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Thursday, June 30, 2011

Obama's airplanes and hedge funds fairy tale

This piece by John McCormack in the Weekly Standard, which is based in part on this piece by ABC News' Jake Tapper, is a superb short-form breakdown of the $418 billion in tax increases that Obama wants as a condition for going along with any significant spending cuts.

It's stunning — shocking, appalling — to compare the numbers to Obama's demagoguery.

Obama wants Americans to believe he and his party are only trying to close loopholes and make bad guys contribute their fair share. The numbers first expose, then destroy, that fairy tale.

If we're to demonize corporate jetsters, that will bring in all of $3B.

The price of being in the "hedge fund" industry will shoot up another $20B.

We start to get to significant numbers, finally, with "$45 billion by eliminating oil and gas company subsidies." Okay, so now our national demons are supposed to be those who work and invest in the American energy industry? That would be the same industry we'd like to see make America more energy self-sufficient, as a national security matter, wouldn't it? We want to punish our domestic energy industry so that, what, foreign energy companies can do better in comparison? The same industry Obama has already punished brutally through restrictions on off-shore drilling, and offshore and onshore drilling in Alaska? The same industry whose shareholders include vast numbers of private pension funds, mutual funds, 401k plans and IRAs, and retirees? And the same industry that happens to be most concentrated in the states (like Texas) least likely to vote for Obama in 2012? So are we to hope that our energy industry (and the jobs it represents) are to be crippled? Or are we instead to hope that these $45 billion in tax increases are simply passed along to American consumers in higher energy costs?

I'm thinking that $45B in tax revenues is a drop in the national bucket of our overal fiscal situation, but when targeted as punishment to be inflicted upon a single critical industry, it's significant enough to do some serious and long-term damage to the national economy, quite probably in a substantial multiple of that $45B.

Even in the face of a fragile and stagnant national economy with massive unemployment, Obama wants to add almost a third of a trillion dollars in new taxes. Obama wants to impose those hundreds of billions in new taxes not just on billionaires, or on millionaires, or on oil companies or hedge funds or jet owners — but on ordinary American individuals who earn $200,000 and couples who earn $250,000. We're going to punish them by restricting their deductions for some seriously antisocial fat-cat behavior: owning their own homes and making charitable contributions. The nerve of those filthy rich quarter-millionaires!

That's an income level which would fairly be considered "handsome" in a place like Houston. But it would be middle middle-class in many American cities with much higher costs of living. And all over America, that's gonna hit lots of middle-aged, utterly middle-class couples with college-aged kids. That's gonna hit a huge percentage of small business owners. That's going to hit two-income couples comprising teachers and nurses and firemen, bank assistant managers and car salesmen, farmers and bookkeepers and lab techs and QC analysts and ... well, pretty much the most individually productive people in the country.

The effects of these tax increases won't be measured in missed meals, no. But those effects will be measured in postponed or abandoned dreams-come-true that ought to have come true, and could have and should have: Dreams of hard-working not-rich people. Dreams whose realization oftentimes would've supported or even created jobs for quite a few very-not-rich people.

And what comes next? Do the math on the future interest costs of the borrowing to support these deficits. Taxing those who make merely $200k quickly stops making even a dent. And so next it will be individuals making $100k, and couples making $150k, whose taxes must be increased. And so on. It is mathematically impossible to tax our way out of this problem. That's a spiral down into national bankruptcy.

So Obama needs a class war to divert attention from all that. The pool of enemies who must be punished, those who must see more of their wealth confiscated to feed the government's maw, is expanding. If your family isn't in it yet, you may be on the edge, or you've been aspiring to be in that territory, or you at least know many families who are — families whom you've never before thought of as "rich," much less "evil" and needful of national punishment.

One would have to be not only mathematically challenged, but utterly innumerate, to believe Obama is being candid in the way he's trying to sell these tax increases. It's not just a regular smoke-and-mirrors trick. No, Obama's trying to knock us unconscious by beating us over the head with the mirrors, and to force us to inhale so much smoke that we pass out or hallucinate.

If you can't see through this blatant class warfare to recognize the economic reality beneath it, you really ought not be trusted with a credit card or a checking account.

Paul Ryan is right: Obama and the Dems are entirely committed to the notion of a declining America, ever more thoroughly taxed and regulated, compelling shared scarcity as we become just another country — another Belgium, maybe another Greece.

We've got to insist on better. We need a GOP presidential candidate who can stand toe to toe with Obama while calmly, methodically, and accurately exposing his lies and his exaggerations, whether it's on taxes, spending, health care, government regulations, or foreign policy.

