Freedom Line Blog

Quin makes some excellent points about the PR disaster that is the payroll tax cut extension debacle.  In addition, the spin on the debate is missing two important angles: (1) the Senate GOP’s apparent backstabbing of House Speaker Boehner, and (2) the fact that a trivial 60 day pay raise (the most any taxpayer will save is $40 per paycheck) won’t make a difference in anybody’s bottom line.  If the payroll tax “holiday” is extended, however, it will take another misguided step toward eliminating the tax permanently.  Recently, former Bush press secretary Ari Fleischer explained why that’s bad (requires WSJ subscription):

Make no mistake, if the payroll-tax cut is extended, it will become permanent. Social Security will become another welfare program as the tie between what someone pays and what they receive gets broken. To a large degree, the tie has already been broken. Social Security’s trust fund has been raided for years by both parties and Medicare is already significantly financed through general revenues instead of through its dedicated trust fund.

Instead of squabbling over how to extend the payroll tax break, the GOP should concentrate on revising the tax code so it promotes growth and jobs, while reforming our entitlements.

Quin’s right.  Republicans need to use the payroll tax cut debate to educate the American public.  Phony nickel-and-dime policies like a 60 day, $40 tax cut are not solutions to Washington’s deficit addiction.  Neither, frankly, is a year-long tax holiday that moves Social Security from an under-funded to an unfunded mandate.

Since the Senate went home and President Barack Obama is in Hawaii on vacation, it looks like a great opportunity for Boehner to call a primetime press conference to explain why good policy is good politics.

The bipartisan “Gang of Six” has been in bad odor with conservatives for months now because it always has been seen as a sell-out and a way to force tax hikes into law with bipartisan cover. But the deal outlined today actually claims to represent a net tax cut of $1.5 trillion over ten years. It would actually lower marginal tax rates on both individuals —

* Simplify the tax code by reducing the number of tax expenditures and reducing individual tax rates, by establishing three tax brackets with rates of 8–12 percent, 14–22 percent, and 23–29 percent.

* Permanently repeal the $1.7 trillion Alternative Minimum Tax.

— and businesses:

Establish a single corporate tax rate between 23 percent and 29 percent, raise as much revenue as the current corporate tax system, and move to a competitive territorial tax system.

I haven’t had much time to study all the details, but it looks like this deal would achieve $500 in real savings in the short term and then set up about as good a budget “cap” system as I’ve ever seen, without triggering tax hikes. I reserve final judgment, but, frankly, I don’t see anything in here for conservatives to seriously object to.

As the Senate debates proposed tax rules that would unfairly and discriminatorily target domestic oil and gas producers, the Center for Individual Freedom on behalf of its 300,000 supporters and activists across the United States today formally urged all Senators to vote “NO” on S. 940.   Addressing that counterproductive proposed legislation, Grant Aldonas (former Under Secretary of Commerce for International Trade) and Pamela Olson (former Assistant Treasury Secretary for Tax Policy) warned of its likely destructive consequences in a Washington Examiner opinion piece today.   Here is one particularly relevant excerpt from their commentary:

Rather than offering serious ideas about how to tackle entitlements, cut wasteful spending or reform the tax code, proponents of raising the oil companies’ taxes have seized on the notion that American energy producers benefit from billions of dollars in alleged tax subsidies.

[The] single most damaging thing the proposal does is mortgage our energy future to the state-owned energy giants that now dominate global energy markets. The U.S. economy runs on oil, but we produce only 40 percent of what we consume, meaning our economy and standard of living depend heavily on our access to foreign oil and gas resources.

Reid’s plan works just fine if you are comfortable having America’s energy future decided in Beijing, Moscow, or Tehran. Not so much if you think we should be deciding our own destiny.

Any proposal that would enhance the competitiveness of foreign government-owned oil giants at the U.S. companies’ expense and lead to greater volatility in oil markets and rising prices for U.S. consumers qualifies as a damaging unintended consequence.”  (Emphasis added.)

