There simply is no other way to explain the statements of White House Chief of Staff Jacob Lew this morning on CNN’s State of the Union. Lew was asked by Candy Crawley about a recent statement by Senate Majority Leader Harry Reid indicating he would not be bringing a vote on the budget to the Senate floor.

CROWLEY: “I want to read for our viewers something that Sen. Harry Reid, the Democrat Majority Leader in the U.S. Senate, who said, ‘We do not need to bring a budget to the floor this year. It’s done, we don’t need to do it.’”

LEW: “He’s not saying that they shouldn’t pass a budget. But we also need to be honest. You can’t pass a budget in the Senate of the United States without 60 votes and you can’t get 60 votes without bipartisan support. So unless… unless Republicans are willing to work with Democrats in the Senate, Harry Reid is not going to be able to get a budget passed.”

This is patently false.

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When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.

And when I discuss my work on the economic impact of government spending, I often get the same reaction.

This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.

• The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
• A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
• The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
• A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”

This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance. (more…)

Members of the Obama administration do not care whether Catholics and those of other faiths are angry about the ObamaCare mandate regarding contraception, sterilization, and abortion-inducing drugs. It’s quite possible that, like exhibitionists, the White House enjoys the shock value that accompanies all their edicts and executive orders to people of main-street America. Waiting for average Americans to recover from the shock gives them a window of time to amuse themselves at the reaction as they also develop their talking points and spin. But, this year, they have an election to win.

To appease those they view as rigid, conservative Catholics, the administration’s talking points are that they’ll “work it out” with them, give them a year to “adapt” their consciences to engaging in behavior that is against their values, and, perhaps, the favorite means of the White House to ensure a minimum of voter loss: hand out a waiver.

But, exactly what should be “worked out?” “Adapt” to what? A “waiver” from what? All of this talk of flexibility is helping the White House to muddy up the real issue.

The spin by the White House, in the midst of this constitutional crisis, is simply a variant on its age- old theme that healthcare is an unalienable right that the government must give to people. Remember that, in liberalism, unalienable rights come from the government, not from the Creator. With the contraception, etc. mandate, the administration just tweaked the message a bit- made it a bit “pinker,” dare we say: that all women deserve access to free contraception- including Catholic women. How could we leave Catholic women out? After all, that would be discriminatory, right? Wrong.

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Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?

Please forgive all these questions. I’m trying to figure out why any organization – even a leftist bureaucracy such as the OECD – would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”

Not even Keynesians, after all, think higher taxes are a recipe for growth.

Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the US-taxpayer-funded organization has become infamous for reflexively advocating big government.

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On Thursday, February 2nd, President Obama attended a National Prayer Breakfast for one of the few times during his presidency. And as he stood before those gathered there, he said “we can all benefit from turning to our Creator” and “avoiding phony religiosity.” Not only that, but he added that our economy can benefit from higher taxes on the wealthy, and then intimated that no one supports higher taxes like Jesus supports higher taxes.

Therefore, as Obama pushed “spread the wealth 2.0,” he justified his latest attempts at financial redistribution by saying “it…coincides with Jesus’ teaching that ‘for unto whom much given, much shall be required.’” He even suggested that the idea of higher taxes on the wealthy was in line with the Golden Rule when he said, “I know that far too many neighbors in our country have been hurt and treated unfairly over the last few years, and I believe in God’s command to love thy neighbor as thyself.” The president didn’t explain how using confiscatory taxes to take money from one’s neighbor can be equated with loving one’s neighbor, but I guess he’s saving that for another time.

Anyway, as I listened, I couldn’t help but notice that the president steered clear of other popular quotes from scripture while making his spiel. For example, he didn’t bother referencing the command, “Thou shall not steal. (Although in all fairness, I suppose it’s somewhat counterproductive to make a push for confiscatory taxes on the one hand while making the case against stealing on the other.)  Nor did he reference the Apostle Paul’s words to the Thessalonians:

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What’s the worst policy idea that would cause the most damage to society?

I’m tempted to say the value-added tax since our hopes of restraining the federal government will be greatly undermined if we give the buffoons in Washington a new source of revenue. Indeed, this is one of the reasons why Mitt Romney may be an ever greater long-term threat to American exceptionalism than Barack Obama.

But even though the VAT is fiscal poison, it’s not the most dangerous policy proposal.

At the top of my list is global taxation.

I wrote in 2010 about some of the awful global tax schemes being pushed by the United Nations. And I also noted that unrepentant statists such as George Soros are pimping for global taxation.

I even wrote a paper back in 2001 to explain why global taxes are such a bad idea.

The details of the tax don’t matter. It’s the principle.

