Freedom Line Blog

Yes, you read that right. New York City Mayor Michael Bloomberg (who, let’s be honest, is the most irritating politician in America) has an ingenious campaign strategy for Barack Obama that’s totally going to spellbind the room at his next cocktail and caviar soiree. From a phone interview Bloomberg gave to the Huffington Post:

“What Obama should do is say he’s going to veto any change to the end of the expiration of the Bush era tax cuts for everybody, and I feel very strongly about the everybody because you don’t want to split the country — that’s not what America is all about,” said Bloomberg.

“Obama would win this election going away if he’d stand up and say, ‘I’m gonna do this,’ and then turn to Republicans and say, ‘You know, you didn’t want any more revenues … I just outfoxed you. Now work with me on cutting expenses, and we’ll actually balance the budget in 10 years, and we’ll do it responsibly.'”

Bloomberg here reminds me a bit of Walter Mondale, who thought it was utter genius to declare in his 1984 acceptance speech at the Democratic Convention that he would raise taxes (Newt Gingrich, who was part of a Republican rapid response team during that convention, has noted that his group decided to pack up and go home after Mondale’s declaration, figuring they couldn’t damage him any worse than he had himself). Mondale’s theory was that both he and Reagan would end up hiking taxes, but that voters would give him points for being honest about it (for a thorough understanding of the truth of Reagan’s tax record, by the way, this Matt Lewis piece is indispensable). Later, after losing 49 states in the Electoral College, he probably thought better of that.

Here’s the foundational error in both cases: the tax argument is about substance, not style. Mondale thought he’d be rewarded for being honest about the fact that he was going to take more money away from the American people. But we don’t generally reward honesty when it’s a truthful admission of nefarious intent. Similarly, Bloomberg seems to think that “unity” is more important than tax rates, and that the American people will reward Obama if he makes clear that he’s going to put the screws to all of them with equal force. But, to paraphrase Obama from 2008, no one much cares what shade of lipstick you apply to a pig. The equal distribution of suffering is not a compelling campaign rationale (although it might be the most honest slogan Obama could devise).

There’s another irony at work here, of course: if Bloomberg thinks that tax rates should be harmonized in order to avoid “splitting the country,” the most logical step he could take would be to promote a flat tax. But that probably wouldn’t fly at the open-bar receptions of the Upper East Side.

With President Obama making a public pitch yesterday to raise taxes on millions of Americans (the boldest election-year tax increase pledge since Walter Mondale in 1984), the White House is facing a bit of a cognitive dissonance. After all, Obama signed legislation keeping all of the Bush tax cuts in place only 18 months ago. Good for that ailing economy but not this one? White House Press Secretary Jay Carney (whose podium may as well be mounted above a dunk tank these days) is having a hard time sorting it out. Here’s how Charlie Spiering reports it at the Washington Examiner‘s “Beltway Confidential” blog:

White House Press Secretary Jay Carney admitted [yesterday] that the extension of the Bush Tax cuts signed by President Obama in 2010 helped the United States economy at a critical time.

“At the time that you question there was a package of proposals that passed that helped the economy at a time it was very vulnerable, and that the president signed into law.” Carney admitted.

… When pressed by [CBS News’ Norah] O’Donnell to explain what had changed between now and 2010, Carney accused her of buying into a faulty argument.

“You’re buying into a red herring argument that just isn’t true,” he insisted.

Translation: “I don’t have a rejoinder ready that won’t get me laughed out of this room.” So the economy was vulnerable in December 2010, when Obama renewed the cuts and unemployment was at 9.8 percent, but we’re in the sunlit uplands of recovery now that unemployment is at 8.2 percent?

An increase in taxes leads to a decrease in economic activity. Period. Full stop.

There’s never really a good time for a tax increase. But there are few times that are this bad.

Whether or not he ends up being a presidential candidate in 2012, Mike Huckabee is already making his mark as one of President Obama’s most insightful critics. After Obama spent last week’s press conference announcing a deal on the Bush tax cuts comparing Republicans to hostage-takers and bemoaning the intransigence of congressional liberals, Huckabee made what should have been an obvious point: you don’t celebrate bipartisan accomplishments by lambasting politicians on both sides of the aisle. Per CNN:

“The most bizarre part of the whole process was watching President Obama self-destruct at the podium yesterday,” Huckabee told the National Journal in an interview published Monday, when asked about the tax deal.

“I was just stunned – I really couldn’t believe that a man that was elected president was as amateurish as he was, and essentially launched from the podium at some of his own, taking aim and mowing down everybody in D.C. and walking away having not understood that he just lost a lot of people,” he said.

Presidents who are sore losers are deeply unbecoming. As for sore winners? Well, that’s a relatively new phenomenon. And there’s a reason for that, Mr. President.

From President Obama’s remarks earlier today defending his deal with Congressional Republicans to prevent tax increases:

I’ve said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts. I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy. In this case, the hostage was the American people, and I was not willing to see them get harmed.

Not quite “we refuse to negotiate with terrorists.” Let’s hope the press conference wasn’t airing on Al-Jazeera.

As the lame duck Congress prepares to take up the issue of what to do about the expiring Bush tax cuts, liberal pundits are busy proving to the American people that no journalism school in America provides economics education. A few points to make with your liberal friends as you argue economics the next time you join them for a non-fat soy latte made from fair trade ingredients:

• Extending the Bush Tax Cuts Won’t “Cost” Anything — Liberals can’t stop carping about the $700 billion “cost” of extending tax cuts for Americans making over $250,000 a year. This is preposterous. The absence of tax increases isn’t a cost to the federal government. If it was, then every dollar kept in private hands instead of transferred to Washington would be a cost. Private businesses don’t account for imaginary revenues as costs, and there’s no reason for government to either. This is just an excuse for not bringing expenditures into line with “revenues” (i.e. money confiscated from you).