To read this excellent commentary in full, please click here.

CFIF also urges you to contact your Senators (contact information for your Senators available here) and urge them to vote “NO” on S. 940.

Shouldn’t America ensure that its military personnel and their families continue to receive paychecks, regardless of whether budget negotiations result in a deal or a federal shutdown? Barack Obama apparently doesn’t think so.

As bargaining continued yesterday, House Speaker John Boehner (R – Ohio) introduced legislation that would keep the government open one additional week and maintain military funding through the end of 2011 so that members of the armed forces would continue to be paid.  The House quickly passed that bill, including 15 Democratic votes.  Obama, however, grotesquely promised a veto, bizarrely labeling it a “distraction.”

Frankly, this entire debate wouldn’t be necessary if the preceding Congress overwhelmingly controlled by Obama’s own party had simply passed a 2011 budget.  But for the first time since the inception of the Budget Act, they simply abdicated that basic responsibility.  Regardless, our military is stretched thin across the globe, and many families live paycheck-to-paycheck.  This obviously isn’t of paramount concern to a president who clearly seems to welcome a government shutdown.

This is one of the most shameful and pathetic episodes in an already shoddy presidency.

Two bills before the Texas legislature, H.B. 259 and H.B. 3675, propose new and unwarranted taxes on satellite television providers.  This period of high unemployment and economic uncertainty is no time to be raising taxes in the first place.  But here’s the kicker:  those two bills would essentially tax thin air.

H.B. 259 and H.B. 3675 would impose taxes on something satellite television providers don’t even use – the physical public right of way.  Obviously, reasonable people could understand why entities that actually use the public right of way under city streets or along physical power lines must help maintain those rights of way.  Since satellite video doesn’t even traverse any physical right of way, however, H.B. 259 and H.B. 3675 constitute a tax on thin air.  Moreover, Texas already taxes video services, so imposing yet another entirely new tax upon physical rights of way that satellite providers don’t even use makes these two bills even more manifestly unfair.  Additionally, it is estimated that only 10% of right of way taxes actually go to maintenance, with 90% of collected revenues diverted to general city funds.  In other words, these two proposed bills are a transparent money grab.

We at CFIF have therefore sent a letter of to the House State Affairs Committee to assert our opposition on behalf of 17,000 activists and supporters in the state of Texas.  But you can also help by contacting them as well via this link. 

Make it clear to these legislators that now is not the time to raise taxes, especially when what’s being taxed is nothing more than thin air.

Nobody should cheer bad economic news, but neither should anyone deny reality or ignore the clear consequences of toxic public policy.

Some 19 months after Barack Obama signed a nearly $1 trillion “stimulus” bill into law, the Labor Department this morning announced that unemployment remains elevated at 9.6%, and the nation lost 95,000 jobs in September.  This following Obama’s and Joe Biden’s promises of a “recovery summer.” Obama and his apologists may trot out the teleprompters and once again claim that the private sector gain of 64,000 jobs (offset by losses in other sectors to arrive at the negative 95,000 total) shows that “we’re moving in the right direction.”

No, we’re not.  Even that paltry 64,000 is down almost 30,000 from the August private sector gain of 93,000, all at a time when his “stimulus” would supposedly have the economy accelerating, not decelerating.  Further, the Labor Department announcement stated that 15,000 more jobs were lost in July and August than previously estimated, along with a 366,000 downward revision in jobs during the 12 months through March.  The bottom line:  since Obama signed the “stimulus,” unemployment has steadily risen from 8.2% to 9.6%.

By way of comparison, in the 19 months following the arrival of Ronald Reagan’s tax cuts in January 1983, unemployment plummeted from 10.4% to 7.3%.  The facts speak for themselves.

Arthur Laffer brought us the famed Laffer Curve, which plotted how higher tax rates can paradoxically reduce incoming revenues by inhibiting economic growth.

