Category Archives: spending out of control

Milton Friedman:Republicans are wrong to oppose payroll tax reduction (Part 2 of Friedman interview with John Hawkins)

October 17, 2011 – 8:50 am

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 Milton Friedman and Ronald Reagan

John Brummett is critical of Republicans for opposing the payroll tax reduction and I have to agree with him on this.

In an interview shortly after the Bush Tax Cuts passed Milton Friedman was asked:

John Hawkins:Do you think George Bush, with the economy being as it was, did the right thing by cutting taxes?

Milton Friedman: I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, “How do you hold down government spending?” Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

_______________________

Here is some more of the interview:

Written By : John Hawkins

John Hawkins:I’d like to switch to a different area here. The economy certainly did well in the Clinton years except for the recession that started right at the end of his term. Was that because of Bill Clinton’s policies, a continuation of the success of Ronald Reagan’s policies, or something else?

Milton Friedman:I think it was #1 a continuation of the Reagan policies and #2 an indication of the virtues of a President of one party and a House and Senate of the other. That’s the best combination for economic growth…

John Hawkins:Because they hold down spending?

Milton Friedman:Yes, you have a deadlock. You can’t get any major spending programs through because one party or the other will oppose it. That’s why we have what looks like a paradox. The Clinton administration, in terms of the budget, has one of the best records of holding down spending. Spending went up less under Clinton than almost any other President.

John Hawkins:So do you think if we had Democrats controlling the House and Senate we’d have much less spending from the Bush administration?

Milton Friedman:If the White House were under Bush, and House and Senate were under the Democrats, I do not believe there would be much spending.

John Hawkins:That may be true. Switching directions again, Europe has been moving towards a single currency. Do you think that’s a wise move for all the states, some of them, or none of them? Why so?

Milton Friedman:We’re in the midst of a wonderful natural experiment. You have a really different arrangement with the euro than we’ve ever had historically. We’ve had many cases in which a number of countries have used the same currency. That’s when they’ve used gold or silver as money. But each individual country has been able to control the content of its own money. So while they were using the same commodity as currency, they were always in a position to determine what the terms of exchange were between their own currency and the other currencies.

But the euro is a very different arrangement. For the first time in history, we have essentially an independent central bank for a considerable number of distinct political entities. I, in advance, was very negative about it and have been very negative & pessimistic about it. We’ll see how the Europe plan does on the one hand and on the other, how the other countries of the world, the UK, the United States, Japan, which are linked together by flexible exchange rates, we’ll see how they do.

So we’ll have a really nice, natural experiment just as before the Soviet Union dissolved, we had a natural experiment comparing socialism and capitalism.

John Hawkins:If the euro were to replace the dollar as the medium of exchange, if everyone bought and sold their goods in euros instead of dollars, would that have an impact on the US economy?

Milton Friedman:The success of the United States will depend on how much it can produce at home, how much it can sell abroad, what it buys from abroad. It’s of less importance whether it is denominated in dollars or euros.

John Hawkins:So in the end, that is really not going to make a big difference one way or the other…

Milton Friedman:That’s not going to make a great deal of difference. What’s going to make the difference is the productivity of the different countries. But personally, as I say, I believe the Euroland is going to run into big difficulties. That’s because the different countries have different languages, limited mobility among them, and they’re effected differently by external events.

Right now for example, Ireland and Spain are doing very well, but on the other hand Germany and France are doing very poorly. The question is; “Is the same monetary policy appropriate for all of them?” Germany and France on one hand and Ireland and Spain on the other: it’s very dubious that it is. That’s why you’re having increasing difficulties within the Euroland group. As you probably know Sweden, which had not joined the European Monetary Union, voted down doing so and will keep its own currency.

John Hawkins: It was 56% to 42%so they voted it down by a good margin. Switching gears again here, in your opinion, what caused us to pull out of the Great Depression? Was it Roosevelt’s policies, WW2…

Milton Friedman:Roosevelt’s policies were very destructive. Roosevelt’s policies made the depression longer and worse than it otherwise would have been. What pulled us out of the depression was the natural resilience of the economy + WW2.