• A Shortage of Tax Revenue Isn’t the Root of America’s Fiscal Problems — The class warfare rhetoric at the heart of the tax fight is a red herring for the real issue at hand. Virtually all taxes kill economic activity. Of course, some tax revenue will always be necessary to finance the basic functions of government, but beyond that baseline taxes are actively destructive. Thus the real choice when it comes to upper-level earners’ tax rates isn’t whether they should be soaked or not. It’s whether you think the federal government is doing too little (in which case taxes need to increase and more private economic activity should be killed) or too much (in which case spending needs to decrease).

• Income Inequality is a Meaningless Metric — Proponents of aggressively progressive taxation who are prone to ideological rather than practical justifications of their beliefs have increasingly been leaning on an argument that America suffers from growing income inequality. This is specious for two reasons. First, it presumes that there is an ideal distribution of wealth that exists free of merit. The more free an economy is, however, the more income is a function of how much value one creates in the marketplace. So do we want a nation of C students (socialized mediocrity) or a nation where the highest achievers get A’s and the lowest ones are held back a year (with generous welfare benefits, we should add)? Also, these numbers are absolutely useless from a statistical perspective. Samples of income tiers measure groups, not individuals. So when we say that the rich are richer and the poor are poorer than 20 years ago, we ignore the dynamism of the American economy — and the resulting fact that many individuals who were on the lower rungs of the economic ladder two decades ago have moved up, and many at the top have moved down. This interpretation also ignores the fact that the gap is less important than the actual numbers. If you have $200 and I have $100, are incomes are closer to parity than if you have $1 billion and I have $1 million. But in the latter scenario, we’re both better off individually and society (if it consists of just you and I) is better off as a whole. Now imagine extrapolating that analysis to an entire nation

• Virtually Every Number You See About Poverty in America is a Lie — For one simple reason: government calculations of poverty do NOT factor in benefits conveyed by government. To prove the point using an unrealistic example, a family of four making $40,000 a year but receiving $60,000 in government assistance, would still be captured in government statistics as making $40,000 a year, even though their actual income would be $100,000.

• Unemployment Benefits are NOT a Form of Economic Stimulus — From Nancy Pelosi to Nicolas Kristof, every empty head on the left seems to have the idea that unemployment benefits are a form of economic stimulus rattling around inside it. The idea is that because the poor have the greatest need for liquidity (and will thus spend the cash the quickest) unemployment greases the wheels of commerce. This is a basic Keynesian fallacy: thinking of the economy only in terms of consumption. But if this is true, why wouldn’t the road to recovery be paved with every American emptying out their bank account for a trip to Nordstrom’s? Maximum economic efficiency is achieved by putting money to the use that provides the greatest benefit relative to the cost to the individual. In some cases, this will be consumption. But in others it will be investment or savings. Unemployment benefits can be justified on humanitarian grounds, but not on mechanical economic ones (indeed, excess unemployment benefits drive up unemployment — not a surprise if you remember that you always get more of what you subsidize). Paychecks generally provide the basis for a sounder economy than food stamps.

Unable to reach a compromise on a tax cut package, Democrats decided to wait until after the 2010 midterm elections to vote on how many Americans will get a tax increase before the Bush tax cuts expire this December.  Senate Majority Leader Harry Reid (D-NV) said, “Democrats believe we must permanently extend tax cuts for the middle-class before the end of the year, and we will.”  (Emphasis mine.)

So now there is at least one to-do item on the Democrats’ lame duck session list.  What are the odds a few more will be added before the calendar turns to January?

In a recent interview with CFIF, Bob Adams, Executive Director for the League of American Voters, discusses the need for Congress to extend the 2001 and 2003 tax cuts, which are set to expire at the end of the year. Failure to extend those tax cuts would cripple the nation’s already struggling economy. 

Listen to the interview here.

It gets a little tiresome having to read columnist Fareed Zakaria’s senate floor speeches masquerading as opinion pieces in Newsweek every seven days. Dr. Z has a tendency to write columns with grandiose titles such as “How to Salvage Afghanistan” and “Defusing the Debt Bomb”.  While it’s admirable that he’s at least trying to offer solutions, most of Zakaria’s bigthink is pretty small — conventional Washington wisdom masquerading as divine revelation.

Zakaria’s gift for analysis is not nearly as deep as he thinks and nothing proves it more than his new piece in Newsweek, entitled “Raise My Taxes, Mr. President”. Taking a page out of the Obama playbook and fashioning himself a centrist who can rise above the fray, Zakaria writes:

[The Bush tax] cuts are set to expire this year. The Republicans say they want to keep them all, even for those making more than $250,000 a year (less than 3 percent of Americans). They say that higher taxes will hurt the recovery. But for months now they have been arguing that the chief threat to the economy is our gargantuan debt and deficit. That’s what’s scaring consumers, creditors, and businesses. Given a chance to address those fears by getting serious about deficit reduction, though, they run away.

Fareed is making a mistake that should be recognizable to anybody who’s ever watched an episode of “House”. He’s making a diagnosis based on symptoms rather than an underlying cause. Yes, America’s debt is horrible. But let’s keep one of Milton Friedman’s key insights in mind: all spending is a form of taxation — it has to be paid for sooner or later, one way or another.

Balancing the budget through tax increases only moves the government’s burden on the private sector from debt to taxation. Think of it this way: if you want to get your personal finances in order, does it make more sense to simply pay for your reckless spending with cash instead of a credit card or to actually buckle down and stop spending as much? If you realize that the first can save you a few bucks here and there, but only the second can provide financial salvation, you’re on the right track. You’re also smarter than Fareed Zakaria.