In today’s Wall Street Journal, Laffer adds to his legacy by showing how state income taxes lead to lower economic growth, personal income and population growth.  The impetus for Laffer’s analysis is ballot Initiative 1098 in the state of Washington, which would impose a new 5% income tax on individuals earning over $200,000 or couples over $400,000 per year.  An additional 4% would be heaped upon individuals earning over $500,000 or couples earning over $1 million.  Laffer crunches the real-world economic numbers, which clearly demonstrate that this is a destructive idea.  He shows that the nine states without a personal income tax enjoy 26.5% higher economic growth, 13.1% higher personal income growth and 9.4% higher population growth than the nine staes with the highest personal income tax rates. The highest-tax states also suffer 22% lower tax revenue growth and underperform in standard of living.

As Laffer neatly summarizes, “Each and every state that introduced an income tax saw its share of total U.S. output decline.”  He can’t stop states from descending into economic self-destruction, but he provides a great service by providing this warning beacon.

How’s this for drive-by media bias?  Today’s Washington Post runs the deceptive headline “Report Gives Stimulus Package High Marks.” Hmmm.  That sounds like a counterintuitive “Man Bites Dog” story worth reading.  So who issued the report?  The Post’s first paragraph admits that it comes from White House itself.  Worse, it was overseen by that respected rock of good judgment and common sense, Vice President Joe Biden.

Even with that baked-in bias, the White House report doesn’t seem to focus on how the $814 billion “stimulus” supposedly succeeded.  Rather, it emphasizes how the effort has already distributed 70% of the allocated funds, and managed to avoid “the fraud charges that plague more routine government spending programs.”  That’s it?  That’s the best that even Joe Biden can claim?  That should actually come as discouraging news, not encouraging news, to “stimulus” proponents.  After all, if 70% of its funds have already been spent, but we still haven’t experienced its promised results, what remains other than $814 billion added to our nation’s debt?  The White House promised that unemployment would top out twelve months ago at 8% if the bill passed, but we remain stuck at 9.6%.  Instead of igniting our economic furnace, it has merely clouded growth and undermined the business and hiring climate.

The White House and its apologists speculatively claim that the “stimulus” averted another great depression, but today’s Wall Street Journal carries an analysis by former Senator Phil Gramm devastating that assertion.  Gramm compares U.S. growth and employment figures to other developed countries that didn’t engage in the irresponsible “stimulus” profligacy we did, and shows that we lag far behind.  As the Post story notes, Obama’s “stimulus” was “the largest effort in U.S. history to counteract the effects of a recession.”  All it has done is prove once again that government doesn’t create jobs or growth, but economic uncertainty and debt.

According to a report entitled “The Impact of Regulatory Costs on Small Firms” just produced by Nicole V. Crain and W. Mark Crain for the Small Business Administration, the annual cost of federal regulations alone has reached $1.75 trillion.  That excludes the annual cost of taxes.  And that was as of 2008.

Combined, taxes and regulatory costs consumed a staggering 35% of America’s income in 2008, or $37,962 per household .  Alarmingly, that was the number before such new fiascoes as ObamaCare, “stimuli” and bailouts increased the burden.  Small businesses create most new jobs in America, but the authors highlight that regulatory costs hit them disproportionately hard relative to larger businesses (due primarily to economies of scale in dealing with regulatory compliance costs).  The authors found that businesses with fewer than 20 employees incur regulatory costs 42% greater than firms of between 20 and 499 employees, and 36% greater than firms with over 500 employees.  Per employee, small businesses face $10,585 in compliance costs versus $7,454 per employee for medium-sized firms, and $7,755 for larger firms.

As government gets bigger and bigger, the regulatory compliance costs only get more and more oppressive.  We needn’t search far to understand why the economy isn’t recovering and businesses aren’t hiring.

