by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
I’ve written several times over the years about Obama’s economic policies and anti-business climate as factors that have hampered this country’s growth and recovery. Phil Gramm has a good piece in the WSJ recently that gave a succinct overview of all that is still wrong with the economy. Obama continues to insist that either a) the economy is good or b) any problems are someone else’s fault. Do yourself a favor and read this piece which is sobering, but accurate, about the state of our economy today.
What’s Wrong With the Golden Goose?
Since the Obama recovery began in the second quarter of 2009, public and private projections of economic growth have consistently overestimated actual performance. Six years later, projections of prosperity being just around the corner have given way to a debate over whether the U.S. has fallen into “secular stagnation,” a fancy phrase for the chronic low growth seen in much of Europe.
This is just another in a long line of excuses. America’s historic ability to outperform Europe is well documented; we call it American exceptionalism. It has always been based on the fact that the U.S has had better, more market-driven economic policies and our economy therefore worked better. But, as the U.S. economy is Europeanized through higher taxes and greater regulatory burdens, American exceptionalism is fading away, taking economic growth with it.
How bad is the Obama recovery? Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country. Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income. At the present rate of growth in per capita GDP, it will take another 31 years for this recovery to match the per capita income growth already achieved at this point in previous postwar recoveries.
When the recession ended, the Federal Reserve projected future real GDP growth would average between 3.8% and 5% in 2011-14. Based on America’s past economic resilience, these projections were well within the norm for a postwar recovery. Even though the economy never came close to those projections in 2011-13, the Fed continued to predict a strong recovery, projecting a 2014 growth rate in excess of 4%. Yet the economy underperformed for the sixth year in a row, growing at only 2.4%.
Implicit in these projections and in the headlines of most economic news stories—which to this day blame cold winters, wet springs, strikes, hiccups and blips for America’s failed recovery—is the belief that there has been no fundamental change in the U.S. economy. Underlying this belief is the assumption that either the economic policies of the Obama administration are not fundamentally different from the policies America has followed in the postwar period or that economic policy doesn’t really matter.
And yet we know that the Obama program represents the most dramatic change in U.S. economic policy in over three-quarters of a century. We also know from the experience of our individual states and the historic performance of other nations that policy choices have profound effects on economic outcomes.
The literature on economic development shows that U.S. states and nations tend to prosper when tax rates are low, regulatory burden is restrained by the rule of law, government debt is limited, labor markets are flexible and capital markets are dominated by private decision making. While many other factors are important, economists generally agree on these fundamental conditions.
As measured by virtually every economic policy known historically to promote growth, the structure of the U.S. economy is less conducive to growth today than it was when Mr. Obama became president in 2009.
Marginal tax rates on ordinary income are up 24%, a burden that falls directly on small businesses. Tax rates on capital gains and dividends are up 59%, and the estate-tax rate is up 14%. While tax reform has languished in the U.S., other nations have cut corporate tax rates. The U.S. now has the highest corporate rate in the world and the most punitive treatment of foreign earnings.
Meanwhile, federal debt held by the public has doubled, so a return of interest rates to their postwar norms, roughly 5% on a five-year Treasury note, will send the cost of servicing the debt up by $439 billion, almost doubling the current deficit.
Large banks, under aggressive interpretation of the 2010 Dodd-Frank financial law, are regulated as if they were public utilities. Federal bureaucrats are embedded in their executive offices like political officers in the old Soviet Union. Across the financial sector the rule of law is in tatters as tens of billions of dollars are extorted from large banks in legal settlements; insurance companies and money managers are subject to regulations set by international bodies; and the Consumer Financial Protection Bureau, formed in 2011, faces few checks, balances or restraints.
With ObamaCare the government now effectively controls the health-care market—one seventh of the economy. The administration’s anti-carbon policies hamstring the energy market, distort investment and lower efficiency. Despite the extraordinary bounty that has flowed to America from an unfettered Internet, Mr. Obama has dictated that the Web be regulated as a 1930s monopoly, bringing the cold dead hand of government down on what was once called the “new economy.”
During Mr. Obama’s presidency, the number of Americans receiving food stamps has risen by two-thirds and the number of people drawing disability insurance is up more than 20%. Not surprisingly, labor-force participation has plummeted. Crony capitalism and artificially low interest rates have distorted the capital markets, misallocating capital, overpricing assets and underpricing debt.
Despite the largest fiscal stimulus program in history and the most expansive monetary policy in more than 150 years, the U.S. economy is underperforming today because we have bad economic policies. America succeeded in the Reagan and post-Reagan era because of good economic policies. Economic policies have consequences.