Posted by Beldar at 11:14 PM in 2012 Election, Budget/economics, Congress, Obama, Politics (2011), Ryan | Permalink

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Comments

(1) mpmajret made the following comment | Jul 1, 2011 4:13:49 PM | Permalink

Beldar:

If the annointed one wants to insist on raising taxes, maybe the House should send him a bill with new taxes on unions. Lets see if he wants tax increases then.

(2) Gregory Koster made the following comment | Jul 3, 2011 2:31:06 AM | Permalink

Dear Mr. Dyer: Nope, The One would reply it is mathematically possible. Higher rates + fewer deductions/exemptions for "the rich" (a term as nebulous to The One as "Jewishness" was in Nazi Germany) = all the money the government needs. The effects of higher rates escape him completely, even when he would face them himself. Somehow, he thinks that he won't have to pay these additional taxes. What a dolt. Again, I don't see how the Harvard Law magna cum laude grad could have gotten the magna cum and yet show such witlessness. The answer of incredible cynicism, a conviction that he can fool the suckers yet again and get four more years, and still get out before a real crash comes, isn't completely satisfying. It requires complete faith in himself, the conviction that The One thinks he is smarter than everyone else combined....gee, maybe it is completely convincing.


Sincerely yours,
Gregory Koster

(3) Adam made the following comment | Jul 3, 2011 11:54:42 PM | Permalink

In reference to hurting the economy and destroying the dreams of middle-class America - you can say the exact same things about spending cuts as you did for tax increases.

Except that, according to most economists and general economic theory for more than half a century, spending cuts will hurt the economy more than an equal amount of tax hikes. Not to mention that the "destroyed dreams" of tax hikes may amount to the inability to buy a new car that you need for more efficient commutes, the damage of spending cuts, especially where the republicans want them, will often amount to things like "Guess I can't afford that medical treatment I'll need." If I had to pick which one we favored as a government and society, I'd pick the medical treatment over the new car any day.

(4) Beldar made the following comment | Jul 4, 2011 10:21:47 AM | Permalink

When you make a factual assertion, Adam, like "according to most economists and general economic theory," you need to provide a link. Because I don't agree with that assertion at all, and I'm pretty sure that I don't agree with your sources who argue that.

The way you phrased it, indeed, strongly suggests to me you're reading idiots like Ezra Klein. Erza Klein couldn't find his own ass with both hands, a road map, and the entire Virginia Highway Patrol, but this is exactly the kind of blithe assertion he makes. But I don't want to guess: If you can back your statements up, bring the links, and let's get very, very specific. People lie to you for money on these subjects — frankly, there are liars on both sides of the debate, and the number of honest sources aren't all that large. The question is whether you'll be suckered or not.

The economy emphatically does not depend on government spending, and shouldn't. A clear-eyed look at history proves that government consistently has less positive effect on the economy than its proponents (generally Democrats) claim. But the one thing government does very effectively is screw things up and get in the way of the private economy -- tax it, regulate it, constrict it, distort it, choose winners and losers that make no economic sense.

So bring me your sources, and I'll look at them. Maybe they'll change my mind. More likely, I'll have some comments about their credibility, because I'm aware of more than a few sources of my own which are entirely inconsistent with your assertions, and that I think are indeed credible sources.

Someone has gotten into your head an idea that the government is responsible for our prosperity, our health care, and our new cars. That's a terribly wrong premise, and if you hold to it, you're going to be disappointed for your entire lifetime. I guaran-damn-tee you that the car you're driving didn't come from any government program: The evidence from your own life is inconsistent with the premises you're arguing here.

(5) Beldar made the following comment | Jul 4, 2011 10:59:59 AM | Permalink

Obama's own White House Council of Economic Advisers just issued their seventh quarterly report on the stimulus. So this is Obama's own guys, looking through rose-colored glasses at his own massive spending from the economic impact of the nearly trillion dollar "stimulus" package that Obama and the Dems passed on a party-line vote when they got power.

First page: "CEA estimates that as of the first quarter of 2011, the [stimulus] has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million." Now, that's a highly controversial assertion that in turn depends on a very, very selective reading of the actual data and a lot of very pro-administration guessing as to what "otherwise would have been."

But the President's own numbers show that it's cost us $666 billion for those jobs. That's something like $278,000 per job, Adam, if we use the less wildly optimistic number from the president's economists. Even if we use their wildly optimistic number of 3.6 million jobs, it's still $185,000 per job.

As Jeffrey Anderson at the Weekly Standard (among others) has pointed out: "[T]he government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the 'stimulus,' and taxpayers would have come out $427 billion ahead."

Now, the Weekly Standard is a conservative publication, and they tend to quote conservative or libertarian sources like the Heritage Organization or the Cato Institute instead of liberal ones like the Brookings Institution. But here, they're merely scoring a point from Obama's own numbers, so it's a question of arithmetic, not credibility or assumptions.