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Obamacare opponents have been raising red flags around this issue for some time, but today the IRS has finally issued preliminary guidelines for the implementation of the Affordable Care Act. The legislation is expected to cost America tens of thousands of jobs, while also sending some high-end industries overseas. There’s more from the IRS available at the links in text below. That it’s being released on a Friday afternoon is no coincidence.

On February 3, 2012, the IRS and the Treasury Department issued proposed regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of taxable medical devices starting in 2013. Additional information is available in the Medical Device Excise Tax FAQs.

The IRS and Treasury Department request comments on the proposed regulations by May 7, 2012. Comments may be submitted electronically, by mail or hand delivered to the IRS. The preamble to the proposed regulations provides instructions on how to submit comments.

Industry sources have already begun weighing in through press releases of their own. There’s also a detailed analysis of the implications of the proposed guidelines here. (more…)

On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.

Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.

But perhaps that was an unfair comparison. Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.

So let’s look at the same charts, but add an extra year of data. Does it make a difference?

Meh…not so much.

Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed.  Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.

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“When you look at government policies, there’s a massive transfer of wealth from the young and relatively poor members of society toward the old and relatively members of society,” says Veronique de Rugy, a Reason magazine columnist and economist at the Mercatus Center at George Mason University.

In 1970, de Rugy notes, transfers from the young to the old took up about 20 percent of the federal budget. In a few years, that figure will break the 50 percent barrier as the population ages and Social Security and Medicare ramp up. Those programs are paid for by payroll taxes that suck up around 15 percent of every dollar most workers will ever make.

Yet the #Occupy movement spends most of its energy railing against “the 1 Percent” richest Americans, whose wealth is not gained at the expense of the “99 Percent.” Rather, it comes from providing goods and services that people want to consume.

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Back in 2010, I crunched the numbers from the Congressional Budget Office and reported that the budget could be balanced in just 10 years if politicians exercised a modicum of fiscal discipline and limited annual spending increases to about 2 percent yearly.

When CBO issued new numbers early last year, I repeated the exercise and again found that the same modest level of budgetary restraint would eliminate red ink in about 10 years.

And when CBO issued their update last summer, I did the same thing and once again confirmed that deficits would disappear in a decade if politicians didn’t let the overall budget rise by faster than 2 percent each year.

Well, the new CBO 10-year forecast was released this morning. I’m going to give you three guesses about what I discovered when I looked at the numbers, and the first two don’t count.

Yes, you guessed it. As the chart illustrates (click to enlarge), balancing the budget doesn’t require any tax increases. Not does it require big spending cuts (though that would be a very good idea).

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Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

• When tax rates increase, sometimes they engage in tax avoidance, lowering their tax liabilities legally.
• When tax rates change, sometimes they choose to alter their levels of work, saving, and investment.
• And when tax rates go up, sometimes they resort to illegal steps to protect themselves from the tax authority.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes:
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How much bailing out does one company need? After receiving some $50 billion in tax dollars from us courtesy of Obama’s “cash stash,” GM is claiming success with a “big profit” with last year’s third quarter report, and in his recent State of the Union Speech, President Obama claimed that GM was “back on top as the world’s number one automaker.” But true or not, if all is coming up roses for GM, why is the company now lobbying the individual states for mini bailouts?

That is exactly what is happening. The new “big success” automaker is spending millions hiring lobbyists to squeeze more millions out of state legislatures. As Justin Owen notes, GM has “turned to another, smaller government teat” by putting its hand out to the states. GM, Owen says, “has received another $1.7 billion in taxpayer-funded grants and tax abatements.”

This is no accident of timing, either. GM admitted to the Tennessee Watchdog that begging to the states for tax dollars is a concerted effort.

“We are increasing our activity with the states obviously, in the communities in which we operate. In doing this, we’ve invested more than $6 billion (throughout the states) during the last five years and brought 15,000 people back to work. So, the activity at the state level is important to us. Our lobbying is comparable to what our competitors are doing throughout the states,” said GM spokesman Greg Martin.

For the Watchdog, Christopher Butler found that GM has received more than $1.5 billion from Michigan, $7.5 million in tax incentives from Kentucky, over $10 million from Texas, and over $2 million from Indiana. Ohio and Maryland have given to the GM bailout fund, too, with tax incentives and other giveaways. (more…)

One year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax rates.

This is the Laffer Curve in action, and it’s happening again in France, only this time because the government reduced the wealth tax.

Here’s part of the story at Tax-news.com.

