Several weeks ago, I reported that Britain’s plan to raise additional government revenue by levying higher income taxes was a failure. British officials were shocked that hiking the rates of the wealthiest citizens to 50% resulted in less tax collected.
As CNBC reports,
Britain has already hiked taxes on the rich to 50 percent but amid a weak economy and reports of wealth flight, the tax was ratcheted down in April to 45 percent
Now, in full panic money-grab mode, the newest lucrative idea is to collect an “emergency wealth tax” — which taxes not the income, but the wealth, of Britain’s most successful folks.
Deputy Prime Minister Nick Clegg explained the decision:
He told the Guardian that unless the country “hardwired fairness” into the budget, “I don’t think the process will be either socially or politically sustainable or acceptable.”
Stop and re-read that again. Hardwired fairness into the budget.
How can directly taking extra money from one segment of the population in order to pay for the spending and policy failures of a group of officials, possibly be fair?
No matter how you spin it, explain it, try to justify it, this is legal plunder — pure and simple. Bastiat was right.
During the State of the Union, we heard President Obama talk repeatedly about fairness and taxes as he painted a picture of income inequality. The problem is that income inequality really is a myth, yet it is being perpetuated: the gap between rich and poor has never been higher.
The data used most frequently to substantiate this claim is a Congressional Budget Office (CBO) report from October 2011. However, the glaring problem with this report is that it only covers the period from 1979 to 2007 — ending right before the Great Recession. Convenient?
So in November, Ron Schmidt of the University of Rochester School of Business Administration, did an analysis of the CBO data and compared it to IRS data during the same time period — but through the year 2009, the latest year for which IRS data was available. He found something very, very different. In a reported summary,
According to IRS data, which extend through 2009, the average nominal Adjusted Gross Income (AGI) for filers with AGI of at least $500,000 declined by 17.8 percent from 2007 to 2009, and their average after-tax income declined by 19.9 percent. For those with AGI of less than $500,000, AGI declined by only 2.6 percent, and after-tax income declined by only 1.5 percent. These numbers certainly do not indicate an increase in income inequality.
In fact, there has been a marked decline in income inequality over the last decade. From 2000 to 2009, average AGI declined by 15.0 percent and average after-tax income declined by 11.0 percent for returns with AGI of at least $500,000. (Filers with an AGI of at least $500,000 represent 0.5 percent of all returns in both years, so this comparison is similar in spirit to the CBO report, which looks at the top 1 percent of households.) For all other returns, there were increases of 14.6 percent for average AGI and 17.3 percent for average after-tax income.
It revealed that income inequality is not only not at an all-time high, but also, due to the nature of economic and business cycles, it is relatively the same as it was twenty-five years ago.
The repeated calls for fairness last night reminds one of Margaret Thatcher’s famous speech in front of the House of Commons where she lambasted her opposition for suggesting that the gap between rich and poor had widened. The Prime Minister People responded that “people on all levels of income are better off than they were in 1979. The honorable gentleman is saying that he would rather that the poor were poorer, provided that the rich were less rich. That way one will never create the wealth for better social services, as we have. What a policy. Yes, he would rather have the poor poorer, provided that the rich were less rich. That is the Liberal policy”.
Liberal policy indeed is alive and well in America today. Thankfully, income inequality is not.
Though Obama may be pretending to draw a line in the sand between himself and the Republicans, he is really drawing a line for voters: Them vs The Rich Guy (millionaires and billionaires, anyone?) Setting up the narrative in the State of the Union for the year has allowed Obama to pander to the electorate during this campaign season and relentlessly go after those who have proven to be successful as a source of increased tax revenue to cover his spending problem.
“I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.
The new Socialist President, Francois Hollande, announced the latest “get rich quick” scheme for France: impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. Under the guise of Patriotism, Hollande is seeking that the rich “pay extra tax to get the country back on its feet again.” Parliament will consider the initiative next month as a means to improve France’s finances as the Euro crisis rages on in Europe.
Unfortunately, this should come as no surprise to France’s wealthiest. Mr. Hollande has matter-of-factly stated, “I don’t like the rich”, and now he has a measure to put money where his mouth is. As the NYTimes reports:
Taxes are high in France for a reason: they pay for one of Europe’s most generous social welfare systems and a large government. As Mr. Hollande has described it, the tax plan is about “justice,” and “sending out a signal, a message of social cohesion.”
Outrageous.
While some support Hollande’s proposal, others are rightly concerned with the Laffer Curve effect; namely, that increasing tax rates beyond a certain point will be counterproductive for raising further tax revenue. Indeed, such a result was seen most recently in England this past spring; as a money-grab measure, the highest tax margins were increased to a 50% tax on the wealthy. I wrote about this last month, when income tax and capital gains revenue receipts were down after the implementation of the controversial measure — and much of England’s leadership was surprised at the result.