You know, it’s a mystery as to why people think Roosevelt’s policies pulled us out of the Depression. The problem was that you had unemployed machines and unemployed people. How do you get them together by forming industrial cartels and keeping prices and wages up? That’s what Roosevelt’s policies in the New Deal amounted to. Essentially, increasing the role of government, enhancing the monopolistic position of labor, and creating as I said before the equivalent of price fixing cartels made things worse. So most of his policies were counterproductive.

John Hawkins:Fast forward to today and there are a lot of Democrats & people on the left out there who say, “Why don’t we just have exorbitant taxes on the rich and minimal taxes on everyone else”? What would that do to the economy?

Milton Friedman:That would eliminate the rich.

John Hawkins:Right. Would it have a negative effect on economy overall?

Milton Friedman:Well, who would provide the funds, the capital, and the entrepreneurship for the new industries? In a world in which there were no rich people, how would you have ever gotten the capital to produce steel mills or automobile plants? You can do it through the state, but the world tried that with the Soviet Union.

It’s an interesting thing. If you ask yourself, “what tax system would be best for the low income group,” it’s the opposite of what they’re saying there. It would be a system with a maximum amount of taxation rather than a minimum. If you look at the taxation system in China for example, which is now doing very, very, well, that’s exactly what it is. In Russia you now have a 20% flat tax which is having the effect of increasing revenues rapidly and also stimulating production. You cannot help the poor by destroying the rich.

John Hawkins:If we don’t “fix” Social Security, what sort of impact is it going to have on the economy in say 10-20 years?

Milton Friedman:Well, Social Security is having a bad effect now through the tax system. But ya know, when Adam Smith was told that the British loss at Yorktown would be the ruination of Britain, Adam Smith replied, “Young man, there’s a deal of ruin in a nation.” So, we’re a very strong country, lots of able people, lots of active entrepreneurs, and so the Social Security system will be a burden, but it won’t destroy the country.

I think it will be changed of course. I think there is a great and growing pressure towards privatizing Social Security, converting it into individual accounts. We’ve been moving that way indirectly through 401ks and the equivalent retirement accounts. I think Mr. Bush will go back to his emphasis on privatizing Social Security. I think there’s a good chance it can be done. It has been done in a considerable number of countries around the world. There’s no reason why it couldn’t be done here.

John Hawkins:Are there any political websites you’d like to recommend to our readers?

Milton Friedman: No, I don’t really follow any political websites. I think they’ll do better reading the Wealth of Nations(laughs)…

John Hawkins:Last but not least, is there anything else you’d like to say or promote?

Milton Friedman:I’d like to promote lots of things. I’d like to promote elimination of drug prohibition. I’d like to promote parental choice in education through vouchers. Those are two things I think are very urgent and important. They’re both more important than the harm which Social Security will do.

I think that our policy with respect to drugs is fundamentally immoral and it’s really disgraceful that we cause thousands of deaths in South America because we cannot enforce our own laws. If we could enforce our own laws against consumption of drugs, there would be no drug cartels in South America. There would be no — nearly a civil war in a place like Columbia.

Similarly, I think the performance of our school systems is disgraceful. I think roughly a quarter of the population never graduates high school. We have a lower level of literacy today than we had a hundred years ago. That’s not despite, but because of the poor schools, particularly in low-income areas.

But I think that’s enough for you. It has been nice to talk to you.

John Hawkins:Thank you for your time Mr. Friedman.

If you’d like to find out more about Mr. Friedman, you can do so at the Milton & Rose D. Friedman Foundation & the Hoover Institution.

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

Cato Institute:Spending is our problem Part 2

October 17, 2011 – 7:45 am

Cato Institute:Spending is our problem Part 2

But we also know that it is difficult to convince politicians to do what’s right for the nation. And if they don’t change the course of fiscal policy, and we leave the federal government on autopilot, then America is doomed to become another Greece.

