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?

How To Create Economic Growth

Yesterday Stephen Moore posted an article at the Wall Street Journal about what has happened in North Carolina since 2013.

The article reports:

Four years ago North Carolina’s unemployment rate was above 10% and the state still bore the effects of its battering in the recession. Many rural towns faced jobless rates of more than 20%. But in 2013 a combination of the biggest tax-rate reductions in the state’s history and a gutsy but controversial unemployment-insurance reform supercharged the state’s economy and has even helped finance budget surpluses.

As Wells Fargo ’s Economics Group recently put it: “North Carolina’s economy has shifted into high gear. Hiring has picked up across nearly every industry.”

The tax cut slashed the state’s top personal income-tax rate to 5.75%, near the regional average, from 7.75%, which had been the highest in the South. The corporate tax rate was cut to 5% from 6.9%. The estate tax was eliminated.

So what happened next? Did the state go bankrupt? Is everyone in the state walking around in rags wondering where their next meal is coming from? Not hardly. On May 6, Gov. McCrory announced that the state has a budget surplus of $400 million.

The article explains:

This is the opposite of what has happened in Kansas, where jobs have been created but revenues have fallen since the top personal income-tax rate was cut from 6.45% in 2012 to 4.6% today and the income tax for small business owners who file as individuals has been eliminated. North Carolina’s former budget director, Art Pope, says one difference between the two states is that “we cut spending too. Kansas didn’t.”

…You won’t hear much about this in national news media, where the preferred story line is that tax cuts don’t work because they were followed by budget deficits in Kansas. In North Carolina, policies to reduce taxes and stop paying people for not working have created jobs and surpluses. Mr. Pope says: “I wish people criticizing Kansas would look at what’s happened here.”

Unfortunately the State of North Carolina has not cut spending as much as some of us would like to see it cut, but we have made progress in the right direction.

For any of you who are still skeptical, this is a picture of the Laffer Curve:

Higher Revenues with Lower Taxes? The Laffer Curve Explained

The bottom line here is very simple–after a certain point, raising taxes is counter productive and will not produce revenue. The best way to increase revenue is to decrease taxes, which stimulates economic activity. As economic activity increases, tax revenue generated as a result of that activity increases. North Carolina has learned that lesson. However, it also helps to reduce government spending–every dollar spent by the government is a dollar taken out of the private sector.

Good Government Makes A Difference

When Governor Scott Walker took office in January 2011, he began a wave of reforms that have advanced Wisconsin’s economy. Wisconsin added over 63,000 private sector jobs in 2011-12 following the loss of about 134,000 private sector jobs during the previous four years. The private sector job gains under Governor Walker are the best two-year gains under any Governor in over a decade.

Yesterday, the Wisconsin Rapids Tribune posted an article about Governor Walker’s plan to use part of the state’s surplus to reduce taxes on the residents of the state.

The article reports:

Assembly Republicans put the finishing touches Tuesday on Gov. Scott Walker’s plan to devote a huge chunk of the state’s surplus to tax cuts, approving the proposal one last time before sending it to the governor to be signed.

…The bill calls for using the state’s projected $977 million surplus to cover property and income tax cuts. The measure would send $406 million to technical colleges to reduce their property tax hit and cut income taxes by $98.6 million. The changes would translate to a $131 reduction on a median-valued home’s property tax bill this December and save the average worker $46 in annual income taxes.

Admittedly, that’s not very much–a little over $200 for a family where both parents work–but it represents movement in the right direction. How many years have the residents of Wisconsin watched their taxes increase by that much?

Governor Walker created an environment in Wisconsin that attracted businesses, and businesses came. The irony of this is that many ‘experts’ have attributed the migration of Americans to southern states to warmer climates–frankly, I am not sure you could convince anyone to go to Wisconsin based on climate alone.

Congratulations to Governor Walker for a job well done!

 

 

 

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Tax Policies Have Consequences

Today’s New York Post posted an article about the impact of Mayor de Blasio’s proposed tax policies.

The article reports:

Taking a page out of Barack Obama’s playbook, de Blasio casts his push for a tax hike on those earning over $500,000 as a moral imperative.

“I believe it’s time to ask the wealthy to do a little more,” he said last year. He paints taxes as a matter of giving back, as though the money was taken from others.

The article also reports New Yorkers’ response to this idea:

One friend says 10 wealthy people have told him they are leaving and another says disgusted New Yorkers bought $1 billion in residential property in Florida since the November election. The Sunshine State confers an automatic tax cut of about 12 percent because it has no city or state income tax, nor does it have an inheritance tax.

Below is the Laffer Curve. It represents the fact that there is a point where you raise taxes to the point that revenue decreases. There are many reasons for this–people find ways to shield their money from taxes, people relocate to places with lower taxes, and people make a decision to earn less so that they will be taxes less. At any rate, there is a tipping point. It remains to be seen if New York City has reached it.