And when you start drilling down into the "stimulus" bill, you'll see that huge chunks of it went to graft and favoritism, to "winners" whom the Obama Administration wants to reward (like so-called "clean jobs" that aren't economically viable without government's thumb on the economic scale). If those are the people being disappointed by government spending cuts now, that's not a bug, that's a feature.

So I'm not persuaded by your speculation, even if it were detailed enough for me to evaluate it closely. (It makes a big difference whether we're talking about your hypothetical lost medical benefits depending on whether you're talking about a poverty-level unwed mother getting Medicaid benefits or your late G-Pa getting Medicare benefits: One's state, one's federal, and the Dems who pretend that they're not robbing Medicare are lying because Obamacare does that by fiat, not through any actual introduction of competition or competition-driven efficiencies.)

Seriously: I'll be happy to debate you on any of this. But bring me sources for your factual assertions and be prepared to defend them. Or, better, be prepared to open your mind to some different thinking if you turn out to have been misled by those sources. I'd like to introduce you to some others.

(6) Adam made the following comment | Jul 6, 2011 4:46:02 AM | Permalink

I'll find some sources tomorrow; at the moment it is almost *searingly* late, so I'll just limit my response to this before I get some sleep:

I cannot fathom how you insist that government spending cannot help an economy. Our biggest recession in history was the great depression. It is arguable that FDR's economic policies in the 30s helped, but almost undeniable that WWII contributed the majority of what got us out of the Depression. WWII, of course, thrust our economy into overdrive because it was total war, because the government was throwing tons of money at the economy to buy tanks and bombs and planes and soldiers and whatnot.

So our biggest recession was solved by one of our biggest instances of concentrated government spending, followed by one of our biggest periods of economic growth in our nation's history.

How can you ignore that? How can you say that isn't, if not conclusive, at least substantial evidence for Keynesian economics? This is my own analysis here. No one told me this. I see Depression->Government Spending->Economic Boom and it just plain makes sense.

So clearly, there must be something I am missing that you know about. Tell me where I got that train of thought wrong.

(7) steve made the following comment | Jul 6, 2011 8:32:32 AM | Permalink

Let me start by making the point that the 'economy' is nothing more than the aggregate of money spent buying things. If this number shrinks, the economy contracts, if it increases, the economy expands.

Shrinkage occurs when people and businesses collectively spend less, as is the case when either people decide to save their disposable income rather than spend it (i.e, businesses conserving cash, consumers reducing credit card debt, etc.), or it can take place when people who are spending everything they make suddenly have less money to spend (i.e., job loss, access to home equity, etc.). And the economy expands when the reverse happens: when people start spending more of the money they have or suddenly gain access to more money to spend (i.e., raises, stock market gains, etc.).

If tax hikes simply resulted in money being taken away from one person who is spending it and given to someone else who will spend it, there's no change in the economy. In fact, if the tax hike resulted in money being taken away from someone who isn't spending it and is given to someone else who will spend it, the economy will grow.

However, tax hikes (and government spending) don't happen in a vacuum, their impact can't be measured by looking just at who is taxed and who gets to spend this money.

If raising taxes on one group causes those people to cut back their spending by more than the amount of the tax hike, then the economy is going to take a hit. Likewise, if another group of people, who aren't subject to this new tax (such as businesses who are supported by those being taxed) decide to cut back their spending (i.e., reducing their staff), then the economy is going to take a hit.

And this is why I think any tax hike is going to be a net negative, as spending will be cut by more than the net amount of new taxes. People who aren't directly affected by a tax hike will nonetheless cut back their spending, thinking (probably correctly) that they're next in line. Businesses will do the same, anticipating both that they will be hit with higher taxes and that the market for their goods will be diminished.

The same theories apply to spending. It is possible that government spending can help grow the economy... but only if people with money view that spending as a net positive. As we saw happened with Obama's stimulus, that wasn't the case, people viewed the money as a waste and didn't expand their spending as a result. That's why it flopped.

Having said what I did about taxes, there is nothing sacrosanct about allowing purchasers of airplanes to depreciate their purchases over five years instead of seven (the useful life of a plane is only five years?). Nor is there anything that justifies giving oil companies a tax incentive to explore for oil (or whatever the credit is for). If oil companies can't justify the expense based on the current price of oil, then they ought not be spending the money. Giving them tax breaks is just as wrong (and dumb) as giving billions in tax breaks to solar and other 'green' energy producers. These companies ought to compete in the marketplace, period. And there is a legitimate argument that hedge fund fees are in fact compensation for work performed and not capital gains.