The combination of poorly designed entitlement programs (mostly Medicare and Medicaid) and an aging population will lead to America’s fiscal collapse.

__________________________

People think that we need to raise more revenue but I say we need to cut spending. Take a look at a portion of this article from the Cato Institute:

The Damaging Rise in Federal Spending and Debt

by Chris Edwards

Joint Economic Committee
United States Congress

Joint Economic CommitteeUnited States Congress

Added to cato.org on September 20, 2011

This testimony was delivered on September 20, 2011.

America Has a High-Spending and High-Debt Government

Some analysts say that America can afford to increase taxes and spending because it is a uniquely small-government country. Alas, that is no longer the case. Data from the Organization for Economic Cooperation and Development (OECD) show that federal, state, and local government spending in the United States this year is a huge 41 percent of GDP.

Figure 2 shows that government in the United States used to be about 10 percentage points of GDP smaller than the average government in the OECD. But that size advantage has fallen to just 4 percentage points. A few high-income nations — such as Australia — now have smaller governments and much lower government debt than the United States.

 

Historically, America’s strong growth and high living standards were built on our relatively smaller government. The ongoing surge in federal spending is undoing this competitive advantage we had enjoyed in the world economy. CBO projections show that without reforms federal spending will rise by about 10 percentage points of GDP by 2035. If that happens, spending by American governments will be more than half of GDP by that year. That would doom young people to unbearable levels of taxation and a stagnant economy with fewer opportunities.

American government debt has also soared to abnormally high levels. Figure 3 shows OECD data for gross government debt as a share of GDP.3 (The data include debt for federal, state, and local governments). In 2011, gross government debt is 101 percent of GDP in the United States, substantially above the OECD average of 78 percent.4

3 Organization for Economic Cooperation and Development, “Economic Outlook Database,” September 2011, Annex Table 32.
4 This is a simple average of OECD countries. The OECD publishes a weighted average, but that figure is, of course, heavily influenced by the United States.

 

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

Senator Pryor asks for Spending Cut Suggestions! Here are a few!(Part 117)

October 17, 2011 – 12:40 am

Senator Mark Pryor wants our ideas on how to cut federal spending. Take a look at this video clip below:

Senator Pryor has asked us to send our ideas to him at cutspending@pryor.senate.gov and I have done so in the past and will continue to do so in the future.

On May 11, 2011,  I emailed to this above address and I got this email back from Senator Pryor’s office:

Please note, this is not a monitored email account. Due to the sheer volume of correspondence I receive, I ask that constituents please contact me via my website with any responses or additional concerns. If you would like a specific reply to your message, please visit http://pryor.senate.gov/contact. This system ensures that I will continue to keep Arkansas First by allowing me to better organize the thousands of emails I get from Arkansans each week and ensuring that I have all the information I need to respond to your particular communication in timely manner.  I appreciate you writing. I always welcome your input and suggestions. Please do not hesitate to contact me on any issue of concern to you in the future.

Therefore, I went to the website and sent this email below:

 Here are a few more I  emailed to him myself.

Senator Rand Paul on Feb 7, 2011 wrote the article “A Modest $500 Billion Proposal: My spending cuts would keep 85% of government funding and not touch Social Security,” Wall Street Journal and he observed:

Here are some of his specific suggestions:

Reducing Federal Travel: Saves $7.5 billion
Since the implementation of the requirement that all federal employees use travel charge cards to pay for the
expenses of official government travel, the dollar volume of travel card transaction has increased from $4.39 billion in
FY1999 to $8.93 billion in FY2009. Audits have found significant weaknesses in internal controls over travel card use,
which costs the government millions this year.
Examples of card misuse by federal employees include unauthorized trips with premium seating, reimbursements for
airline tickets that were never purchased and even laser eye surgery. Auditors have also determined some federal
agencies have not collected reimbursements for millions of dollars’ worth of unused airline tickets.
With rapid and continuing improvements in communications technology, the need for face-to-face meetings is no
longer necessary.