Conservative reaction to the House Republicans’ “Pledge to America” varies.  Whatever one’s views toward the plan, however, it did omit an item high on conservatives’ agenda:  a proposed Constitutional balanced budget amendment.  Enter CFIF’s “One More Vote,” which refers to the fact that Congress fell just one vote short in the 1990s of passing a balanced budget amendment and sending it to the states for ratification.  Our “One More Vote” initiative, which readers are urged to sign, would not only require a balanced budget, but prevent that from becoming a convenient excuse to raise taxes by requiring a 60% supermajority to create or increase taxes, or to raise the nation’s debt ceiling.

Party change won’t be enough this time around.  With “One More Vote,” we can collectively create something more lasting for America’s future generations.

Interesting reading from MSNBC.com explains that 46 states, plus the District of Columbia, already have internet sales taxes on the books.  However, most businesses with an online presence either don’t know or don’t pay.  In many circumstances the sales tax (as it’s called when the seller collects and reports the tax) is turned into a use tax (i.e. shifting collection and reporting to the buyer.)

The State of Alabama is apparently sending out notices for residents to pay up – for purchases over the last three years.

Here’s a list of states considering more direct legislation in order to recoup the estimated $8.6 billion in lost “revenue.”

‘Amazon laws’

States that are currently considering requiring out-of-state retailers to collect sales taxes on online transactions:

• California
• Connecticut
• Illinois
• Iowa
• Maryland
• Minnesota
• New Mexico
• South Carolina
• Tennessee
• Vermont
• Virginia
• Wisconsin

Oh, joy.

This week, the Congressional Budget Office announced that the nation’s budget deficit has already reached $1.3 trillion, with another month to go in the 2010 fiscal year.  At 9.1% of gross domestic product (GDP), that makes it the second-largest deficit outside the World War II years, second only to last year’s deficit that reached 9.9% of GDP (mainly because GDP was lower in 2009 than 2010).  In a generous act of understatement, the CBO attributed this mind-boggling amount to lower revenues and “elevated spending associated with the economic downturn and the policies implemented in response to it.”  Another round of “stimulus,” anyone?

To put that in perspective, take a look at this straightforward bar graph.  President Bush’s final deficit was approximately $450 billion, which Obama tripled in his first year alone.  Now, Obama’s second deficit continues that unbearable amount.  Furthermore, efforts to scapegoat Bush for Obama’s first deficit fail, because such things as the $800 billion “stimulus” was Obama’s initiative, not Bush’s.

In CFIF’s Liberty Update last week, we highlighted how President Obama isn’t so much “pulling us out of the ditch,” but rather setting our nation’s car on fire.  Instead of spending his time claiming credit for our inevitable cyclical rebound, Obama should recognize that his policies of higher spending, taxation, regulation and debt are only subduing it. To illustrate, we contrast the remarkable gross domestic product (GDP) growth during the Reagan recovery delivered by tax cuts, reduced regulation and a stronger dollar versus our current stagnation and possible “double-dip” recession.

Comparing unemployment trends then versus now provides another vivid illustration of the toxic effect of the Obama-Pelosi-Reid economic agenda.  From December 1982 to June 1984 – the first 18 months of the Reagan recovery – U.S. unemployment plummeted rapidly from 10.8% to 7.2%.  In contrast, over 13 months since our current economic rebound commenced in July 2009, U.S. unemployment has stagnated from 9.4% to its current 9.5%.  Of course, it is theoretically possible that unemployment will plummet by three percentage points over the next five months to match the Reagan recovery, but not even Joe Biden is silly enough to predict that.

It’s no mystery how to unleash America’s economic vigor and bring recovery:  less government and more economic freedom.  It’s just a matter of electing leaders who will actually pursue it.

According to German shipping tycoon Peter Kramer, “the state” should control private charitable donations and “determine what is good for the people,” not the individuals making those charitable donations.  In an interview with Der Spiegel, regarding the Warren Buffett/Bill Gates Giving Pledge, Kramer ripped America’s tax deductions for charitable gifts and demanded, “what legitimacy do these people have to decide where massive sums of money will flow?”