France’s solidarity tax on wealth (l’impôt de solidarité sur la fortune – ISF), which was radically reformed by the government in June last year, has served to yield much greater fiscal revenues for the state than initially predicted. …the government agreed that the solidarity tax on wealth would in future comprise of only two tax brackets: a 0.25% tax rate imposed on individuals with net taxable wealth in excess of EUR1.3m (USD1.7m), and a 0.5% tax rate levied on individuals with net taxable assets above EUR3m. Previously, the entry threshold at which wealth tax was applied was EUR800,000, with the rates varying between 0.55% and 1.8%. To alleviate any threshold effects, a discount mechanism was also instated applicable to wealth of between EUR1.3m and EUR1.4m, as well as to wealth of between EUR3m and EUR3.2m. Although the new provisions provide for lower tax rates and for the abolition of the first tax bracket, effectively exempting around 300,000 taxpayers from the tax, according to latest government figures, the tax yielded around EUR4.3bn in 2011, almost EUR60m more than originally forecast in the collective budget.

This is not to say that France is an example to follow. There shouldn’t be any wealth tax, and income tax rates are still far too high.

And it’s also worth remembering that tax policy is just one of many factors that determine economic performance.

That being said, nations that shift from terrible tax policy to bad tax policy will enjoy better economic performance, just as nations that go from good policy to great policy also will reap benefits.

In other words, incremental changes make a difference. That’s even the case when the politicians impose a “Snooki tax” on indoor tanning services.

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After the headline rate of unemployment (U-3) reached 8.5 percent in December 2011 ( the most recent month reported), some commentators began to talk as if the employment situation is now improving rapidly. Some have gone on to suggest that those of us who have emphasized the role of regime uncertainty in retarding the current recovery are now barking up the wrong tree, if indeed we ever had a valid point. To speak of employment woes as old news, however, is highly premature.

The Labor Department has recently made public its preliminary estimate of nonfarm employment for 2011. I have added the department’s data for previous years, back to 1999, to construct this table.

Employees on nonfarm payrolls, 1999-2011

(annual average, in thousands)

Year Total Private

1999…… 128,993 108,686

2000….. 131,785 110,995

2001…… 131,826 110,708

2002…… 130,341 108,828

2003…… 129,999 108,416

2004…… 131,435 109,814

2005…… 133,703 111,899

2006…… 136,086 114,113

2007…… 137,598 115,380

2008…… 136,790 114,281

2009….. 130,807 108,252

2010…… 129,818 107,337

2011(p).. 131,159 109,080

The good news is that private nonfarm employment has grown since its recent trough in 2010: the increase in 2011 amounted to 1.6 percent. This is not much, but it’s better than continued decline.

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Last night President Obama renewed his calls for a so-called “middle class tax” cut that would all but kill Social Security:

“Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year. There are plenty of ways to get this done. So let’s agree right here, right now: No side issues. No drama. Pass the payroll tax cut without delay.”

And yet only two paragraphs later, he said this:

Alas, in calling for a renewed payroll tax holiday, President Obama continues to raid Social Security and imperil the retirement account that many Americans have paid into and continue to depend upon.

On the one hand, he raids the Social Security trust fund, while on the other he attacks Republicans for threatening Social Security.  Republicans ought not let him get away with such transparent chutzpah.

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I’ve already bragged that the Cato Institute is America’s best think tank, highlighting the fact that we took the lead in battling against Obama’s faux stimulus at a time when many were dispirited and reluctant to fight big government.

I’m biased, of course, so I’ll understand if you discount what I say. But I hope you’ll agree that my colleagues have put together an excellent video response to the President’s state-of-the-union speech.

As part of my contribution to the video, beginning around 6:35, I debunk the President’s class-warfare tax agenda by citing IRS data from the 1980s to explain that higher tax rates don’t necessarily mean higher tax revenue.

After a night’s sleep, here are a few additional observations on the President’s remarks.

• I was disappointed, but not surprised, that he repeated the economically foolish assertion that Warren Buffett pays a lower tax rate than his secretary.
• I also was not surprised that he didn’t say much about jobs and the economy. These four charts show he doesn’t have much to brag about.
• It was also noteworthy that he didn’t spend much time talking about Obamacare, which suggests that White House pollsters understand that government-run healthcare isn’t very popular.
• It was equally revealing that he didn’t spend much time on the so-called income inequality issue. Redistribution was implicit in what he said, to be sure, but the Occupy-Wall-Street crowd is probably disappointed that he didn’t explicitly embrace their agenda. More evidence that the pollsters played a big role in this speech.
• I’m definitely not surprised that he talked about eliminating Osama bin Laden. Kudos to the Commander-in-Chief.
• I was amazed that he had the gall to say “no bailouts,” particularly given his support for TARP, the Dodd-Frank bailout bill, and the giveaway to GM and the auto unions. And if the GM bailout is supposed to be a success, I’d hate to see his definition of failure.
• And I was stunned that he could talk about the housing meltdown and mortgage crisis without mentioning the Federal Reserve, Fannie Mae, or Freddie Mac. Sort of like analyzing World War II and pretending Germany and Japan didn’t exist.