By Everette Hatcher III | Comments (0)

The Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 16)

October 15, 2011 – 8:15 am

The Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 16)

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.

Broun Statement on the Budget Control Act

 
 

Washington, Jul 28 –

Congressman Paul Broun, M.D. (GA-10) today released the following statement on his vote against the Republican Budget Control Act, which passed the House of Representatives 218 to 210 votes:

“I cannot in good conscience vote for a bill that puts the future of my grandchildren and of generations to come in jeopardy.  While I respect my Republican colleagues’ efforts to come up with a compromise, the people in the 10th Congressional District of Georgia did not send me to Washington to follow the herd.  They sent me here to protect their liberty and to fundamentally change the way our federal government spends their money.  I do support a Balanced Budget Amendment, but I do not support raising the debt ceiling and allowing President Obama to put more debt on the backs of the American people.  Congress needs to first acknowledge that we have lost all control of our fiscal house, and then we need to focus on finding a real solution for paying down the national debt.”

###

By Everette Hatcher III | Comments (0)

Total Welfare Spending Is Rising Despite Attempts at Reform

October 14, 2011 – 11:59 am

Total Welfare Spending Is Rising Despite Attempts at Reform

Everyone wants to know more about the budget and here is some key information with a chart from the Heritage Foundation and a video from the Cato Institute.

Total means-tested welfare spending (cash, food, housing, medical care, and social services for the poor) has increased 17-fold since the beginning of Lyndon Johnson’s War on Poverty in 1964. Though the current trend is unsustainable, the Obama Administration plans to increase future welfare spending rather than enact true policy reforms.

WELFARE SPENDING IN INFLATION-ADJUSTED DOLLARS (2010)

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Total Welfare Spending Is Rising Despite Attempts at Reform

Source: Heritage Foundation calculations based on data from current and previous White House Office of Management and Budget documents and other official government sources.

Chart 10 of 42

In Depth

  • Policy Papers for Researchers

  • Technical Notes

    The charts in this book are based primarily on data available as of March 2011 from the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The charts using OMB data display the historical growth of the federal government to 2010 while the charts using CBO data display both historical and projected growth from as early as 1940 to 2084. Projections based on OMB data are taken from the White House Fiscal Year 2012 budget. The charts provide data on an annual basis except… Read More

  • Authors

    Emily GoffResearch Assistant
    Thomas A. Roe Institute for Economic Policy StudiesKathryn NixPolicy Analyst
    Center for Health Policy StudiesJohn FlemingSenior Data Graphics Editor

By Everette Hatcher III | Comments (0)

Heritage Foundation Scholars respond to Obama debt reduction proposal (Part 4)

October 14, 2011 – 9:17 am

Ernest Istook at the Saint Paul Tea Party Rally 4/16/2011 Part 1

Ernest Istook, US Congressman, Heritage Foundation, http://www.heritage.org, spoke at the Saint Paul Tea Party Rally 4/16/2011. Hosted by North Star Tea Party Patriots, and Sue Jeffers.

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:

_______________

Who Really Is Paying Obama’s Latest Tax Hikes

Over half of President Obama’s deficit reduction plan announced today would come from tax increases – to the tune of $1.5 trillion – on families and businesses earning over $250,000 a year.

His plan singles out both industries and individuals, such as oil companies and corporate-jet owners. This is a worn out, faulty proposal for a tax system that needs major restructuring rather than a few fine-sounding flourishes. Taxing those who Obama calls the wealthiest of Americans won’t solve our deficit problem – and it certainly won’t solve our spending problem. The top 10 percent of earners in America already pay about 70 percent of federal income taxes. And adopting the flawed deficit reduction proposal of taxing the wealthiest Americans would require mathematically unfeasible tax rates.