I find the U.S. initiative highly problematic.  You can write donations off in your taxes to a large degree in the U.S.A.  So the rich make a choice:  Would I rather donate or pay taxes?  The donors are taking the place of the state.  That’s unacceptable. It’s all just a bad transfer of power from the state to billionaires.  So it’s not the state that determines what is good for the people, but rather the rich want to decide.  That’s a development that I find really bad.  What legitimacy do these people have to decide where massive sums of money will flow?  In this case, forty superwealthy people want to decide what their money will be used for.  That runs counter to the democratically legitimate state.”

Call us crazy, but don’t alarms sound when a creepy German demands that the state “determines what is good for the people?”  Meanwhile, as noted by economist Mark Perry on his blog Carpe Diem, citizens of Kentucky outstrip Germans in the best indicator of economic wellbeing, gross domestic product (GDP) per capita.

Mr. Kramer, perfect your own supposed workers’ paradise before you attempt to lecture Americans.

The latest survey of 53 economists by The Wall Street Journal offers a clear message.  Namely, no more government “stimulus,” and extend the soon-to-expire Bush-era tax cuts for everyone, not just those earning under $250,000 annually.

Of 48 polled economists, 30 flatly rejected calls for any form of additional fiscal or monetary “stimulus.”  Only 6 economists encouraged more Obama-Reid-Pelosi style fiscal stimulus, only 5 suggested additional monetary stimulus from the Federal Reserve and just 7 suggested both.  On the issue of taxes, fully 32 of the polled economists called for extending all of the current lower tax rates, in a sharp rebuke to Obamanomics.  Only 3 economists supported an end to the Bush-era tax cuts, and only 11 agreed with Obama and Timothy Geithner in their campaign to raise taxes on those individuals and small businesses reporting income over $250,000.  Unlike Obama and Geithner, economists recognize the destructive effect that raising taxes on individuals and small businesses in the top income segments will have.

As Stephen Stanley of Pierpoint Securities summarized, “the economy needs government to get out of the way.”  Well said.

On this date in 1981, President Ronald Reagan signed the Economic Recovery Tax Act of 1981 at his Rancho del Cielo property in Santa Barbara, California.  Sponsored by Congressman Jack Kemp (R – New York) and Senator William Roth (R – Delaware), the bill amended the Internal Revenue Code in order “to encourage economic growth through reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings.”

Did it ever.

By reducing tax rates and unleashing American dynamism, the U.S. witnessed two consecutive years of remarkable growth.  For the eight quarters spanning 1982 and 1983, we saw gross domestic product (GDP) growth of 5.1%, 9.3%, 8.1%, 8.5%, 8.0%, 7.1%, 3.9% and 3.3%.  Compare that to our current cyclical recovery, in which the Obama-Pelosi-Reid agenda of higher spending, regulation and taxation has subdued our rebound to 1.6%, 5.0%, 3.7% and 2.4% (soon to be revised downward to an estimated 1%).  Obama, Pelosi and Reid like to claim credit for our inevitable cyclical recovery from the last downturn, but the truth is that they’ve only managed to stifle it while adding trillions to our debt.

They should instead take a trip down memory lane and correct course according to the crystal clear Regan example.

Already navigating a turbulent economic sea, Americans are bracing for the single largest tax increase in history this January 1.

Democrats fighting for their political lives believe they have a winner soaking “the rich,” but we’ve noted the destructive effect that raising taxes on the top bracket will have on the struggling economy.  Not only will they hit small businesses (which create most new jobs in America) particularly hard, but individuals in that bracket carry a disproportionate burden of consumer spending, which makes up 70% of our overall economy.   In this video clip from CNBC, even often left-leaning Don Peebles considers tax increases for the highest income bracket a destructive idea:

If we spend more money paying taxes, then we will have less money to invest, less money to employ workers…  We can’t take a bad situation and make it worse by taxing people more at a difficult time.”