Thomas Sowell observed quite aptly: “I have never understood why it is “greed” to want to keep the money you’ve earned, but not greed to want to take somebody else’s money”.
Yes, Hollande’s attitude and tax plan will drive away more businesses and investors from France’s already fledgling economy, because the highest income earners will have had enough. The last time a socialist was elected President in France — Monsieur Francois Mitterrand in the 1980’s — there was some flight of the wealthy from the country. Expect to see the same result if such a crushing and counter-productive piece of legislation passes in September.
In that case, let the capital flight commence to the USA!
Class warfare is a key component of Obama’s policies and re-election rhetoric. The components of such a tactic are easily recognized: 1) the political opponent will hurt those among us who are most vulnerable (elderly, poor, etc); 2) the political opponent does not care about the “middle class”; 3) the political opponent wants to benefit those most advantaged (the rich/elite). The third point of this strategy is the one that is most popular with Obama, as he continuously and intentionally rails against “millionaires and billionaires” in order to separate that particular population from mainstream America.
Besides the obvious baseness of such an argument coming from the President of the United States, it is critically important to note that he doesn’t actually ever define a millionaire or billionaire. The amount of true millionaires and billionaires are so few in number, that taxing them more – as Obama plans to do – will not help with any significant deficit reduction. His assertion is pure dishonest political speech because you cannot possibly create enough revenue from the millionaire/billionaire population even if you were to tax them at 100%. Our fiscal situation is so dire in this country that an increased tax on this group in any large or small amount solves nothing.
Unfortunately, none of this matters to Obama. He intentionally throws the labels around so that they conveniently fit whatever emotive language will coerce voters and supporters to rally behind his outrageous fiscal policies. It is classical class-warfare: antagonizing lower socio-economic groups against the “rich”.
Obama has stated his intent to raise the marginal rates on the top income earners, (aka the “rich”, “wealthy”, or “top 2%”). Yet according to the IRS, the threshold for this bracket is actually 200K for individual taxpayers or 250K for married couples. These incomes are certainly no where near millionaire or billionaire amounts.
Since there is a clear federal definition for a group of taxpayers whom Obama is targeting for tax increases, Obama really has no right to say millionaires and billionaires as a collective for the highest income earners. But he uses the generic terms anyway. By making it sound like one kind of people, it pits the average/middle-class against “the other guy”. And if he actually tried to define that other guy instead of resorting to generic terms, it would include a lot of people who would be upset to be included.
History shows us that higher tax rates results in less – not more – tax collections. Democrats like to wax poetic about the high rates of 70% and even 91%. What they fail to comprehend or deliberately don’t explain is that at those times, there were an enormous amount of tax shelters such as real estate, so that people could legally lower that taxable income and would not have to actually pay the outrageous tax rates.
With the IRC reforms of 1986, Reagan reduced the tax rates to 28% in exchange for getting rid of the tax shelters. As a result, the amount of federal income collected was more at 28% and a clean tax code than at 91% and tax shelters, because at 28%, it really wasn’t worth the time, cost, and effort to hide money. If the tax rates are going to rise again – in addition to state and local tax hikes – the tax burden in this country will be staggering. People will do one of two things: 1) start finding ways not to pay it like they did when the rates were outrageous or 2) stop working and investing so much because it’s just going to get taken away from them. When that happens, it’s not good for the economy.
Blindly going after “millionaires and billionaires” (who earn $200,000 or more) is simply a tactic Obama uses to pit classes against one another for political gain. Imposing higher taxes on that segment of the population most able to invest in and aid our recovery is true economic ignorance. Why take additional money from those taxpayers who have been able to create wealth and employment successfully and give it to the government and politicians who have proven their ability to mismanage and squander income?
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.
Roads and bridges? Internet? Built by capital revenue provided by taxpayers and business owners, not the faceless “government”
Without the hard work and innovation by our citizens, wealth could not have been created. That wealth provides the thriving economy and tax revenue to pay for all the functions of government (necessary and unnecessary) — be it it infrastructure, education, or technology.
Obama seems to have forgotten that part…until he needs more taxes for his deficit spending and expansive government programs. Only a self-absorbed government bureaucrat could argue that their existence justifies everyone else’s existence.
The economy created just 80,000 jobs in June, the Bureau of Labor Statistics reported Friday. But that same month, 85,000 workers left the workforce entirely to enroll in the Social Security Disability Insurance program, according to the Social Security Administration.
and more:
In addition, while job growth has been very weak during the recovery, the total number of people who’ve dropped out of the labor force entirely has exploded, climbing 7.3 million since June 2009, and IBD analysis of BLS data show. Some of them aged into retirement, but most either signed up for disability, stayed in school, moved back in with parents, or just quit looking for a job.
But, don’t forget, Obama predicted 5.6% unemployment by this time with the stimulus
AEI Obama Stimulus
There’s not much else to say here….add your commentary below!
Signaling a slow down in the global economy is affecting U.S. manufacturers, June numbers showed production was down.