How ironic for this speech – specifically its tax hikes component – to come on the heels of Obama’s speech on job creation? Never mind the President’s flawed assumption that the federal government can and should be in the business of creating jobs. But to propose taxing further the very Americans who should be the ones creating jobs in our economy flies in the face of logic. Rep. Paul Ryan (R-WI) summed up the situation well over the weekend:

If you tax job creators more, you get less job creation. If you tax investment more, you get less investment.”

Mr. President, America needs more investment and it needs more job creation. It needs Washington to get out of the way.

Emily Goff

This is not Tax Reform Mr. President

President Obama’s says he wants to debt committee to reform the tax code but raise taxes by $1.5 trillion at the same time. That isn’t tax reform. It is dressing up tax hikes in tax reform’s robes.

Tax Reform entails fixing the tax base so it does not favor certain economic behaviors or deter others. This is done by closing so-called “loopholes.” The revenue raised from eliminating those credits, deductions, and exemptions is then used to lower income tax rates and eliminate taxation on saving and investing to encourage more productive activity. The new and improved tax code should raise the same amount of revenue as the old code.

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 deductions their deductions, and the President’s new “Buffett Rule” that would further raise these job creator’s 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 $1.5 trillion in higher taxes would grow the already bloated federal government by that amount. Congress never uses tax hikes for deficit reduction. It always uses the extra revenue to pay for new programs.

The brunt of these tax hikes would fall on job creators – businesses that employ workers and investors – that the economy desperately needs to start adding new jobs. Raising their taxes will only cause them to cut further back on their hiring plans or scrap them altogether. And without seriously tackling spending, taxes will have to rise perpetually.

The economy and the American people cannot afford the President’s government-growing, job-killing conception of tax reform.

Curtis Dubay


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

The Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 15)

October 14, 2011 – 8:14 am

Sen Obama in 2006 Against Raising Debt Ceiling

The Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 15)

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.

STEARNS OPPOSES LARGEST DEBT LIMIT INCREASE IN NATION’S HISTORY – ONLY REDUCES SPENDING NEXT YEAR BY $6 BILLION WITH $1.5 TRILLION BUDGET DEFICIT
LESS STRINGENT SAFEGUARDS ON THE PRESIDENT IN RAISING THE DEBT CEILING NEXT YEAR

 
 

Washington, Aug 1 –

“The Chairman of the Joint Chiefs of Staff identified our deficit crisis as America’s greatest threat, and this measure does not go far enough in holding down the growth in our national debt,” said Rep. Cliff Stearns (R-Sixth).  “Without significant spending cuts and reforms to essential programs, we are facing fiscal insolvency and the collapse of essential programs such as Social Security and Medicare.”

Stearns today opposed passage of S. 365, the Budget Control Act, which would increase the debt limit by $2.4 trillion.  “The final measure cuts less spending in the first year than the Boehner plan; the Boehner plan cut $22 billion compared with as little as $6 billion in this measure,” added Stearns.  “I supported the Boehner plan to move us forward in reaching the $4 trillion in savings needed to avoid a ratings downgrade.  This bill is $1.6 trillion short of what is needed to prevent a downgrade.”

Concluded Stearns, “This measure also makes it easier for the President to increase the debt limit in the future.  In addition, the language for a balanced budget amendment is less precise and only requires a vote in the House and Senate instead of its actual passage by both that would result in it being sent to the states for ratification.   Another concern was that this final plan sets discretionary spending for fiscal year 2012 at $24 billion higher than in the Ryan Budget Resolution, which I supported.”

By Everette Hatcher III | Comments (0)

Brantley and Obama want to go after the big bad wealthy again but they happen to be the job creators

October 14, 2011 – 7:28 am

President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting the so-called rich. This Center for Freedom and Prosperity Foundation video explains why fiscal policy based on hate and envy is fundamentally misguided. For more information please visit our web page: www.freedomandprosperity.org.

_________________

President Obama really does stick to his view that the wealthy need to rescue the rest of us on everything, but that view does not work. There are not enough rich people out there to solve our budget woes. Actually what has happened in the past when the government wants more money it starts off going after the rich, but when that does not bring in much money then the only alternative is to go after the rest of us.

