Tag Archives: economic stagnation

The Cato Institute: The state of the economy under Obama

The Cato Institute: The state of the economy under Obama

It is truly said how far to the left our country has gone.

Happy Fiscal New Year (with an Unhappy Obama Hangover)

Posted by Daniel J. Mitchell

Today, October 1, is the first day of the 2012 fiscal year.

And if you’re wondering why America’s economy seems to have a hangover (this cartoon is a perfect illustration), it’s because politicians had a huge party with our money in FY2011.

We don’t have final numbers for the fiscal year that just ended, but let’s look at the CBO Monthly Budget Report, the CBO Economic and Budget Update, and the OMB Historical Tables, and see whether there’s anything worth celebrating.

o The federal government spent about $3.6 trillion in FY2011, more money than any government has ever spent in a 12-month period in the history of the world.

o The FY2011 budget is nearly double the burden of federal spending just 10 years earlier, when federal outlays consumed “only” $1.86 trillion.

o The federal budget in FY2011 consumed about 24 percent of national output, up sharply compared to a spending burden in FY2001 of “just” 18.2 percent of GDP.

o Defense spending is too high, and has increased by about $400 billion since 2001, but the vast majority of the additional spending is for domestic spending programs.

o Federal tax revenue in FY2011 will be about $2.25 trillion, an increase of 7-8 percent over FY2010 levels.

o Economic stagnation has affected tax revenues, which are lower than the $2.6 trillion level from FY2007.

o Federal receipts amount to about 15.3 percent of GDP, below the long-run average of 18 percent of GDP.

o The Congressional Budget Office does predict that revenues will rise above the 18-percent average – without any tax increases – by the end of the decade.

o Record levels of government spending, combined with low revenues caused by a weak economy, will result in a $1.3 trillion deficit.

o This is the third consecutive deficit of more than $1 trillion.

o The publicly-held national debt (the amount borrowed from the private sector) is now more than $10 trillion.

With budget numbers like these, no wonder America has a fiscal hangover.

And let’s be blunt about assigning blame. Yes, Obama has been a reckless big spender, but he is merely continuing the irresponsible statist policies of his predecessor.

Fortunately, there is a solution. All we need to do is restrain the growth of federal spending, as explained in this video.

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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.

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Herman Cain’s 9-9-9 plan attacked for starting Value Added Tax (VAT)

Herman Cain’s plan 9-9-9 gets attacked in the clips above. Is this plan the same as a Value Added Tax (VAT).

Look Before You Leap on Cain’s 9-9-9 Tax Plan

Posted by Daniel J. Mitchell

I like the overall approach of Herman Cain’s 9-9-9 tax plan. As I recently wrote, it focuses on lower tax rates, elimination of double taxation, and repeal of corrupt and inefficient loopholes.

But I included a very important caveat. The intermediate stage of his three-step plan would enable politicians to impose both an income tax and a national sales tax. I wrote in my earlier post that I had faith in Herman Cain’s motives, but I was extremely uncomfortable with the idea of letting the crowd in Washington have an extra source of revenue.

After all, Europe’s welfare states began their march to fiscal collapse and economic stagnation after they added a version of a national sales tax on top of their pre-existing income taxes.

But it seems that I was too nice in my analysis of Mr. Cain’s plan. Josh Barro and Bruce Bartlett are both claiming that the business portion of Cain’s 9-9-9 is a value-added tax (VAT) rather than a corporate income tax.

In other words, instead of being a 9 percent flat tax-9 percent sales tax-9 percent corporate tax, Cain’s plan is a 9 percent flat tax-9 percent sales tax-9 percent VAT.

Let’s elaborate. The business portion of Cain’s plan apparently does not allow employers to deduct wages and salaries, which means — for all intents and purposes — that they would levy a 9 percent withholding tax on employee compensation. And that would be in addition to the 9 percent they presumably would withhold for the flat tax portion of Cain’s plan.

Employers use withholding in the current system, of course, but at least taxpayers are given credit for all that withheld tax when filling out their 1040 tax forms. Under Cain’s 9-9-9 plan, however, employees would only get credit for monies withheld for the flat tax.

In other words, there are two income taxes in Cain’s plan — the 9 percent flat tax and the hidden 9 percent income tax that is part of the VAT (this hidden income tax on wages and salaries, by the way, is a defining feature of a VAT).

This doesn’t make Cain’s plan bad from a theoretical perspective. The underlying principles are still sound — low tax rates, no double taxation, and no loopholes.

But if I was uneasy when I thought that the 9-9-9 plan added a sales tax on top of the income tax, then I am super-duper-double-secret-probation uneasy about adding a sales tax and a VAT on top of the income tax.

Here’s my video on the VAT, which will help you realize why this pernicious tax would be a big mistake.

Uploaded by on Oct 14, 2009

This Center for Freedom and Prosperity Foundation video explains why a value-added tax would be a dangerous money machine for big government. The evidence from Europe also shows that VATs actually lead to higher income taxes. www.freedomandprosperity.org

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Again, this doesn’t make Cain wrong if we’re grading based on economics or philosophy. My anxiety is a matter of real-world political analysis. I don’t trust politicians with new sources of revenue. Whether we give them big new sources of revenue or small new sources of revenue, they will always figure out ways of pushing up the tax rates so they can waste more money trying to buy votes.

The state of our economy under President Obama according to Cato Institute

It is truly said how far to the left our country has gone.

Happy Fiscal New Year (with an Unhappy Obama Hangover)

Posted by Daniel J. Mitchell

Today, October 1, is the first day of the 2012 fiscal year.

And if you’re wondering why America’s economy seems to have a hangover (this cartoon is a perfect illustration), it’s because politicians had a huge party with our money in FY2011.

We don’t have final numbers for the fiscal year that just ended, but let’s look at the CBO Monthly Budget Report, the CBO Economic and Budget Update, and the OMB Historical Tables, and see whether there’s anything worth celebrating.

o The federal government spent about $3.6 trillion in FY2011, more money than any government has ever spent in a 12-month period in the history of the world.

o The FY2011 budget is nearly double the burden of federal spending just 10 years earlier, when federal outlays consumed “only” $1.86 trillion.

o The federal budget in FY2011 consumed about 24 percent of national output, up sharply compared to a spending burden in FY2001 of “just” 18.2 percent of GDP.

o Defense spending is too high, and has increased by about $400 billion since 2001, but the vast majority of the additional spending is for domestic spending programs.

o Federal tax revenue in FY2011 will be about $2.25 trillion, an increase of 7-8 percent over FY2010 levels.

o Economic stagnation has affected tax revenues, which are lower than the $2.6 trillion level from FY2007.

o Federal receipts amount to about 15.3 percent of GDP, below the long-run average of 18 percent of GDP.

o The Congressional Budget Office does predict that revenues will rise above the 18-percent average – without any tax increases – by the end of the decade.

o Record levels of government spending, combined with low revenues caused by a weak economy, will result in a $1.3 trillion deficit.

o This is the third consecutive deficit of more than $1 trillion.

o The publicly-held national debt (the amount borrowed from the private sector) is now more than $10 trillion.

With budget numbers like these, no wonder America has a fiscal hangover.

And let’s be blunt about assigning blame. Yes, Obama has been a reckless big spender, but he is merely continuing the irresponsible statist policies of his predecessor.

Fortunately, there is a solution. All we need to do is restrain the growth of federal spending, as explained in this video.

___________________

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.