English: The standard Laffer Curve

English: The standard Laffer Curve (Photo credit: Wikipedia)

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Posted On Facebook By A Friend

MICHELLE CARUSO-CABRERA: Does the country have a spending problem sir? Does the country have a spending problem?

REP. STENY HOYER (D-MD), HOUSE MINORITY WHIP: Does the country have a spending problem? The country has a paying for problem. We haven’t paid for what we bought, we haven’t paid for our tax cuts, we haven’t paid for war.

CARUSO-CABRERA: How about what we promised? Are we promising too much?

HOYER: Absolutely. If we don’t pay, we shouldn’t buy.

CARUSO-CABRERA: So how is that different than a spending problem?

HOYER: Well, we spent a lot of money when George Bush was president of the United States in the House and Senate were controlled by Republicans. We spent a lot of money.

(Squawk Box, February 12, 2013)
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Today Is April 15th–Unless Congress Acts, The Taxes We Paid This Year Will Seem Miniscule Next Year

 On Friday CNS News posted a story about the coming ‘automatic’ tax increases that will begin on January 1, 2013. The tax burden of the average American family will increase by $3,800–in a single year. Congress will deny being responsible for the increase–they didn’t pass anything. So what happened–the “Bush tax cuts” are set to expire. Those “tax cuts for the rich” saved the average American family $3,800 every year they were in effect.

The article reports:

It’s a near-perfect fiscal storm — occurring just after a major national election, no less. Among the tax breaks that are expiring: the Bush tax cuts that occurred in 2001 and 2003, the payroll tax cut, and the tax cut from the 2009 stimulus.

That’s not all. The estate tax, known more accurately as the Death Tax, rises to 55 percent. The 100 percent exemption for business investment goes away. Also among the soon-to-be-missing: the patch that lawmakers passed to ensure that the Alternative Minimum Tax (AMT) doesn’t snare more and more middle-income earners (instead of the super-rich it was originally designed for).

This $494 billion increase is unprecedented in scope. To give you a better idea of how big it really is, consider that all of the tax hikes in Obamacare — a huge tax hike in and of itself — add up to $502 billion over a 10-year period. Taxmageddon will extract almost that much from Americans next year alone. Saddling a “jobless” recovery with this monster hike is spectacularly bad policy.

This disaster can be avoided in one of three ways–the present Congress can stop it by extending the Bush tax cuts, we can elect a new Congress that will stop it as soon as they are sworn in, or Congress could redo the tax code in a transparent manner that is fair to all taxpayers The first option is highly unlikely, the second option is extremely necessary, and the third option will happen right after pigs fly.

 

 

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A Thought From A Fellow Blogger

A friend and fellow blogger of mine, DaTechGuy.com, has pointed out that the arithmetic we are being given on the battle for the tax cut in Congress is not quite accurate.

He points out:

An 8 week extension of the payroll tax (forgetting the expense the short-term change would cost) would generate 8 x 40 or $320.

A 52 week extension that the GOP has already passed would generate 52 x $40 or $2080 dollars.

Therefore the House bill gives a net profit of 2080-320 or $1760 dollars more to the avg taxpayer.

Instead of asking people what they would do with $40 that the house is keeping from them, perhaps they should ask what they would do with the #1760dollars that the tea party house has approved and the senate has not?

Aside from the fact that it is not a tax cut–it is a raid on Social Security–that is a very interesting way of looking at it.

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When Is A Tax Cut Not A Tax Cut ?

President Obama and the Democrat party are currently complaining that the Republicans really do not support tax cuts for the middle class because the Republicans are not supporting the extension of the payroll tax cut. That may be good for the campaign trail, but it really doesn’t tell the whole story.

On Sunday, the Business Insider posted the following:

Sen. Jon Kyl (R-AZ), the retiring minority whip, said he is opposed to extending the payroll tax cut — raising taxes an average of $1000 on American families and risking eliminating half-a-million jobs from the economy — because he is concerned about the longevity of Social Security.

“The problem here is payroll doesn’t go into general revenue, it supports Social Security, and you can’t keep extending the payroll tax holiday and have a secure Social Security,” he said on Fox News Sunday.

The problem with the cutting the payroll tax is that you are taking money directly out of Social Security, which is already in financial trouble. The government has gotten into the habit of manipulating Americans through tax policy–if you do this, you get a tax break, if you do that, we tax you extra. The payroll tax gives Americans the sense that they are getting something back, without explaining that they are helping destroy the future viability of Social Security. Again–the problem isn’t taxes–it’s spending, and until we deal with the spending (and excessive government regulations), the economy will not recover.

As much as I would love to have extra money in my pocket to spend, extending the payroll tax cut is a bad idea.

 

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