.

There are a lot of reasons for the high unemployment numbers. One of them is the fact that businessmen are reluctant to hire new employees until they understand the impact of Obamacare will have on their business. Uncertainty is creating an environment where hiring is at least temporarily delayed. The other thing to keep in mind is that as the government grows, it takes money away from the private sector. When the private sector isn’t growing, the economy isn’t growing.

There hasn’t been a lot of reporting lately on the economy, but we still need to be aware of what is going on around us economically.

How To Make Things Look Better When They Aren’t

Yesterday the Financial Times posted an article explaining that Brent Moulton, who manages the Bureau of Economic Analysis, has told the Financial Times that in July, government statistics will be updated to include such things as royalties and spending on research and development. Including those things will increase the size of the United States economy by 3 percent–making it appear that the economy has grown.

The article states:

“We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history,” said Mr Moulton.

This move represents a new international standard for Gross Domestic Product accounting. Considering the state of the world’s finances in general, I can’t help but wonder if this is simply a step into denial of the fiscal collapse that surrounds us at the present moment.

There is one aspect of the changes being made that I think is positive. The article reports that deficits in pension plans will also have to be included–what is promised will be measured as well as what is paid. These unfunded liabilities are something that federal, state, and local governments have kept below the radar for years–it will be good to see them brought out into the open.

The changes coming in July move us closer to worldwide accounting practices. I have very mixed emotions about that. The changes in July will also lull the low-information voters in America into believing the economy is growing at at least 3 percent. Believing that should be a stretch for anyone.

Please follow the link above to read the entire article. It is an interesting read.

 

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The Senate Has Finally Produced A Budget

The Senate has finally produced a budget. John Hinderaker at Power Line posted an article today explaining what was in that budget.

The article states:

The process has proved revealing: the Democrats’ budget never balances, increases spending by 62% over ten years, and adds $7 trillion to the national debt despite raising taxes by $1.5 trillion. So Senate Democrats must agree with President Obama that the nation does not face a debt crisis.

The article quotes a statement President Obama made yesterday on ABC:

[W]e don’t have an immediate crisis in terms of debt. In fact, for the next ten years, it’s gonna be in a sustainable place….

There’s not–-in any way–-an immediate crisis with respect to our finances. …

Heritage.org posted an article yesterday explaining some of the details.

The article at Heritage.org states:

…Murray’s budget includes a massive tax increase. She raises taxes by almost $1 trillion ($975 billion to be exact) over the next 10 years by “closing loopholes.” Closing loopholes is Washington-speak for eliminating deductions, exemptions, and credits.

Which loopholes to close Murray leaves up to the Senate Finance Committee. But she is pursuing this tax increase unnecessarily. The Congressional Budget Office says that revenues will be 19 percent of GDP at the end of the current 10-year budget window. That is uncomfortably above the 18.5 percent of GDP that tax revenues have averaged in times of economic growth since the end of World War II. Murray’s budget would push revenues close to 20 percent of GDP by 2023, well above average—yet still not enough to catch up with her budget’s excessive spending.

Until Congress limits spending to 18 percent of the GDP (which is what we generally collect in tax revenue) we can expect deficits to grow. It is time to cut the spending in order to prevent the growth of deficits. Otherwise, we are simply creating a debt our children and grandchildren will never be able to repay.Enhanced by Zemanta

The Economy Is Shrinking–Not Growing

The Washington Free Beacon reported today that in the fourth quarter of 2012, the U. S. Gross Domestic Product fell .1 percent. This is the first decline in three years.

The article reports:

“The number isn’t as bad as it looks,” said Paul Edelstein, director of financial economics at IHS Global Insight in Lexington, Massachusetts, whose team projected a 0.3 percent gain, the lowest in the Bloomberg survey. “This really was a story about a payback in national defense spending. Consumer spending growth picked up, fixed investment was fairly strong.” […]

Government outlays dropped at a 6.6 percent annual pace from October through December, subtracting 1.3 percentage points from GDP. The decrease was led by a 22.2 percent fall in defense that was the biggest since 1972, following the Vietnam War.

Meanwhile, everyone in Washington is blaming everyone else.

The Hill reported today:

Carney said economic observers were “rightly appalled” by the threat of sequestration or default to drive a debt deal, and charged that Republicans were harming the economy to the benefit of the wealthiest Americans.

“It can’t be we’ll let sequester kick in because we insist tax loopholes remain in place for corporate jet-owners,” Carney said.

Brendan Buck, a spokesman for Speaker John Boehner (R-Ohio), pointed the finger of blame for the still-looming sequester back at the White House

“These arbitrary, automatic cuts were a creation and demand of the White House in 2011,” said Buck. “Twice the House has passed legislation to replace them with common sense cuts and reforms. If there was any uncertainty late last year about the sequester, it was because the Democratic-controlled Senate, per usual, never lifted a finger to pass a plan to replace it.”

Let’s back up a minute. The Senate has been operating on continuing resolutions since 2009 because they have failed to pass a budget. These resolutions allow them to keep the spending at the 2009 levels. We are going into debt at the rate of more than $1 trillion dollars a year because of those continuing resolutions. Has anyone considered the impact of runaway spending on the financial health of the nation? Has anyone considered the fact that businesses are holding their breath waiting to see what the impact of Obamacare will be? Has anyone considered that Americans knew at the end of last year that their paychecks would be smaller after January 1st?

