Category Archives: President Obama

President Obama’s plan and the Heritage Foundation response

September 23, 2011 – 3:09 am

Addington, McConaghy Debate Obama’s Jobs Plan

Published on Sep 9, 2011 by

Sept. 9 (Bloomberg) — David Addington, vice president at the Heritage Foundation, and Ryan McConaghy, economic director at Third Way, discuss President Barack Obama’s $447 billion jobs plan. They speak with Deirdre Bolton and Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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It is a time for statemen. However, President Obama steps up to the plate and fails to swing.

Mike Brownfield

September 20, 2011 at 9:37 am

Two years ago, as the United States was coming out of the last recession, President Obama was asked how raising taxes on anyone would help with the economy. The President’s answer? “Normally you don’t raise taxes in a recession, which is why we haven’t, and why we’ve instead cut taxes.” Fast forward to today, as America is struggling with zero job growth and a stagnant economy, and the President has dramatically changed his rhetoric, proposing $1.5 trillion in new taxes on the American people and the country’s job creators.

Those massive tax increases come as part of the President’s plan to reduce the nation’s out-of-control debt, but rather than address the underlying spending problem, it will further deepen America’s economic quagmire and only serves to stall the real reform America needs in order to get on a path of fiscal sanity, as Heritage’s Alison Fraser explains:

Obama is demanding a ‘balanced’ approach as though somehow hiking taxes is both fair and necessary. But this notion that he is pushing — half tax hikes and half spending cuts — is beyond the class warfare message it sends. It is a tactic. A tactic to stall the real reforms that our leaders in Washington must undertake now in order to avert a fiscal, economic and moral crisis.

Real reform is necessary because of the depth and scope of America’s spending nightmare. ”The federal government today is claiming roughly one-fourth of total economic output — about 25 percent of gross domestic product,” Heritage’s Patrick Knudsen writes. That’s a post-World War II record, and it’s a huge drag on the economy since all that spending is paid for by taxes and borrowing, which reduce the amount available for investment in the private economy. And down the road, the outlook isn’t good: Social Security is growing at a rate of 5.8 percent per year, Medicare at 6.3 percent, and Medicaid at 9 percent. Unless those programs are fundamentally reformed, their costs will keep going up, and taxes will have to keep being increased to pay for them.

Disappointingly, the President yesterday retreated from his previous overtures to entitlement reform and took Social Security reform off the table while proposing minor cuts to Medicare and Medicaid–rather than the reform that would make a significant difference for the country. Obama’s plan is bad news for our nation’s defense as well, posing even more radical cuts for an already under-funded military.

Setting aside for a moment the fact that the President’s plan ignores America’s core spending problems, his plan to drastically raise taxes is coming at a time when the country can least afford it. How will the latest Obama tax increase play out? Heritage’s Curtis Dubay explains:

The new revenue would come from allowing the Bush tax cuts to expire for families and small businesses earning more than $250,000 a year, limiting their deductions, and the President’s new “Buffett Rule” that would further raise these job creators’ taxes in some way which the President has not defined. He also wants to eliminate deductions, credits, and exemptions. This is a war the President is waging on success–as if so-called fat cats were the root of our spending problems.

The President has set his sights on the wealthy despite the fact that the top 10 percent of earners in America already pay about 70 percent of federal income taxes. And taxing America’s job creators will only serve to reduce productivity, slow economic growth, depress wages and salaries, and decrease household wealth. To use the President’s own words, raising taxes in bad economic times would “take more demand out of the economy and put businesses in a further hole.” Where is that President Obama today?

Raising taxes will not fix our budget and debt crisis. But it can be solved by transforming our entitlement programs, rolling back wasteful and inefficient spending, protecting the nation, and overhauling our punitive, inefficient and noncompetitive tax code, as laid out in Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending and Restore Prosperity.

America is facing an unemployment crisis, a debt crisis, a spending crisis, and an entitlement crisis. Instead of making things better, President Obama wants to make matters worse by icing that nightmarish cake with massive tax increases. Two years ago, President Obama emphatically renounced raising taxes in a recession. Now, with the 2012 election looming, he has changed his tune and is taking aim at America’s job creators in a game of class warfare designed to play to his liberal base. Job creation has fallen by the wayside.

By Everette Hatcher III | Also posted in spending out of control, Taxes | Comments (2)

Obama’s funny math: Saving money that never was going to be spent

September 22, 2011 – 12:36 pm

Addington, McConaghy Debate Obama’s Jobs Plan

Published on Sep 9, 2011 by

Sept. 9 (Bloomberg) — David Addington, vice president at the Heritage Foundation, and Ryan McConaghy, economic director at Third Way, discuss President Barack Obama’s $447 billion jobs plan. They speak with Deirdre Bolton and Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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We have been hearing about how the stimulus saved jobs that would have been losted even though unemployment went up after the stimulus was passed. Now we are hearing about the money Obama’s plan will save.

Still Spreading the Wealth

by Michael D. Tanner

Michael Tanner is a senior fellow at the Cato Institute and coauthor of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Added to cato.org on September 21, 2011

This article appeared on National Review (Online on September 21, 2011.