Max Brantley argues on the Arkansas Times Blog that most of us are taxed too much so we must tax the rich more but that will not come close to bringing us to a balanced budget. However, it will destroy job creation.

The Millionaire Tax: Yet Another Job-Killing Tax Hike

By Curtis Dubay
October 11, 2011

Like the villain in a horror movie, the many-lived millionaire tax is once again back from the dead. Senate Majority Leader Harry Reid (D–NV) dusted off this economically frightening tax hike that has repeatedly failed to pass Congress to pay for President Obama’s jobs plan (American Jobs Act of 2011, S. 1660) after Senate Democrats rejected the tax hikes the President proposed to pay for his bill.

This is the third time in the past two years that congressional Democrats have proposed a millionaire tax. The first time it was a 5.4 percent surtax to pay for health care reform. The second time was in “the People’s Budget” released by the Congressional Progressive Caucus. It failed to garner much support either time.

If the third time is the charm for the millionaire tax to become law, the economy would suffer lasting damage and reduced international competitiveness. And American workers would bear the brunt of the pain.

Permanent Tax Hike on Job Creators

The millionaire’s tax would be a 5.6 percent surtax on incomes of married filers earning over $1 million starting on January 1, 2013. The surtax would kick in at $500,000 for individual filers, so it cannot be called a true millionaire tax. It would take the place of several tax hikes President Obama proposed to pay for his jobs plan, the biggest of which was capping the deductions of high-income earners.[1] It would raise approximately $450 billion over 10 years.

The millionaire surtax is contradictory to the stated aim of the President’s jobs plan, which is to create jobs. The tax hike would fall squarely on the very job creators that the President wants to add jobs and reduce their incentive to add new workers.

Taxpayers earning more than $1 million per year are investors and businesses that are directly responsible for creating jobs. Investors provide the capital to existing businesses and startups so they can expand and add new workers. Raising their taxes would deprive them of resources they could invest in promising businesses that are looking to add employees. Raising their tax rate would deter them from taking the risk to invest.

The President and his allies say often that only a few businesses would pay higher taxes under their soak-the-rich policies. But a recent study from President Obama’s own Treasury Department shows that 50 percent of the income earned by businesses that pay their taxes through the individual income tax code and employ workers would pay the millionaire tax.[2]

The millionaire tax is a direct blow to the pass-through businesses that employ the most workers. Higher taxes would deprive these important job creators of resources they could use to add new workers or pay their workers higher wages, and it would reduce their incentive for adding new workers. These impediments to economic growth and job creation would plague the economy permanently, while the questionable jobs policies the millionaire tax would pay for are temporary.

More Job Destruction

The millionaire surtax would also apply to capital gains and dividends. This would be yet another surtax on investment income, as Obamacare already applied an extra 3.8 percent tax. Combined with that surtax and the President’s policy of increasing the capital gains and dividends rate to 20 percent from the current 15 percent rate, the millionaire surtax would raise the total rate to 29.4 percent—a 96 percent increase over the current rate.

Higher capital gains taxes would further impede job creation because it would increase the cost of new capital for businesses looking to grow or replace worn-out capital. This would make it more expensive for businesses to buy the equipment, tools, and other things they need to employ more workers and make their current workers more productive. The end result would be fewer jobs and lower wages for American workers.

The President frequently calls his tax hike plans “tax reform.” But one of the goals of tax reform is to lower the cost of capital to improve economic growth and enhance job creation. Higher taxes on capital are opposed to the aims of true tax reform.

Highest Tax Rates in the World

The U.S. is generally regarded as a low-tax nation compared to other industrialized countries. This is one of the main factors that has allowed the U.S. economy to grow at a faster rate than other developed countries for decades and has made it the envy of the world. If the millionaire surtax becomes law, the U.S. would no longer enjoy the advantages of being a low-tax country.