We are now more than four years into bad fiscal policy. At some point that fact will be recognized (even in Washington). The answer, unfortunately, will not come until the 2014 elections. At that point Americans will have to decide whether to continue on our present path or try something different. I strongly suggest we try something different–controlling spending and passing a budget would be a great start.

 

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What Did The Fiscal Cliff Deal Really Accomplish ?

Investors.com posted an article today about what the deal reached on the fiscal cliff this week will actually accomplish. Not much.

The article states that the tax hikes will hurt the economy. Specifically:

Moody’s Analytics chief economist Mark Zandi says the higher taxes on the wealthy and the increase in payroll taxes will shave close to 1 point off GDP growth this year and result in 600,000 fewer new jobs.

Pantheon Macroeconomic Advisors chief economist Ian Shepherdson figures the deal will cut GDP by 1.5 points. And Gallup’s chief economist Dennis Jacobe says the deal has created a “higher probability of recession — just the opposite of what fixing the fiscal cliff was intended to do.”

The article also points out that the increased taxes will not actually help shrink the deficit. Included in the article is the following chart:

Any answer to the debt crisis must include cuts in government spending in order to work. Americans are waiting for the President to propose a plan to shrink government. If President Obama fails to do that, he will lose the support of the public. If he does propose a plan for smaller government, he will lose the support of his party (and a large part of the Republican establishment).

Tax hikes don’t necessarily raise the money that those who pass them think they will. For instance:

President George H.W. Bush‘s tax hikes in 1990 generated $135 billion less than expected. And revenues as a share of GDP came in lower than predicted after Clinton’s tax hikes went into effect.

The article concludes that because President Obama has added more brackets to the tax code, it will be harder to reform. I’m not sure that is an accident.

At any rate, we survived a Congress-created crisis and are about to face another one (the debt ceiling). It would be nice to believe that there are enough grown-ups in Congress to create a long-term solution to our overspending, rather than to simply put a band-aid on a broken arm.Enhanced by Zemanta

A Concise, Honest Statement About The Fiscal Cliff

Yesterday Real Clear Politics posted a video and transcript of a statement made by Senator Tom Coburn on Face the Nation.

This is the statement:

SEN. TOM COBURN (R-OKLAHOMA): The characterization is no matter where we raise taxes, what’s going to happen wit the money? We’re going to grow the government with it. We’re not going to reduce the deficit, because we refused to solve the bigger problems like saving Medicare, insuring Social Security Disability (SSI). We’re not going to use that money to do anything except continue to grow the government.

So, the characterization is that we’re wanting to protect — what we’re wanting to do is to make sure we have a dynamic economy. And I have no problems, I’ve been out there for a long time with saying those who are making more ought to contribute more, but where does that money go? And what do you do with the money? Do you do something with the money that will actually get us further down the road and fix our ultimate long-term problem, which is we’re bankrupt? And we went off the cliff two years ago when we covered 90% of our debt-to-GDP? And by the way, if you actually look at it the way every other country [does], our debt-to-GDP right now is 120%. Not 90%, not 100%, it’s 120%.

So, if you look at that, what’s ultimately going to happen — one last fact, the average Greek citizen‘s debt, for their country, is $36,000; we’re at $51,000 per person in this country. We’re becoming Greece, and we have a government where we’re willing to pay the taxes for 65% of the cost of it. We need to change that. We need both, we need to do both.

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It’s The Spending–Not The Taxes

On Friday Representative Darrell Issa posted an editorial in the Washington Times about the current fiscal cliff debate in Washington.

He begins the article with some recent history on American tax policy:

Twenty-six years ago, President Reagan implemented significant tax reforms that lowered the individual income tax rate, limited deductions and brought equality to tax rates across all levels. Before that reform, there had been 15 different marginal tax rates reaching levels as high as 50 percent for top brackets. By the time Reagan left office, the number of brackets had been reduced to two: 15 percent and 28 percent.

In 1993, President Clinton raised the top two income rates to 36 percent and 39.6 percent while also raising the corporate tax rate, increasing the taxable portion of Social Security benefits and increasing income taxable for Medicare. This is what has become known as the “Clinton tax rates.”

In 2001, President George W. Bush changed the rate from 39.6 percent to 35 percent, lowered the capital gains and dividend income rates, and expanded credits and deductions such as the Child Tax Credit and the Earned Income Tax Credit.

The current discussions in Congress are centered on the idea of raising taxes–not on cutting spending. What would be the impact of raising taxes on the rich?

Representative Issa points out:

If you raised taxes on the top income bracket, you would generate around $1 trillion over 10 years. The past four years under President Obama have resulted in trillion-dollar deficits each year. At this rate, in 10 years we’re looking at $10 trillion in new debt. At best, the “tax-the-rich” proposal is just a 10 percent solution.

Government spending has traditionally been about 18 to 20 percent of America’s Gross Domestic Product (GDP). Under President Obama, it has been about 24%. Since tax revenue is about 18% of GDP for year, the source of the deficit is obvious. Even when taxes are raised, tax revenue remains about 18% of GDP.

Representative Issa concludes:

The other side tries to boil this down into a seven-second sound bite about taxing the rich and people paying their fair share. In 2009, the top 10 percent of earners in the United States already paid more than 70 percent of federal income taxes.

This isn’t about fairness and unfairness. It’s about taxing and spending, and the federal government has spent enough.

The federal government collects more tax money from all Americans than the Medieval lords collected from the serfs. It really is time for that to stop.

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