Back when Barack Obama was running for president, he famously told Joe the Plumber that his goal was to “spread the wealth around.” Judging from the deficit-reduction plan that the president introduced on Monday, he really meant it.

The president’s plan barely makes a pretense of reducing spending. The Obama administration claims that its proposal would reduce future budget deficits by roughly $4.4 trillion. But that includes $1.1 trillion in savings from troop draw-downs in Afghanistan and Iraq that were already going to occur. This is an old trick by which the president gets to “save” money that was never going to be spent. The president also reaches back to include $1.2 trillion in savings from the debt-ceiling deal that was signed into law last month. And, he includes $430 billion in savings from lower interest payments as a result of the reduced debt.

The president’s actual cuts total less than $580 billion over the next ten years. That amounts to less than 1.3 percent of expected total federal spending over that period. It barely offsets the cost of the new stimulus bill he announced last week.

The American welfare state is alive and well.

Entitlement reform, once the supposed basis for a grand compromise, is now off the table. Social Security is running a deficit and facing more than $20 trillion in unfunded liabilities, but the president makes no changes to the program. Medicaid would be cut by roughly $72 billion over ten years, barely more than $7 billion per year in a program that today costs $276 billion annually. The president would trim Medicare by $248 billion over ten years. Depending on which accounting measure you use, that program is facing unfunded liabilities of $30–90 trillion, meaning that under the best-case scenario, the president is proposing a reduction of less than 1 percent. And none of the president’s proposed Medicare savings amounts to structural change in the program, which is what is needed. Instead, the president falls back on the usual grab-bag of cuts in provider reimbursements. Those cuts are likely to drive providers out of the program, making it harder for seniors to see a doctor, while doing nothing to change the program’s path towards insolvency.

The American welfare state is alive and well.

On the other hand, the president throws his weight fully behind tax hikes. His plan would increase taxes by $1.5 trillion over the next ten years. That’s on top of $450 billion in tax hikes that the president proposed last week to pay for the stimulus package. In total, the president is seeking nearly $2 trillion in higher taxes, compared to $580 billion in spending cuts. That amounts to nearly $4 in taxes for every $1 in cuts.

And, let’s look at those taxes. The president continues to focus his rhetoric on millionaires and billionaires, but his proposal includes the expiration of the Bush tax cuts for people earning as little as $200,000 per year. That tax hike would also fall heavily on small businesses and almost certainly would slow job creation.

The president’s other big tax initiative is, of course, the new “Buffet rule,” a new alternative-minimum tax designed to ensure that “millionaires and billionaires” pay the same effective tax rate as middle-income workers. While that populist pitch may well prove politically popular, numerous studies have shown that it is highly misleading. Few millionaires and billionaires actually pay taxes at such low effective tax rates. Those that do are receiving the majority of their income from capital gains, income that has already been taxed multiple times before it is subject to the capital-gains tax.

Besides, we should never forget that investment is both risky and necessary for job creation. It is exactly the sort of thing we should be encouraging.

But in the end, economic growth and job creation is secondary to the president. So is deficit reduction. This proposal is about the president’s idea of “fairness,” as he has said over and over. The president sees the wealthy as achieving their success not through hard work and initiative but by exploiting the less well-off or through pure luck. They are the winners of life’s lottery, in his view. It is his job, therefore, to remedy this injustice. That means taking money from some and giving it to others.

It’s about “spreading the wealth around.”

By Everette Hatcher III | Also posted in Cato Institute, spending out of control | Tagged , , , | Comments (0)

Hillary popular, Obama is not. Will Hillary Run?

September 22, 2011 – 10:47 am

Here are what the numbers look like.

Yahoo reported:

One third of Americans believe Hillary Clinton would have been a better president than Barack Obama, and two-thirds view her favorably, according to a new Bloomberg News poll.

 

“The most popular national political figure in America today is one who was rejected by her own party three years ago: Secretary of State Hillary Clinton,” Bloomberg News’  John McCormick wrote on the poll’s findings, which were released Friday.

While 34 percent of those polled believe “things would be better under a Clinton administration,” McCormick wrote, “almost half–47 percent–say things would be about the same, and 13 percent say worse.”

By contrast, “35 percent of those polled believe the country would be worse off if John McCain had been elected president,” Holly Bailey reported at The Ticket.

“Clinton remains the most popular political figure on the national scene, with 64 percent of those polled saying they have a ‘favorable’ view of the Secretary of State, Bailey wrote.

“Obama’s favorable rating is at 50 percent—even though 49 percent of those polled disapprove of the job he’s doing as president. A majority of Democrats say Obama is their best candidate in 2012, though just under a third—30 percent—say they’d prefer to have someone else on the ticket.”

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I really think that Hillary will come to the Democrats’ aid. I wrote in August the following:

Run, Hillary, run!

It is my view that if the economy keeps stinking that Republicans will have a field day  in November of 2012. However, the same principle holds true that challengers to Democrats will be  very successful in Democratic primaries.