After adding state and local income tax rates, the 39.6 percent top federal income tax rate long fought for by President Obama and his congressional allies, the higher Medicare surtax from Obamacare, and the new millionaire surtax, the average top marginal income tax rate in the U.S. would be 55 percent. A rate at that level would leave the average U.S. rate as the third highest among developed nations in the 30-member Organization for Economic Cooperation and Development (OECD). It would be behind only Sweden and Denmark.

Taxpayers in states with above-average top marginal income tax rates would compare even worse. In fact, taxpayers in Oregon, Hawaii, and New York would pay the highest tax rates in the developed world. Taxpayers in California, Iowa, New Jersey, Vermont, Maine, Maryland, Minnesota, Idaho, North Carolina, Wisconsin, and Ohio would pay higher rates than every developed country except Denmark.

Taxpayers in the nine states without state income taxes—and therefore with the lowest income tax rates in the U.S.—would still be taxed at a higher rate than in all but seven other developed countries. Their rates would be higher than traditional high-tax countries such as France, Germany, Italy, and Spain.

In the global race for investment and capital, the millionaire tax would make almost every other developed country more competitive than the U.S.

Real Reform

The millionaire tax would end up costing the U.S. economy more jobs than the President’s jobs plan it is supposed to pay for would ever create. It would ruin American competitiveness among other developed countries.

The President and his congressional allies are better off spending their time pursuing true tax reform, which would repair the tax base and lower marginal tax rates. That would mean dropping their class warfare policies for the good of the economy and the country.

Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

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

Bigger government hurts economic growth

October 13, 2011 – 2:04 pm

The Cato Institute videos are always good and these are no different.

 

New Video Has Important Message: Freedom and Prosperity vs. Big Government and Stagnation

Posted by Daniel J. Mitchell

The folks from the Koch Institute put together a great video a couple of months ago looking at why some nations are rich and others are poor.

That video looked at the relationship between economic freedom and various indices that measure quality of life. Not surprisingly, free markets and small government lead to better results.

Now they have a new video that looks at recent developments in the United States. Unfortunately, you will learn that the U.S. is slipping in the wrong direction.

Uploaded by on Oct 11, 2011

Continue the discussion at http://www.facebook.com/economicfreedom

For years the United States has been a world leader in economic freedom. But runaway government spending and burdensome regulations have caused a decline in economic freedom in the United States. If our economic freedom continues to fall, how will it affect our quality of life?

_________

The entire video is superb, but there are two things that merit special praise, one because of intellectual honesty and the other because of intellectual effectiveness.

1. The refreshingly honest aspect of the video is its non-partisan tone. It explains, in a neutral fashion, that Bush undermined prosperity by making government bigger and that Obama is undermining prosperity by increasing the burden of government.

2. The most important and effective argument in the video, at least from my perspective, is that it shows clearly that a larger government necessarily comes at the expense of the productive sector of the economy. Pay extra-close attention around the 2:00 mark.

It’s also worth pointing out that there are several policies that impact on economic performance. The Koch Institute video focuses primarily on the key issues of fiscal policy and regulation, but trade, monetary policy, property rights, and rule of law are examples of other policies that also are very important.

This video, narrated by yours truly, looks at economic growth from this more comprehensive perspective.

Uploaded by on Feb 17, 2009

Now that the so-called stimulus has been enacted, hopefully policy makers will turn their attention to policies that actually improve economic performance. This Center for Freedom and Prosperity Foundation video reviews the key finding in the Fraser Institute’s Economic Freedom of the World and explains that, contrary to the policies of Presidents Bush and Obama, smaller government and free markets are the way to boost economic growth. For more information: http://www.freedomandprosperity.org

________

The moral of the story from both videos is very straightforward. If the answer is bigger government, you’ve asked a very strange question.

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

Do the Republicans have the guts to cut spending?

October 13, 2011 – 2:02 pm

 

Sometimes I truly wonder if the Republicans have the guts to cut spending? This is what I think when  I read articles like this one below. That is also the reason I wrote the series “The Sixty Six who resisted “Sugar-coated Satan Sandwich” series. Some links below.