Liberals cannot win this debate on the substance, so they instead hope to win on the rhetoric by framing the issue as “the Bush tax cuts.”  But Bush will have been gone from the White House for two full years by the time the tax increases hit.  We’re not debating new tax cuts, and Bush is long gone.  Rather, what we’re talking about are looming tax increases.  Namely, Obama’s tax increases.

Is there any periphery bounding the absurdity of the desperate political left?

The Obama Administration’s 2009 “stimulus” continues to prove itself a failure.  It promised that unemployment would peak in October 2009 at 8%, and would be down to 7.3% by now.  Instead, we remain mired near 10%.  Further, second quarter gross domestic product (GDP) was revised downward just last week to 2.4%, a slowdown from 3.7% in the first quarter and 5.0% from the fourth quarter of 2009.  Meanwhile, we’re $1 trillion deeper in debt, and the administration admitted last month that its second year deficit will reach an astounding $1.5 trillion, exceeding even its first deficit of $1.4 trillion.

Yet according to former Secretary of Labor Robert Reich, “the administration’s original sin was not spending enough.”  Commenting in today’s Wall Street Journal, Reich bizarrely adds that the Democrats’ 2009 filibuster-proof Senate supermajority somehow constituted “a fragile 60 votes” constraining Obama’s ambitions, and says that the problem with ObamaCare was that it was “not nearly large or bold enough.”  Not large enough?  Take a look at this ObamaCare flow chart, which looks more intricate than a nuclear reactor.

So how much would have been enough to satisfy Reich, anyway?  Two trillion?  Three trillion?  Ten?  It all recalls the popular bumper sticker – “Don’t Tell Obama What Comes After ‘Trillion.'”

Seems like someone at the Associated Press read our commentary “Raising Taxes on ‘The Rich’ Will Harm the Economy” from last week’s Liberty Update.  Either way, we couldn’t help but note an AP headline “Economy Weakens as Wealthy Spend Less” released today.

The AP story begins, “Wealthy Americans aren’t spending so freely anymore.  And the rest of us are feeling the sqeeze.”  The story goes on to lament that the economy appears to be slowing as “the rich” spend less:

Think of the wealthy as the main engine of the economy:  When they buy more, the economy hums.  When they cut back, it sputters.  The rest of us mainly go along for the ride.”

Noting that the Obama Administration seeks to increase tax rates on that critical income segment, the AP report states ominously that, “the wealthy may be keeping some money on the sidelines due to uncertainty over whether or not they will soon face higher taxes.”

The good news is that there’s still time for the Obama Administration to wake up and smell the same coffee the AP is smelling.

We note in our Lunchtime Liberty Update this week that the Obama Administration’s class warfare campaign targeting “the rich” will inflict further harm on our economy.  Not only would such tax increases hit small businesses (which create most new jobs in America) particularly hard, it would also penalize the income segment that accounts for 1/3 of consumer spending, which itself accounts for 2/3 of the nation’s economy. Confiscating even more of those dollars may sound fine on a teleprompter, but it will bring destructive consequences in the real world.

Now, a new study by Barclays Capital highlights another potential harm.  According to their analysis, Obama’s plan will cause a 9% drop in the S&P 500 and a 900-point drop in the Dow Jones Industrial Average.  As noted in this morning’s edition of The Hill, that would result from the Obama Administration’s focus on taxing upper income segments:

The Barclays report attributes the potential stock drop to President Obama’s plans to increase taxes on wealthy individuals, who are the country’s chief investors.  The report claims high earners are likely to shift their investment strategies because of the coming tax increase.  ‘According to the Fed’s 2007 Survey of Consumer Finances, 75 percent of stock market wealth is held by families in the top percentile of income,’ the Barclays report states.  ‘From a behavioral standpoint, if the government follows through on its plan to raise dividend and capital gains taxes for the highest income earners, it could influence the asset allocation decisions of an important investor class and potentially bring about a shift away from equities, with negative knock-on effects for the economy.'”