In Arkansas many have longed for another Clinton in the White House. Could it happen? It is my view that it is a foregone conclusion that the Republicans are heavy favorites to take the Senate back and win the presidency in 2012. Nevertheless, it would not surprise me if there are some big surprises in the Democratic primaries. Matthew Dickinson wrote a fine article, “Run Hillary, Run,” Salon, August 4, 2011 and in that article he makes three points:

1. “To begin, her stint as secretary of state has done wonders for her approval rating, as indicated by Gallup poll surveys dating back to her time in the White House.”

2.  “Her second advantage relates to the first: She’s not part of the mess at home. She didn’t weigh in on the stimulus bill, or healthcare, or the banking overhaul, and she certainly bears no responsibility for the state of the economy.”

3. “This leads to a third point: buyer’s remorse. It’s not one she can directly bring up (after all, she’s above politics), but others will certainly remind voters that she did warn you. Remember that 3 a.m. phone call?”

Senator Mark Pryor is part of the establishment too and will face the same problems that President Obama faces in 2012, but that could not be said about Mike Beebe. Beebe is  very popular and won with overwhelming numbers in Arkansas when many other big names in the Democratic party went down like Broadway and Lincoln.

In April of 2011 polls numbers came out and Max Brantley of the Arkansas Times Blog in his post, “Poll: Beebe, yes!; Pryor,eh.,” commented, “Gov. Mike Beebe’s approval is bipartisan and huge. U.S. Sen. Mark Pryor’s numbers are tepid.”

John Brummett goes on record today saying that Beebe will be playing golf mostly after he leaves office. Time will tell, but I am betting there will be some big upsets in Democratic primaries in the next few years. .

Announcement Hillary was running for president in 2008:

Related Posts:

Will Senator Pryor be re-elected in 2014? (Part 4)(Royal Wedding Part 5)

Dr. Jay Barth with Hendrix College comments on our latest poll results on Arkansas politics (clip from Talkbusiness) Talk Business reported today in the article “Poll Shows Beebe Strength, Pryor Shaky,” the following: A new Talk Business-Hendrix College Poll shows Gov. Mike Beebe (D) maintaining his high job approval rating, while Sen. Mark Pryor (D) […]

Will Senator Pryor be re-elected in 2014? Part 3 (The Conspirator Part 16)

U.S. Sen. Mark Pryor at the 2009 Democratic Party Jefferson Jackson Dinner, Arkansas’s largest annual political event. Mark Pryor is up for re-election to the Senate in 2014. It is my opinion that the only reason he did not have an opponent in 2008 was because the Republicans in Arkansas did not want to go […]

By Everette Hatcher III | Also posted in Hillary Clinton | Comments (0)

Obama’s tax plan would not work even if tried

September 21, 2011 – 8:09 am

The Flat Tax: How it Works and Why it is Good for America

Uploaded by on Mar 29, 2010

This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code. www.freedomandprosperity.org

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President Obama is just trying to mislead people when he says that raising taxes on the rich is the answer to America’s problems.

One Simple Reason (and Two Easy Steps) to Show Why Obama’s Soak-the-Rich Tax Hikes Won’t Work

Posted by Daniel J. Mitchell

It’s hard to keep track of all the tax hikes that President Obama is proposing, but it’s very simple to recognize his main target — the evil, nasty, awful people known as the rich.

Or, as Obama identifies them, the “millionaires and billionaires” who happen to have yearly incomes of more than $200,000.

Whether the President is talking about higher income tax rates, higher payroll tax rates, an expanded alternative minimum tax, a renewed death tax, a higher capital gains tax, more double taxation of dividends, or some other way of extracting money, the goal is to have these people foot the bill for a never-ending expansion of the welfare state.

This sounds like a pretty good scam, at least if you’re a vote-buying politician, but there is one little detail that sometimes gets forgotten. Raising the tax burden is not the same as raising revenue.

That may not matter if you’re trying to win an election by stoking resentment with the politics of hate and envy. But it is a problem if you actually want to collect more money to finance a growing welfare state.

Unfortunately (at least from the perspective of the class-warfare crowd), the rich are not some sort of helpless pinata that can be pilfered at will.

The most important thing to understand is that the rich are different from the rest of us (or at least they’re unlike me, but feel free to send me a check if you’re in that category).

Ordinary slobs like me get the overwhelming share of our income from wages and salaries. The means we are somewhat easy victims when the politicians feel like raping and plundering. If my tax rate goes up, I don’t really have much opportunity to protect myself by altering my income.

Sure, I can choose not to give a speech in the middle of nowhere for $500 because the after-tax benefit shrinks. Or I can decide not to write an article for some magazine because the $300 payment shrinks to less than $200 after tax. But my “supply-side” responses don’t have much of an effect.

For rich people, however, the world is vastly different. As the chart shows, people with more than $1 million of adjusted gross income get only 33 percent of their income from wages and salaries. And the same IRS data shows that the super-rich, those with income above $10 million, rely on wages and salaries for only 19 percent of their income.

This means that they — unlike me and (presumably) you — have tremendous ability to control the timing, level, and composition of their income.

Indeed, here are two completely legal and very easy things that rich people already do to minimize their taxes – but will do much more frequently if they are targeted for more punitive tax treatment.