The trade group of purchasing managers said its index of manufacturing activity fell to 49.7. That’s down from 53.5 in May. And it’s the lowest reading since July 2009, a month after the Great Recession officially ended. Readings below 50 indicate contraction.
Though growth rates are already sluggish — 1.9% in January-March — the latest manufacturing numbers indicate growth is closer now to a mere annual rate of 1.5%.
Manufacturing Downturn — WSJ July2, 2012
This is not good economic news, which could worsen depending on the unemployment figures due out this week.
The basic premise that everyone should be protected in case of serious illness or injury with appropriate insurance is not an unsavory idea. But the concept of an individual mandate does nothing. Not only does it not help with that problem of encouraging everyone to carry coverage, it confuses the entire idea of what “health insurance” is or is supposed to be — so much that it affirmatively discourages or reduces the likelihood that people will have insurance. I propose that the concept of health insurance should only really be related to major medical situations, like other true “insurances”.
The individual mandate is both unconstitutional and ineffective because it leads to a poor allocation of resources. In order to understand why, it requires an understanding between the difference of real health “insurance” and what currently counts as health insurance (a broad medical coverage plan).
Insurance, by definition, is a payment of a premium to cover the very unlikely event that would result in high economic consequences. Therefore, it has the effect of relatively low premiums to protect against that economic possibility.
In contrast, what counts as medical insurance in this country is a small portion of real insurance, but is largely pre-paid medical care: you pay your monthly premium which you get back every time you go to the doctor because you’ve already contributed x so many dollars a month which covers the doctors’ fees (minus a “co-pay” or “deductible”). It’s not an efficient practice, however, nor a cost-effective one. It gives the false impression that going to the doctor is cheap, when in reality, you’ve already paid in advance for doctor visits – that you may or may not have.
This is in contrast to other types of true insurance. I submit it is necessary to remodel the health insurance system after other insurance sectors – such as life, fire, or home insurance. For instance, it is both accepted and reasonable that you will pay more for life insurance at the age of sixty than at twenty-five. The reason for this practice is the understanding that the risk is higher.
Likewise, people buy fire insurance because the economic loss is from a fire is extraordinarily great and the cost for coverage is relatively low. But even with fire insurance, you pay more if you home is made of wood and not brick, and if you live farther from a fire station than closer — that is the matter of risk.
Everyone should have routine doctor visits. If everyone paid for those out-of-pocket, it would be more economically viable, because one would only be paying for what he needed – and would probably result in more healthy citizens who have an economic incentive to take better care of themselves. Instead, the government intentionally combines and obfuscates the meaning and definition of insurance to include medical coverage or routine costs. The only people who truly need that are the same people who can’t afford anything — and should be treated like those who can’t afford routine food.
You don’t need insurance to go to a doctor. That is welfare. For the average person who pays 15-20K a year of medical coverage, a very large percentage of the cost is not insurance – it’s the prepaid care for a larger pool of people. Therefore, individuals are really overpaying when it is set up this way because the real insurance part is intentionally combined with health care so you can hide the cost of those with higher risks, i.e the cost is buried within premiums.
The term “individual mandate” is intentionally confusing. The individual mandate — as the administration would describe it — is a requirement that everyone buy their own health insurance. The basic concept of everyone having their own health insurance is not, in and of itself, terrible — if health insurance were actually insurance in the same way life or fire insurance are. Obama Care, however, is not and therefore the individual mandate is not a mandate to buy health insurance as we’ve been told — it’s a mandate for universal and pre-paid medical care.
Since people of different ages, medical conditions, pre-existing situations, etc have different anticipated costs, the purpose of an individual mandate has nothing to do with getting people to buy their own insurance. It is the forcing of individuals to buy into a system that makes people pay for medical treatments that are not theirs, support welfare, and overpay for services in order to create a coverage that is similar for all person. That is legal plunder and anti free-market. The health care industry would best serve our citizens if Obama Care and the individual mandate was rescinded and if it restructured health insurance as a ‘true insurance’.
Friday we hear the news that the new unemployment rate is 8.1%. Since Obama’s goal post is to get the number at least under 8% in time for election day, this number — on the surface — sounds relatively good, right?
Payrolls only added 115,000 new jobs, the lowest number in six months. According to Bloomberg, it missed the target estimate of 160,000.
The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. It has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948.
The participation rate, which indicates the share of working-age people in the labor force, fell to 63.6 percent, the lowest since December 1981, from 63.8 percent.
Bloomberg also posted the underemployment rate, which consists both of part-time workers who want full time work and those who have stopped working. That number is 14.5%.
Overall, not a good picture for jobs and economy right now. Breitbart gave a quick synopsis on numbers and their theory as to why the Obama administration continues to focus on less critical matters, such as dogs and contraception. They are trying to deflect emotions away from the depressing job data which undermines Obama’s continued assertion that we are in a recovery and things are better.