Since most of the previous observation are critical, I want to stress that I’m not being partisan. I also was disappointed in the Republican response. Was the GOP smart to showcase a governor who was part of the big-spending Bush Administration? Especially one who has said nice things about the value-added tax?

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When the Democrats aren’t cheating on their taxes like Charlie Rangel or forgetting to pay them like Timothy Geithner, they’re busy lambasting Republicans for actually paying theirs—albeit at a rate unsatisfactory to them.

In yet another fantastic display of hypocrisy, the liberal mainstream media spent the week attacking Governor Mitt Romney for having a 15% tax rate.  Since the media is loath to engage in any actual investigative journalism when it comes to the Democrats, I decided to do a little of my own.  Here’s what I found.

Start with Senator John Kerry who is among the 400 richest Americans thanks to his wife, Teresa Heinz Kerry’s, inheritance.  Their last publicly released tax returns in 2003 revealed that they paid a rate of 13.4% on a declared income of $5.5 million. This from the man who, just last year, tried to avoid half a million dollars in taxes by anchoring his yacht in Rhode Island rather than Massachusetts. Estimates pin Kerry’s net worth somewhere between $700 million and $3.2 billion compared to Romney’s lower net worth of $202 million.

Take a look at former Vice Presidential Candidate John Edwards’s 2003 tax returns, and you’ll find that he paid an astonishingly low rate of 5.1%.  Seems a bit low for a man with a net worth hovering around $54.7 million.

But, of course, Kerry and Edwards’ income tax rates were protected under lock and key by the mainstream media during the 2004 presidential race against President George W. Bush.   Speaking of Bush, you’ll also never hear anyone mention the fact that he paid a rate of 27.7% in the same year.

Tax rates aside, in yet another attempt to make something out of nothing, the media has been reporting relentlessly on Romney donating millions in cash and stocks to the Mormon Church, as if tithing to one’s church is somehow a negative.  Thanks to donations like Romney’s, the Mormon Church is able to sustain a large philanthropic network and send young men on two year missions that provide extensive humanitarian aid to a countless number of people in need.  If you call that bad, I’d hate to see what you call good.

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Maryland Gov. Martin O’Malley last week proposed a budget that would raise taxes by $311 million.

From the Washington Post:

The Democrat outlined a $15.3 billion general fund budget plan that includes about $311 million in new revenue. About $182 million will come from capping income tax deductions and phasing out exemptions.

[...]

The governor’s plan would cap income tax deductions at 90 percent for incomes above $100,000 and 80 percent for incomes above $200,000.

It also would reduce exemptions from $2,400 to $1,200 per person for singles who make between $100,000 and $125,000 and couples who make between $150,000 and $175,000. Exemptions would be eliminated for singles who make more than $125,000 and couples with incomes above $175,000.

[...]

About $19 million will come from aligning the state’s cigarette tax with other tobacco products. Tax on cigars and smokeless tobacco is 15 percent of wholesale, which was comparable to the 36 cents per pack cigarette tax in 1999. The governor’s proposal would make it 66 percent of wholesale, which would make it comparable to the present $2 per pack cigarette tax.

The proposal also would require online sellers to begin collecting sales tax, which the governor projects would raise about $19 million, but there are questions about enforcement.

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The Internal Revenue Service (IRS) loves you and has a wonderful plan for your life. It wants to ease your mind about compliance with the tax code and make April 15 as stress-free as possible.

Sound too good to be true? Of course it is. Their real goal is to extract more tax dollars out of your pocket without having to muster the political courage to advocate a tax increase, and to do so in the most cynical way possible—by taking advantage of the least-sophisticated and lowest-income workers.

Some of our elected officials and the revenue establishment are convinced that there is a $345 billion annual “tax gap” between what people actually owe or should be paying and what the IRS actually collects. Of course, in a voluntary compliance system—the alternative to which is a police state—there is always going to be some gap in compliance. Not surprisingly, the IRS doesn’t mention the certainty that many people actually pay more than they owe because they fail to take advantage of deductions available to them.

Does the revenue establishment fault the tax code’s inherent complexity and Congress’ failure to reform it as responsible for the supposed shortfall? Guess again.

Slowly, over the past several years, the IRS has been insisting that more and more information be submitted from employers and from the savings and investment industry directly to them. At the same time, they’ve been tightening down on who can and who cannot prepare tax returns. Have you noticed?

And today, the IRS will hold its second hearing on what they call the “Real-Time Tax System,” which they claim is intended to give the IRS the ability to identify tax non-compliance in real time. Of course, the Real-time Tax System will require even more information from taxpayers, employers, banks and brokerage firms, but of course it’s being done to “reduce the burden for taxpayers.”

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