  1. They will shift their investments to stocks that are perceived to appreciate in value. This means they can reduce their exposure to the double tax on dividends and postpone indefinitely taxes on capital gains.  They get wealthier and the IRS collects less revenue.
  2. They will shift their investments to municipal bonds, which are exempt from federal tax. They probably won’t risk their money on debt from basket-case states such as California and Illinois (the Greece and Portugal of America), but there are many well-run states that issue bonds. The rich will get steady income and, while the return won’t be very high, they don’t have to give one penny of their interest payments to the IRS.

For every simple idea I can envision, it goes without saying that clever lawyers, lobbyists, accountants, and financial planners can probably think of 100 ways to utilize deductions, credits, preferences, exemptions, shelters, exclusions, and loopholes. This is why class-warfare tax policy is so self-defeating.

And all of this analysis doesn’t even touch upon the other sure-fire way to escape high taxes – and that’s to simply decide to be less productive. Most high-income people are hard-charging types who are investing money, building businesses, and otherwise engaging in behavior that is very good for them – but also very good for the economy.

But you don’t have to be an Ayn Rand devotee to realize that many people, to varying degrees, choose to “go Galt” when they feel that the government has excessively undermined the critical link between effort and reward.

Indeed, if Obama really wants to “soak the rich,” he might want to abandon his current approach and endorse a simple and fair flat tax. As explained in this video, this pro-growth reform does lead to substantial “Laffer Curve” effects.

By Everette Hatcher III | Also posted in Cato Institute, Taxes | Tagged , , , | Comments (0)

Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 49)

September 21, 2011 – 7:32 am

Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 49)

This post today is a part of a series I am doing on the 66 Republican Tea Party favorites that resisted eating the “Sugar-coated Satan Sandwich” Debt Deal. Actually that name did not originate from a representative who agrees with the Tea Party, but from a liberal.

Rep. Emanuel Clever (D-Mo.) called the newly agreed-upon bipartisan compromise deal to raise the  debt limit “a sugar-coated satan sandwich.”

“This deal is a sugar-coated satan sandwich. If you lift the bun, you will not like what you see,” Clever tweeted on August 1, 2011.

National Security Cuts a Cause for Concern in Final Debt Deal

Representative Michael Turner of Ohio

 
 

Washington, Aug 2 –

For months, Congress has been debating how to deal with the economic questions surrounding an increase in our debt limit. At a time when foreign nations own nearly $4.5 trillion of our $14.2 trillion debt – proposed cuts in the recently passed deal could have serious implications for our national security.  That’s why I was concerned that national security funding would be subject to an initial $175 billion cut in the final version of the Budget Control Act of 2011 that has been passed by Congress and signed by the President.

Throughout this debate I have advocated for our government to cut current spending and cap it at a responsible level so that we may balance our budget. We must remember though that in Article I, Section 8 of the U.S. Constitution, the founding fathers empowered Congress to: “Provide for the common Defense… To raise and support Armies … (and) To provide and maintain a Navy.” Fulfilling that obligation and meeting our budgetary responsibilities are not mutually exclusive. As a nation we should be able to provide for our defense and balance our budget. One should not come at the expense of the other.

This is a critical moment for both our nation and our armed forces. We have servicemembers deployed overseas in support of a number of military and humanitarian operations including Iraq, Afghanistan and Libya. Those operations over the past 10 years have taken a toll on our forces. Currently, the Army needs $25 billion to reset its force right now, while the Marines need $12 billion. Our men and women in uniform are not only being asked to make further sacrifices with additional deployments, but in some cases they’re relying on equipment which is often older than they are. For example, Navy ships and light attack vehicles, on average, were built 20 years ago. In addition the Air Force is relying on bombers averaging 34 years in age and is refueling aircraft with tankers that are nearly 50 years old. 

An additional point of concern is that further cuts to defense are being used as a bargaining chip in a yet to be named Congressional “super-committee.” Twelve members of Congress from the House and Senate, both Democrats and Republicans, are required to find an additional $1.8 trillion in cuts. If the committee deadlocks on an agreement, or fails to complete its work by November 23rd of this year – then $281 billion in additional defense cuts automatically take effect. These cuts are unspecified and are an arbitrary number chosen to pressure the “super-committee” members into crafting an inadequate deal in fear of these cuts being enacted. I voted against this bill because I could not support a process which circumvents the normal legislative process and gambles with our national security.

Our military remains strong and morale among servicemembers remains high, but we cannot continue to operate with a strained force or we will not be able to meet the obligations of the future. In fact, the Vice-Chiefs of Staff of each of our braches of the military echoed this same sentiment at a hearing before the House Armed Services Subcommittee on Readiness. General Philip Breedlove, Vice Chief of Staff of the Air Force stated that some components of the Air Force “are right at the ragged edge.”  Furthermore, additional proposed cuts of $281 billon in the bill would result in a “fundamental restructure of what it is our nation expects from our Air Force.”

Our national defense has always been a bipartisan issue in the halls of Congress. Members from both sides of the aisle recognize the role our military plays in both protecting this nation, and advancing the goals of our foreign policy. Subjecting this integral piece of our government to cuts, without thorough debate in committee and on the House floor, sets a dangerous precedent.