With better economic policies America was like the fabled farmer with the goose that laid golden eggs. He kept the pond clean and full, he erected a nice coop, threw out corn for the goose and every day the goose laid a golden egg. Mr. Obama has drained the pond, burned down the coop and let the dogs loose to chase the goose around the barnyard. Now that the goose has stopped laying golden eggs, the administration’s apologists—arguing that we are now in “secular stagnation”—add insult to injury by suggesting that something is wrong with the goose.
by | ARTICLES, BLOG, ECONOMY, FREEDOM, OBAMA, POLITICS, TAX TIPS, TAXES
Forbes recently had a very good article which explores the US Federal Debt and how it affects economic growth. It also reviews government debt for the future, and its affect on the private sector and the debt-to-GDP ratio. Unfortunately, it doesn’t cover the entirety of US debt, which includes substantial entitlement obligations, but that’s probably fodder for another article entirely. If you want a decent primer on our federal debt — which translates into $154,161 each taxpayer owes towards it — read the article below.
The availability of credit in the U.S. was a major catalyst in the economic boom of the twentieth century. However, too much of a good thing can also be a problem. Is the U.S. too reliant on debt? Is the federal government mortgaging the future earnings of an entire generation? In this article, we’ll explore these and other issues as we take a look at the debt cycle in America.
The Impact of Debt on Economic Growth
In the early part of the twentieth century, if people didn’t have the money to purchase an item, they would save for it. With the introduction of credit terms, high-dollar items became much more affordable. It also changed the way we view debt. For example, rather than think of a new car in terms of its total price, we began to focus on the amount of the monthly payment. And, as the use of debt increased, the American standard of living rose with it. Excessive debt was also one of the primary catalysts for the economic boom of the 1980s, 1990s, and part of the 2000s. However, when debt is used in excess, it steals from the future since it must be repaid. This is because a dollar borrowed today necessitates that a dollar plus interest be repaid in the future. This reduces the amount of money available for future spending. If the amount of debt accumulated is significant and the period of accumulation is long, the required debt payments will negatively impact economic growth. What about government debt? How does it impact the future and the economy?
Government Debt and the Future
As I write this article, the federal government has accumulated $18.2 trillion of debt. In 2004, the federal debt was $7.3 trillion. This rose to $10 trillion when the housing bubble burst four years later. Today it exceeds $18 trillion and is projected to approach $21 trillion by 2019. When you break this down to an amount per taxpayer, the numbers are substantial. It has more than doubled over the past 11 years, rising from $72,051 per taxpayer in 2004 to $154,161 today. As the debt continues higher, the liability of every taxpayer is also rising. The change in the amount of the federal debt per taxpayer from 2004 to 2015 represents an average annual increase of 7.16%. This is much more than the average annual wage increase during the same period.
The Great Private Sector Extortion?
What problems might result from our fiscal failure? With the debt per taxpayer as high as it is, if the government continues to raise taxes on middle income earners and above, it will become increasingly difficult for many of these individuals to preserve their standard of living. This will result in a reduction of wealth that spans the entire income spectrum, excluding perhaps the super-rich. The difficulty will begin in the middle class and eventually creep toward the higher income earners if the debt problem persists. Why will this create difficulty? Because these individuals will be asked to pay higher taxes so the federal debt can be retired. It may be framed under a pretense of patriotism but will really be just another excuse to extract money from the private sector. As the private sector shrinks, economic activity will slow which will result in smaller wage increases. Therefore, these individuals will be squeezed from both ends (taxes and wages). This is one of the key reasons why the middle class is shrinking. It’s as if we’re all on the Titanic and people are continuing to sing and dance while the ship slowly sinks. Does the federal government have the ability to repay its debt? And, if it does today, what about in five or ten years? How difficult will it be then? Let’s address this question now.
The U.S. Debt-to-GDP Ratio
The debt-to GDP ratio compares the amount of the public debt to the size of the economy. For example, if GDP – which is the total of all goods and services produced in the U.S. – is $17.0 trillion and the debt is the same amount, the ratio would be 100%. As the debt rises beyond GDP, the ratio will exceed 100%. This indicates that the debt is greater than the total of what we produce. You might equate it to an individual’s debt-to-income ratio which helps lenders assess an individual’s ability to repay a loan. America’s debt-to-GDP ratio in 1980 was only 35.4%. Ten years later it was 57.7%. As you can see from the chart below, America’s debt-to-GDP ratio has continued to rise and today stands at 102.6%. Although this is not a staggering percentage, as an absolute number, $18.2 trillion in debt is very formidable.