Unfortunately, the political climate is too poisonous right now to allow for cleaning up the tax code.

(8) Milhouse made the following comment | Jul 6, 2011 11:05:33 AM | Permalink

Adam is falling for the "broken windows" fallacy. WW2 was not a good time for the economy; it was an economic disaster that was justified only because the alternative was even worse — the ultimate extinction of the USA and the enslavement of the entire world. The war involved a lot of spending, but the vast majority of that spending was not productive; it was wasteful, money poured down the drain. When you are forced at gunpoint to give away your car, you're grateful that you're not going to be shot, but you still mourn the economic loss, and you certainly don't pretend that you've gotten richer rather than poorer.

Nor does the fact that the robber is richer mean that the effect on the economy is neutral; the robber is not the car's legitimate owner, and that does matter. The GDP statistics count the transactions of robbers just as they do those of people who are spending their own money, but that's a flaw in the statistics; spending by robbers of their ill-gotten gains is not a good thing, it's a bad thing, because the money still belongs to its owner, and it's being run down with no benefit to that owner. If there were a way to exclude such spending from the statistics it would need to be done; unfortunately there isn't.

(9) Adam made the following comment | Jul 6, 2011 11:57:02 AM | Permalink

@steve; if you're going to say that the stimulus bill flopped because of perceptions, then it seems fairly logical to blame conservatives for their part in demonizing the bill. When Economic Recovery is so dependent on the disposition of the population to spend money, telling them that nothing will get better isn't a good way to make anything get better. That said, I think it is too early to call the stimulus bill a flop, especially given that, at least as far as businesses (Corporations have pretty much gotten on their feet http://www.clms.neu.edu/publication/documents/Revised_Corporate_Report_May_27th.pdf). Why hasn't that growth made its way to the average American workers? I don't know enough to say; but my instinct tells me that de-regulation must play some part in that balloon of wealth in the corporations. And as for tax hikes hurting the economic recovery: Not to be blunt, but "Duh." Any attempts to balance the budget will hurt the economic recovery, whether you do it by taxes or by spending cuts. The same thing happened in the mid-thirties when there was a call for a balanced budget - there was a double-dip.

@Milhouse; What? Your robber analogy makes little sense to me and I can't see how you claim that WWII was a bad thing for the U.S. Economy. I am overall completely confused by the intentions or meaning in your comment.

(10) steve made the following comment | Jul 6, 2011 12:51:24 PM | Permalink

Adam:

I agree the GOP trashing the stimulus certainly didn't help, but I'm not sure how much it hurt, as I think it unlikely the power players (those with money to spend) wouldn't have bought into the stimulus even if the GOP had been less vocal in its opposition.

In fact, I think the GOP did less damage than did the Democrats during the part of the Bush Administration, when they did their best to depict the economy as tanking. Had they not done so, I think we would have pulled in a whole lot less than we did.

You're also confusing growth in profits with growth in the economy. Yes, businesses have reworked operations (primarily staffing) to be profitable at lower levels of activity. But that doesn't constitute growth, at least not until they start spending those profits.

And I think you're wrong that any attempt to balance the budget will hurt the economy. On the contrary, if those with money approve of the steps being taken, they'll expand their spending... which could more than offset the contraction caused by lower government spending. Put crudely, sacrifice a few government programs and the much larger number of people and businesses with money to spend will start to spend.

(11) Beldar made the following comment | Jul 8, 2011 9:44:34 AM | Permalink

Adam, economists are still arguing about WW2; they're literally still writing doctoral theses about it. A lot of the "conventional wisdom" that economists developed in the 20-30 years immediately after the war has since been called into serious question, based not only on new theories but on new or corrected data. In considering it as a precedent upon which to base any economic arguments now, however, I would make this caution:

WW2 didn't just grab the American economy, it grabbed all of American life. Something big changed in just about every family: someone went off to war, or changed jobs. Tiny events and transactions -- do I throw away this newsaper? patch that flat tire? drive downtown for a movie? -- suddenly weren't merely about cost and benefit and convenience, but patriotism. While your G-Pa was cruising the southwest Pacific landing soldiers and Marines at Iwo Jima, his two sisters and little brother back in Lamesa were counting pennies and conserving and knitting sweaters. And there were one-off massive changes, including but not limited to the sudden entry of American women into the national paid-for-work outside-the-home work force.

I'd say WW2 was economically sui generis, except I can't speak that Latin phrase aloud without thinking of University of Arkansas fans calling their hogs, and as a Longhorn I don't consider that a pleasant thought.

(12) Milhouse made the following comment | Jul 8, 2011 4:21:40 PM | Permalink

Adam, you need to look up the "Broken Windows" fallacy, because that is what you've fallen for.

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