By Everette Hatcher III | Also posted in spending out of control | Tagged , , , | Comments (0)

Heritage Foundation Scholars respond to Obama debt reduction proposal (Part 1)

September 19, 2011 – 9:18 pm

I love going to the Heritage Foundation website for articles like this:

Obama’s Debt Reduction and Tax Proposal

Heritage Responds to Obama’s Debt Reduction and Tax Proposal

Mike Brownfield

September 19, 2011 at 11:16 am

Heritage’s experts watched President Barack Obama’s debt reduction and tax increase proposal. Here are their immediate reactions:

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Obama’s Plan Is More Bad News for Defense

President Obama’s approach to deficit reduction, which he outlined in a Rose Garden statement today, means additional bad news for the defense budget and the nation’s security.  According to the fact sheet provided by the White House, accompanying his statement from the Rose Garden, the deficit reduction plan sees the continued application of $1.2 trillion in discretionary spending cuts already included in debt ceiling law that was enacted recently.  Office of Management and Budget Director, Jack Lew, released a blog on August 4th that estimated that this provision will cut roughly $350 billion from the defense budget over ten years.  The new deficit reduction plan would add $1.1 trillion in cuts from defense to come from funding for the military operations in Afghanistan and Iraq.  Finally, it would impose an unspecified level of spending reductions in benefits for military personnel.

Today’s statement, however, ignores the fact that President Obama had already proposed an inadequate five-year (FY 2012 through FY 2016) defense budget in February.  The news in this latest statement is the recommended cut in funding for the overseas operations.  While it is unclear what baseline the White House is using in advancing this proposal, the President’s own budget estimates spending only a bit more than half the amount of proposed cuts to the budget for such operations over a similar timeframe.  This not only repudiates a provision in the debt ceiling law to protect these operations through a special instrument for adjustments in the applicable spending ceiling, it implies that the President will apply additional cuts to the budget for the core defense program.

The greatest disappointment, however, is that the President’s deficit reduction proposal sidesteps the kind of structural reforms in the major entitlement programs that are necessary to avoid draconian cuts to the budget for the federal government’s most important constitutional obligation, which is to defend the nation and its vital interests.

Baker Spring

The President’s Disappointing Retreat on Medicare

During the Debt Ceiling negotiations, President Obama tentatively joined the large and growing consensus that the age of eligibility for Medicare enrollment should be raised from 65 to 67. Among serious advocates of entitlement reform, raising the age of normal eligibility has emerged as one of the few precious areas where there has been a   broad consensus. It was a position endorsed by analysts at both the American Enterprise Institute and the New America Foundation, and by former Democratic CBO Director Alice Rivlin and Republican Budget Chairman Paul Ryan. It would also result in significant savings. The Congressional Budget Office (CBO) projected that budget savings from the proposal would amount to $124 billion over the period 2012 to 2021.

The Medicare age of eligibility change is long overdue.  When Congress and the Johnson Administration enacted the Medicare program in 1965, the average life span had increased to 70.2 years. They made the decision to retain the normal retirement age at 65, which was enacted for enrollment in Social Security back in 1935. By 2009, the average life span had reached 78.2 years, and by 2030, when the Medicare population is projected to jump to approximately 80 million enrollees, the average life span is projected to top 80 years of age. At that time, there will be roughly 2 younger workers supporting each retiree. We’re doing it to the kids.

The President’s retreat is a disappointment. He must know that long-range structural reform of the Medicare program is necessary, since, in the estimate of the Medicare Actuary, it faces a long term unfunded liability of almost $37 trillion. In his deficit reduction program, he is proposing savings of $248 billion over ten years, and 90 percent of these savings will come from reducing “overpayments” in Medicare.  These include a number of “cats and dogs” in Medicare’s complex payment system, relating to such items as changes in payments to rural providers, payments for post acute care, payments for advanced imaging, earmarking penalties ($500 million)  for non-compliance to deficit reduction, applying the Medicaid rebate (kick-back, price control system) for drug payments to Medicare Part D (a terrible idea); and the old crackdown on Medicare waste, fraud and abuse, which is expected to save $5 billion over ten years. (According to a July 28, 2011 GAO report, there are estimated $48 billion in annual Medicare “improper” payments, representing about 38 percent of the total $125.4 billion estimate for the entire federal government.) The President wants to toughen Medicare payment caps to be enforced by the Independent Payment Advisory Board (IPAB), reducing the target from GDP plus 1 percent to GDP plus 0.5 percent.

The President is also proposing to increase Part B and D premiums for upper income retirees; increase the Part B deductible by $25 for new retirees; introduce a Part B “surcharge” for enrollees who buy Medigap coverage that provides “near first dollar” coverage. While these ideas have merit, they are substantially modest and don’t even kick in until 2017. In other words, the reform falls far short of what is needed, as embodied in Heritage’s Saving The American Dream, which delivers a balanced budget within ten years and guarantees the solvency of the Medicare program.