Is the federal government getting in over its head? Will the mounting debt cause a financial hardship on Americans? As the debt continues to expand, the economy will continue to be sluggish, the tax burden will continue to grow, and the middle class will continue to shrink. If Washington doesn’t act soon, will the debt become an unmanageable burden? I believe the answer to this questions lies somewhere between “absolutely” and “very likely.” How bad could it get? It’s difficult to say. To change direction, however, we will need elected officials who are willing to put the needs of the country ahead of their own agenda. In other words, politics will have to take a back seat. You can be sure of this: You cannot circumvent the laws of economics. If we continue to accumulate debt, if we ignore the warning signs, if our officials maintain the status quo, there will be consequences. I only hope America realizes it before it’s too late.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
I have no particular favorite right now in the GOP nomination fight. As a CPA, I pay close attention to the economic policies of the various candidates.
Carly Fiorina spoke to New Hampshire Republican Party’s First in the Nation leadership summit in Nashua, N.H on the subject of small business. Being the former CEO of Former Hewlett-Packard, Fiorina offered a decent perspective, which hasn’t really been discussed at length so far by many of the other candidates.
“The heroes of the American economy are small businesses and family-owned businesses”
“For the first time in U.S. history, we are destroying more businesses than we are creating”
“All of the things they are doing up there are landing on us down here. The weight of the government is literally crushing the potential of the people of this nation”
I don’t particularly think that Fiorina has the ability to be much of a viable candidate, especially considering her failed Senate campaign against Barbara Boxer in California. I do appreciate her calling out the government’s anti-business policies, something about which I have written extensively.
Whoever becomes the Republican nominee needs to be able to speak clearly and definitively about economic issues and call out the failed government policies of higher taxes, increased regulation, and minimum wage nonsense. Small businesses have borne the brunt of Obama’s heavy-handedness, and our economy has failed to recover adequately because of it.
by | ARTICLES, BLOG, ECONOMY, OBAMA, OBAMACARE, POLITICS, TAX TIPS, TAXES
This year is the first year for which proof of health insurance, or payment of the “shared responsibility” tax/fee/penalty, is required to be accounted for on one’s tax return. But what happens when a person does not meet the income threshold to actually have to file their taxes?
The Weekly Standard points out that a conundrum exists for the poor. Under Obamacare rules, the economically disadvantaged,
“can get an income-based exemption if ‘you don’t have to file a tax return because your income is below the level that requires you to file.’ Sounds simple enough, right? Until further investigation reveals that this exemption is claimed directly on the tax return. That’s right – the tax return you’re not required to file.”
So the fate of those who are uninsured and also do not file? If they do not claim their exemption, they will be on the hook for the “shared responsibility” payment and “are likely to get hit with an unexpected tax bill later on.” That is sloppy at best and egregious at worst.
Obamacare purports to help those who, economically, are the least among us. The law provides financial help to purchase healthcare for the poor, or a path of exemption for those who cannot afford healthcare or the uninsured penalty. Yet it fails to provide a mechanism of compliance for those who among us who are too poor to pay taxes and the penalty. In this regard, Obamacare falls short of its most basic goals — and will wreak tax havoc in the future for those poorest ensnared by this deficiency.
by | ARTICLES, BLOG, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
The New Republic recently went through an internal overhaul in order to stay relevant, and the recent drivel that was written shows that it wasn’t for the better. Last week, there was an article written called, “”Dear Politicians, Stop Calling People ‘Taxpayers'”, in which the author proposes to eliminate the word “taxpayer” from everyday lexicon because it favors those who pay taxes. You can’t make this stuff up.
The article, which was released coincidentally during the same week as the House Republican FY2016 budget, accuses said budget of being “an ideological document meant to advance a particular set of beliefs about how government should function, and toward what end”. Her evidence of such ideology is that, “in the 43-page budget, the word “taxpayer” and its permutations appear 24 times, as often as the word “people.”
Imagine that. How dare a budget — which is a plan that fleshes out income and expenditures over a period of time — should use the word taxpayer, seeing that the main source of revenue for that budget is taxes, which is paid by…wait for it…taxpayers.
She further analyzes this phenomenon by suggesting, “It’s worthwhile to compare these usages, because the terms are, in a sense, rival ideas. While “people” designates the broadest possible public as the subject of a political project, “taxpayer” advances a considerably narrower vision — and that’s why we should eliminate it from political rhetoric and punditry.”
In other words, it is a “narrow” vision to consider a budget at all from the perspective of taxpayer, from which the government derives most of its revenue. Oh, and the government is now a “political project.”
It gets better.
The author goes on to point out that Democrats also use the word “taxpayer” in their budget: “Democrats often refer to “taxpayers,” too. At 150 pages, the White House budget proposal for 2016 uses the term 26 times”. However, it’s different when Democrats use it! Really it is.