Will Republicans Choose Sequester Savings or a Supercommittee Surrender?

Posted by Daniel J. Mitchell

The budget fights this year began with the “shutdown” battle, followed by the Ryan budget and then the debt limit. These fights have mostly led to uninspiring kiss-your-sister outcomes, which is hardly surprising given divided government.

Now the crowd in DC is squabbling over Obama’s latest stimulus/tax-the-rich scheme, though that’s really more of a test run by the White House to determine whether class warfare will be an effective theme for  the 2012 campaign.

The real budget fight, the one we should be closely monitoring, is what will happen with the so-called Supercommittee.

To refresh your memory, this is the 12-member entity created as part of the debt limit legislation. Split evenly between Democrats and Republicans, the Supercommittee is supposed to recommend $1.2 trillion-$1.5 trillion of deficit reduction over the next 10 years. Assuming, of course, that 7 out of the 12 members can agree on anything.

There are two critical things to understand about the Supercommittee.

With these points in mind, it doesn’t take a genius to realize that the Supercommittee is designed — at least from the perspective of the left — to seduce gullible Republicans into going along with a tax hike.

In other words, the likelihood that the Supercommittee will produce a good plan is about the same as seeing me in the outfield during the World Series (the real World Series, not this one).

Fortunately, there is a way to win this fight. All Republicans have to do is…(drum roll, please)…nothing.

To be more specific, if the Supercommittee can’t get a majority for a plan, then automatic budget cuts (a process known as sequestration) will go into effect. But don’t get too excited. We’re mostly talking about the DC version of spending cuts, which simply means that spending won’t rise as fast as previously planned.

But compared to an inside-the-beltway tax-hike deal, a sequester would be a great result.

You’re probably wondering if there’s a catch. After all, if Republicans can win a huge victory for taxpayers by simply rejecting the siren song of higher taxes, then isn’t victory a foregone conclusion?

It should be, but Republicans didn’t get the reputation of being the “Stupid Party” for nothing, and they are perfectly capable of snatching defeat from the jaws of victory.

There are three reasons why Republicans may fumble away victory, even though they have a first down on the opponent’s one-yard line.

If GOPers sell out for either of the first two reasons, then there’s really no hope. America will become Greece and we may as well stock up on canned goods, bottled water, and ammo.

The defense issue, though, is more challenging. Republicans instinctively want more defense spending, so Democrats are trying to exploit this vulnerability. They are saying — for all intents and purposes — that the defense budget will be cut unless GOPers agree to a tax hike.

Republicans should not give in to this budgetary blackmail.

I could make a conservative case for less defense spending, by arguing that the GOP should take a more skeptical view of nation building (the approach they had in the 1990s) and that they should reconsider the value of spending huge sums of money on an outdated NATO alliance.

But I’m going to make two other points instead, in hopes of demonstrating that a sequester is acceptable from the perspective of those who favor a strong national defense.

  • First, the sequester does not take place until January 2013, so defense hawks will have ample opportunity to undo the defense cuts – either through supplemental spending bills or because the political situation changes after the 2012 elections.
  • Second, the sequester is based on dishonest Washington budget math, so the defense budget would still grow, but not as fast as previously planned.

This chart shows what will happen to the defense budget over the next 10 years, based on Congressional Budget Office data comparing “baseline” outlays to spending under a sequester.

As you can see, even with a sequester, the defense budget climbs over the 10-year period by about $100 billion. And, as noted above, that doesn’t even factor in supplemental spending bills.

In other words, America’s national defense will not be eviscerated if there is a sequester.

Here’s the bottom line. The Supercommittee battle should be a no-brainer for the GOP.

They can capitulate on taxes, causing themselves political damage, undermining the economy, and enabling bigger government.

Or they can stick to their no-tax promise, generating significant budgetary savings with a sequester, and boosting economic performance by restraining the burden of government.

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