Robert Moffit

By Everette Hatcher III | Also posted in spending out of control, Taxes | Comments (0)

President Obama and Alternative Minimum Tax

September 19, 2011 – 8:19 am

President Obama and Alternative Minimum Tax

Dan Mitchell does it again. He is always right on the mark.

CPAs Celebrate as Obama Proposes to Create a Turbo-Charged Alternative Minimum Tax

Posted by Daniel J. Mitchell

Wow, this is remarkable. The alternative minimum tax (AMT) is one of the most-hated features of the tax code. It is such a nightmare of complexity that even Democrats routinely have supported “patches” and “band-aids” to protect millions of additional households from getting trapped in this surreal parallel tax universe – one that requires taxpayers to calculate their taxes two different ways, with the IRS getting the maximum amount of money from the two returns. (Hong Kong, by contrast, give taxpayers the option of calculating their taxes two different ways, but they’re allowed to pay the smaller of the two amounts.)

Notwithstanding the AMT’s status as arguably the worst feature of the internal revenue code, President Obama apparently wants to double down on this horrific policy by creating a new version of this nightmarish provision.

Here are some excerpts from the Wall Street Journal‘s coverage, including a key observation that Obama’s scheme is just another version of the AMT.

The administration’s principle resembles the Alternative Minimum Tax, which was first adopted in 1969 and was intended to hit the superwealthy. The AMT has been hitting an increasing number of the middle class because it wasn’t indexed for inflation, and Congress has continually wrestled with how to get rid of it.

The WSJ article also notes that a glaring inconsistency in the White House’s rhetoric. the plan is supposed to be a “very significant” tax hike, but doubling the tax burden on millionaires would only raise $19 billion per year. In other words, the Administration’s class-warfare rhetoric is probably just cover for a tax hike that actually will hit a lot of people with far more modest incomes.

The proposal also could apply to a broader selection of taxpayers—all households with incomes of more than $1 million. Those earners are expected to pay an average of $845,000 this year, according to the nonpartisan Tax Policy Center. Assuming the households in the group of 22,000 pay that amount, even doubling their tax burden would raise just $19 billion a year at a time when deficit reduction is being measured in trillions of dollars. That doesn’t take into effect any change in taxpayer behavior prompted by a new tax regime. A senior administration official said that depending on where the minimum rate is set, the plan could be a “very significant” revenue raiser. The official wouldn’t provide details. …Some conservative economists say such a proposal could put a drag on capital markets and ignores the fact that many companies have already paid tax on the income before it is distributed to owners as dividends or capital gains.

The New York Times, to its credit, provides a fair description of the issue (including a much-needed acknowledgement that Warren Buffett may not have been honest and/or accurate), and also suggests that Obama may be proposing to replace the existing AMT with this new version (though that presumably would negate its impact as a revenue-raiser).

Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday. Mr. Obama’s proposal is certain to draw opposition from Republicans, who have staunchly opposed raising taxes on the affluent because, they say, it would discourage investment. It could also invite scrutiny from some economists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments. …The administration wants such a tax to replace the alternative minimum tax, which was created decades ago to make sure the richest taxpayers with plentiful deductions and credits did not avoid income taxes, but which now hits millions of Americans who are considered upper middle class.

Actually, the AMT also hits lots of middle-class families since having kids is considered a “preference” for tax purposes.

But that’s just an insult layered on top of injury. What makes Obama’s new scheme so destructive is that it would (though the White House has not explained the details) somehow classify dividends and capital gains as “preference” items – even though everyone acknowledges that such income already is double taxed!

In other words, Obama claims to be concerned about jobs, but he is proposing a big tax hike on the saving and investment that is necessary to create jobs. Amazing.

Regular readers will recognize this video about Obama’s class-warfare tax policy. But if you haven’t seen it, five reasons are presented to explain why it will backfire.

But look at the bright side. At least accountants and tax lawyers (and don’t forget bankruptcy specialists) will get more business if Obama’s plan is implemented.

By Everette Hatcher III | Also posted in Taxes | Tagged , , , , | Comments (0)

Obama wants to help liberal states

September 19, 2011 – 6:35 am

Obama wants to help liberal states

It is clear now the agenda behind the recent jobs program President Obama has proposed. He wants to help liberal states with their budget problems.

One Reason Obama Wants Another State Bailout

Posted by Tad DeHaven

I recently discussed why the additional federal subsidies for state and local government that President Obama is proposing as part of his “job plan” are a bad idea. A new study from two Harvard economists suggests that the president’s affinity for these subsidies might have something to do with the fact that the aid would be particularly helpful to states with more left-leaning legislators and strong public sector unions.

The study from Daniel J. Nadler and Sounman Hong (see here) found that states with stronger public sector unions and a higher proportion of left-leaning state legislators face higher borrowing costs:

We find that, all things being equal, states with weaker unions, weaker collective bargaining rights, and fewer left-leaning state legislators pay less in borrowing costs at similar levels of debt and similar levels of unexpected budget deficits than do states with stronger unions and more left-leaning legislators. More practically, these findings suggest that the strength of public sector unions has become among the most important factors in bond market perceptions of a state’s risk of financial collapse.