Let’s compare the two. With regard to the use of taxpayer in the House Republican budget, the author writes,
“The House budget is full of examples of seemingly straightforward deployments of the term which are, upon closer inspection, clearly furthering a particular ideology. “There are too many scenarios these days in which Washington forgets that its power is derived from the ‘consent of the governed,’” the plan reads in one instance of the term’s use. “It forgets that its financial resources come from hard-working American taxpayers who wake up every day, go to work, actively grow our economy and create real opportunity.” In other words, Americans’ taxes are parallel with taxpayers’ consent, suggesting that expenditures that do not correspond to an individual’s will are some kind of affront.”
And more,
“The report goes on to argue that “food stamps, public housing assistance, and development grants are judged not on whether they achieve improved health and economic outcomes for the recipients or build a stronger community, but on the size of their budgets. It is time these programs focus on core functions and responsibilities, not just on financial resources. In so doing this budget respects hard-working taxpayers who want to ensure their tax dollars are spent wisely.”
Put simply, taxpayers should get what they pay for when it comes to welfare programs, and not be overcharged. But, as the Republican authors of this budget know well, the beneficiaries of welfare programs tend to receive more in benefits than they pay in taxes, because they are in most cases low-income. The “taxpayers” this passage has in mind, therefore, don’t seem to be the recipients of these welfare programs, but rather those who imagine that they personally fund them. By this logic, the public is divided neatly into makers and takers, to borrow the parlance of last election’s Republicans.”
So here we have it. The use of the word “taxpayers” is bad coming from Republicans because the Republican budget takes into consideration those who personally fund government programs with their taxes. Unfortunately for the author, taxpayers don’t “imagine that they personally fund them”, but actually, truly do fund them with the taxes that they pay. This is problematic to the author, because, she writes, “the “taxpayers” this passage has in mind, therefore, don’t seem to be the recipients of these welfare programs”. (Probably not, largely because, “the beneficiaries of welfare programs tend to receive more in benefits than they pay in taxes”.)
Presumably, that is mean. It is mean to consider at all the source of revenue when writing a budget, even though budgets (are supposed to) have finite revenue limits — which, in this case of a federal budget, are the taxes collected by the taxpayer. But it’s worse than mean. It’s ideological. And narrow.
Contrast this with her defense of the Democrat’s use of the word “taxpayer” in their budget plan (she references the White House one). Taxpayer is used
“26 times, predictably invoking it when referring to cuts and reductions in services. The Budget includes initiatives to improve the service we provide to the American public; to leverage the Federal Government’s buying power to bring more value and efficiency to how we use taxpayer dollars…,” President Barack Obama writes in his introductory message. “The Budget includes proposals to consolidate and reorganize Government agencies to make them leaner and more efficient, and it increases the use of evidence and evaluation to ensure that taxpayer dollars are spent wisely on programs that work.”
So, because the Democrats talk about the “taxpayer” with regard to, and in reference to, “services” and “Government agencies”, that is good. Because Government is good. And “services” and “Government agencies” surely include everyone.
What’s really interesting is that both budgets have similar language, but one is bad (Republican) and one is good (Democrat). See here:
Republicans wrote, “this budget respects hard-working taxpayers who want to ensure their tax dollars are spent wisely”, while the President wrote, “The Budget includes proposals… to ensure that taxpayer dollars are spent wisely on programs that work” (emphasis added).
So, because the President focused his words on describing Government programs (that work), ergo, it must be true and good. And not ideological or narrow. This is reinforced by the author’s assertion further in the article that “public revenue is just that: a pool of public money to be used for the good of the public, not 300 million pools of private money each to be used to serve private individuals’ interests.” The greater good. Everyone. People. So, how dare any budget consider at all those “taxpayers” who fund it it with (taxpayer) revenue!
The final paragraph of this article, however, is the creme de la creme:
“Whereas “taxpayers” is strewn throughout political documents, “people” is associated with populist and revolutionary movements, and not for nothing. Power to the people, the evergreen revolutionary slogan trumpeted by popular fronts around the world, has a ring that power to the taxpayers does not precisely because it demands an inclusive view of public goods. The same could be said about the first line of the U.S. Constitution: “We the Taxpayers” would have been an odd construction for a nation born from a revolt against British taxation. So let’s leave “taxpayer” to the IRS and remove it from everyday speech. With every thoughtless repetition of the word, we’re carrying political water.” (emphasis original).
This is what passes for meaningful discourse these days. “Taxpayer” is now another word of class warfare, because it suggests there is a divide of “makers and takers”. The Left is content with taking our money to fund (endlessly) whatever programs it deems good — and now it is content to take our speech too.