Why do these states face higher borrowing costs? Nadler and Hong explain:

These “political” factors might signify to the bond market whether a state government has the willingness and capacity to initiate needed fiscal adjustments and austerity measures during the state fiscal crises that followed the financial crisis, and thus might provide some information to market participants about the likeliness that a given state government will choose to default on its debt instead of making politically difficult or undesirable budget cuts. Similarly, public sector labor environment variables, such as union strength, might signify to market participants the degree of organized political opposition state lawmakers would have to overcome to implement such austerity measures.

In a corresponding Wall Street Journal op-ed, Nadler and Paul E. Peterson, director of Harvard’s Program on Education Policy and Governance, do a nice job of explaining why the separation of responsibility between the federal government and the states has been crucial to the country’s economic rise:

Federal rescue of states is a dramatic departure from past practice. State bankruptcies date back to the 1840s when, amid a financial crisis, Pennsylvania, Michigan, Illinois and five other states discovered they had invested too heavily in infrastructure. The last state bankruptcy was in Arkansas during the 1930s. But overall the instances were few; in each case the federal government refused to come up with a fix.

Bankrupt states paid the price, but for the country as a whole, a system of fiscally sovereign states has proven incredibly beneficial to the nation’s economic well-being. Every state is responsible for its own police, fire, schools, transport and much more, and most of the time they do reasonably well. If they manage their affairs so as to attract business, commerce and talented workers, states prosper. If states make a mess of things, citizens and businesses vote with their feet, marching off to a part of the country that works better.

It is this exceptional federalist system that helped drive the rapid growth of the American economy throughout the first two centuries of the country’s history. Because state and local governments competed with one another for venture capital, entrepreneurial talent and skilled workers, governments generally had to be attentive to the needs of both citizens and commerce.

Unfortunately, the 20th century’s trend for the federal government to subsidize and manage more and more state and local affairs has worsened in the last 10 years as the chart in my blog post shows. If our bloated federal government is ever to be reined in, a return to fiscal federalism is a must. And if the states are to get their financial houses in order, state policymakers can’t be allowed to believe that a federal policy of “too big to fail” applies to them. (See this Cato essay for more on fiscal federalism.)

By Everette Hatcher III | Also posted in Cato Institute, spending out of control | Tagged , , , | Comments (0)

President Obama’s job speech reacted to by Heritage Foundation scholars (Part 6)

September 17, 2011 – 9:05 am

President Obama’s job speech reacted to by Heritage Foundation scholars (Part 6)

I love going to the Heritage Foundation website because of articles like this:

Heritage’s experts watched President Barack Obama’s jobs speech delivered to a joint session of Congress. Here are some of their immediate reactions:

Obama Calls for Reviving Failed Hiring Tax Credit

What to make of President Obama’s plan in his speech tonight to revive a tax credit for businesses hiring new workers? In March 2010, the President signed into law an almost identical credit.

It was a credit he pushed for Congress to pass. The credit lasted from March through the end of December. It had no beneficial impact on job creation and added billions to the national debt. There is absolutely no good reason for trying it again.

As we argued before the first hiring credit became law, such a policy won’t spur permanent hiring because it only temporarily reduces the costs of employing new workers. Businesses only hire new workers when they anticipate those new workers will increase their profitability over the long haul.

A credit of a few thousand dollars, a mere fraction of the cost of hiring a worker, does nothing to change that calculation. The only positive effect on hiring the credit could have would be on temporary positions if it makes adding a few new temps profitable in the short term. But once the credit expires businesses will let those workers go.

To get the true picture of the credit’s effectiveness, however, you can’t just look at the few temporary jobs it might create. You also need to subtract the jobs foregone because the government took the money for the credit out of the hands of the private sector by taxing or borrowing to give it to the businesses that qualify. In the end it is more likely the hiring credit will actually destroy jobs on net.

– Curtis Dubay

Extending Unemployment Benefits

Today, Senate Minority Leader Mitch McConnell (R-KY) quoted Albert Einstein who he said once defined insanity as doing the same thing over and over again and expecting different results. By that measure President Obama’s plan to boost the economy by spending more on unemployment benefits is insane. Unfortunately, the President isn’t joking.

Congress has expanded unemployment insurance (UI) dramatically since the recession began. Laid off workers can now collect up to 99 weeks of benefits in some states. It isn’t hard to see why Congress did so. Normally workers can collect benefits for to up to six months. But the average unemployed worker has now been out of a job for nine months.

For welfare reasons Congress wants to help workers who cannot find jobs. This is understandable. That doesn’t mean it will help the economy, no matter how much the President wants it to.

The stimulus bill extended UI benefits. Congress has kept them in place several times since then. All told the government has spent over $300 billion on unemployment benefits since Obama took office. All that spending has done nothing to boost the economy. Unemployment is higher than the Administration projected if Congress did nothing. This failure was predictable.

The studies that show that UI spending stimulates the economy are based on macroeconomic models programmed to show large “multiplier effects” from government spending. These models assume that each dollar of government spending creates more than a dollar of economic growth. They essentially assume their conclusion. Actual empirical research shows that UI payments do not boost GDP. This is exactly what economic theory predicts.

One of the most thoroughly established findings of labor economics is the fact that extended unemployment benefits cause workers to remain unemployed longer. Even Alan Krueger, President Obama’s nominee to chair the Council of Economic Advisors, agrees. Studies show that raising benefits to 99 weeks during the recession has increased the unemployment rate by 0.5 to 1.5 percentage points. Extended benefits come at an economic cost.

There are understandable reasons for wanting to extend UI benefits despite this cost. But as much as it would be wonderful if doing so also boosted the economy, it does not. It would be similarly wonderful if an all you can eat bacon and ice-cream diet helped shed pounds. Wishing does not make it so.

If Congress thinks that keeping extended benefits is good policy then Congress should pay for it by reducing spending on less important programs. But spending tens of billions more on unemployment insurance will not stimulate the economy any more than the last extensions did.

– James Sherk

By Everette Hatcher III | Also posted in spending out of control | Tagged , , , | Comments (0)

President Obama’s plan not going to get passed

September 16, 2011 – 10:03 am

Hopefully the House of Representatives will tell President Obama his plan will not pass. It is very costly and would not accomplish anything positive. In fact, the White House tells us that this plan will be paid for by the rich and no one will notice at all. Take a look at this video clip from the Cato Institute:

Ignore Costly, Unneeded Plan

by Jagadeesh Gokhale 

Jagadeesh Gokhale is a senior fellow at the Cato Institute, member of the Social Security Advisory Board, and author of Social Security: A Fresh Look at Policy Options University of Chicago Press (2010).

Added to cato.org on September 14, 2011

This article appeared in The Philadelphia Inquirer on September 14, 2011.

President Obama hopes that his jobs plan will be passed quickly by Congress. It shouldn’t be passed at all.

The president’s speech centered on two key ideas: additional spending on construction projects and hiring incentives, and a tax cut for low- and middle-class families through an extension and expansion in the temporary payroll tax cut scheduled to expire this year.

The total package is expected to cost about $450 billion — about half the size of the stimulus enacted in 2009. However, a quick look at statistics on domestic investment, trade, and consumption suggests that this new stimulus is not needed. Indeed, it would be a mistake to pass it if the objective is to create sustainable job growth.

Congress should ignore Obama’s repeated calls to pass his domestic policy proposals.

The president linked his spending proposals to the need to put construction workers back to work. These workers are the largest group among those who lost jobs during the 2007-09 recession, initially from the housing-sector bust and later because of a steep decline in investment spending by firms that ditched plans to add to their production capacity. But data from the U.S. Bureau of Economic Analysis shows that both private and total domestic investment spending (mostly the former) are already recovering from the decline they suffered during the recession.

Growth in investment spending, which cratered after the first quarter of 2008, is now back to its prerecession level. That means the lack of progress in reducing the unemployment rate is not because firms are not spending to increase capacity, but because there is a mismatch in jobs available and worker skills. Increasing government spending on additional construction projects is therefore misguided: It will simply slow the change in skills and training that workers must undergo to be successful in a changing economy. We might want to “out-educate, out-invest, and out-innovate the rest of the world,” but doing so by siphoning away resources that private firms could invest, while encouraging a stagnant skill pool, is the wrong direction.

That brings us to the payroll-tax cuts that are intended to stimulate consumption spending. Again, however, BEA data show that private consumption growth is already on the mend. The steep decline in consumption growth during 2008-09 has already been restored.

Consumption growth averaged 1.3 percent per year from 2002 to ’07 and this growth has already recovered back to above 1.0 percent per year since the second quarter of 2009. This is consistent with a recovery in firms’ expectations of sustained growth in demand and should lead to continued recovery in domestic investment spending. Adding a stimulus to consumption spending does not appear justified, except to purchase an insurance policy for Obama’s reelection bid at taxpayer expense.

Jagadeesh Gokhale is a senior fellow at the Cato Institute, member of the Social Security Advisory Board, and author of Social Security: A Fresh Look at Policy Options University of Chicago Press (2010).

 

More by Jagadeesh Gokhale

Foreign trade is the one sector where BEA data show the balance of trade and income has worsened since early 2009. A renewed push to expand trade agreements and markets is the only economically sound element in the president’s speech to Congress on job creation.

Obama said that every dollar of the new spending and tax cuts will be paid for. The question is, who will pay and when? The clear answer is that the election insurance policy the president is demanding will be deficit financed. The only payment mechanisms Obama identified was a one-line exhortation for the super-committee to “do more” and a vague reference to working on Medicare reform.

Finally, cutting payroll taxes but keeping the Social Security and Medicare trust funds whole by transferring IOUs to them shifts the burden of funding entitlements to taxes on capital income. Warren Buffet notwithstanding, taxing capital income is well known to degrade economic incentives to save and invest — a policy contradictory to the president’s objective of creating sustainable job growth. Such a policy may deliver a bang, in terms of jobs, that the president wishes today, but it will demand more bucks and induce more job losses in the future.

Congress should ignore Obama’s repeated calls to pass his domestic policy proposals.

By Everette Hatcher III | Also posted in Cato Institute | Tagged , , , , | Comments (0)