Hypocrisy not Leadership on America’s 235th Birthday

“Austerity” is giving “unsustainable” strong competition for becoming the financial buzzword of the year.  However, within the Democratic Party and the political left, we seem still to have an abundance of something.  Unfortunately, that something is hypocrisy.  When we expect serious and mature leadership from our president to state publicly what he knows privately to be true, he ratchets up populist class warfare or chooses solutions aimed at placating the liberal allies on whose financial support his party depends.

Case in point.  Mr. Obama, three years after they were negotiated, finally acknowledges the jobs that would be created by Senate approval of the trade agreements with Korea, Panama and Columbia.  The president is now describing the agreement with South Korea, which will reduce Korean tariffs on U.S. cars and trucks and open what Ford Motor Co. described as “the most closed automotive market in the world” as one which will produce numerous jobs for Americans.  Last year South Korea imported 13,000 American cars while it exported 560,000 vehicles to the U.S.  White House spokesman, Jay Carney, stated “it is time to move forward [with the 3 agreements] which will support tens of thousands of jobs.”  Unfortunately, the president tied the approval of the treaties to spending close to a billion dollars on additional assistance to workers displaced from jobs, a program that has proven completely useless unless subsidizing unions is a national priority.  This at a time when the Administration is supposedly trying to reduce the deficit as a key element in the legislation it knows is vital as a precondition to raising the nation’s debt ceiling.

The president at a pre-July 4 press conference inveighed against millionaires, billionaires and owners of private jets, but intentionally ignored the real facts and distorted reality.  Or as one blogger, paraphrasing Charles Krauthammer stated it:

Never mind that in the grand scheme of things, the amount of tax that corporate jet owners are excused from paying is so minuscule that if the government collected it every year for 5,000 years, they would cover one year of the debt that the Obama administration has run up.  The point the president was trying to make, as he amps up his relentless class warfare argument, is that all over America children go to bed hungry while greedy fat cats get a tax break on the jets they buy.

This is a stunning reversal of reasoning.  The Wall Street Journal noted that the president’s 2009 stimulus plan specifically stated that “the aviation industry, which is cutting jobs as it suffers from declining shipments and cancelled orders, hopes the tax break in the economic stimulus bill . . . will persuade more companies to buy planes and snap a slump in general aviation.”

And while we don’t begrudge any spending to provide the highest level of security for the president’s family, we wonder who footed the bill for the aviation which took Mrs. Obama, Malea and Sasha on an African safari late in June.  Even considering security needs, why doesn’t the Obama family take a less expensive trip on the taxpayers tab and go to the beach on the eastern shore of Maryland like many other Washingtonians.  But we digress.

Michael Barone, writing in The Washington Examiner on July 1 pointed out another interesting twist to the corporate jet issue:

If Congress should actually change the depreciation rules for corporate jets — rules that were set by the Obama Democrats’ own 2009 stimulus package — and it had any effect at all, the costs would be borne not by clueless CEOs or other high executives, but by comparative little guys; the pilots, flight attendants, mechanics and ultimately the folks that work the assembly lines at small jet aircraft factories.  That’s what happened when Democrats in 1990 thrust a big tax on yachts over a certain size.   The rich people who could afford them weren’t inconvenienced, but the folks in Maine and other places who build large boats lost their jobs.  As a result, Democrats scrambled to repeal the tax.  CEOs are not the only people who can be really dumb sometimes.

Mr. Obama and the Democratic Senate are insisting on a tax increase for the “richest” Americans who, they claim, control a vast percentage of America’s private wealth.  Income and wealth they argue is becoming more and more unequal.  But is it the government’s role to redistribute wealth so that no one can make what the leftist politicians deem “too much money.”  Let’s set aside the ill conceived government policies and absent oversight that resulted in the excesses and abuses in the mortgage banking business that so traumatized our credit markets, Have the myriad investments of wealthier Americans in the free enterprise system taken anything away from those less fortunate?  Does the left really believe that there is no wealth creation in a market driven economy and that they must reshuffle wealth so it is more equally distributed?

In their book, “Onslaught from the Left,” economists Arthur Laffer and Ford Scudder present facts that simply prove that wealth in the upper income brackets creates wealth throughout the income system.  They wrote:

“In the year Ronald Reagan took office (1981) the top 1% of income earners as reflected by the Adjusted Gross Income of all tax filers paid 17.58% of all federal income taxes.  Twenty-five years later, in 2005 the top 1% paid 39.8% of all income taxes, representing a greater than doubling of the share of tax payments made by this group.

“But even more to the point, from 1981 to 2005 the income taxes paid by the top 1% rose from 1.59% of GDP to 2.96% of GDP.  In addition to the huge rise in the percent of GDP paid in income taxes by the top 1% of income earners and the more than doubling of the share of taxes paid by this group was the huge absolute increase in real taxes 2005 dollars using the GDP price deflator (in other words, adjusting for inflation from 1981 through 2005).  In 1981 total tax payments from the richest 1% were $98.84 billion, while in 2005 the top 1% paid $368.13 billion in taxes; that’s a 288% increase in 25 years.  In rough numbers, that means that each of the richest 1% of filers in 1981 paid a little over $100,000 in 2005 dollars, while in 2005 each filer on average paid over $288,000.  And remember that’s inflation-adjusted dollars.”

Although the rich got richer they paid nearly four times as much total tax as when tax rates were higher.  In fact, statistics show that lower tax rates have led to higher income among the bottom fifty percent of income earners and lower total taxes paid by that group.  In point of fact, fifty percent of federal tax filers pay no tax at all.  In short, Mr. Obama so wants to engage in class warfare rhetoric that he is prepared to punish the rich even if that results in less rather than more government revenue.

As Mr. Obama well knows, we don’t tax too little, we have a spending problem and it cannot be resolved without structural reforms particularly to the major so-called entitlements:  Medicare, Medicaid and Social Security — problems which are compounded by the demographics of an aging population and which he and his party consider untouchable.

Finally, returning to the word “hypocrisy,” how can one have confidence in our president when at this late date in the fiscal year he has presented no budget to replace the one that was defeated in the Senate 97-0, preferring instead to rail against the spending cuts proposed by Congressional Republicans”  How can he point to the fiscal mess we are in (yes, we know that he inherited it) and not mention the bursting of the housing bubble, which was the driving force behind the great recession and whose main actor was Fannie Mae.  Democrats for years resisted reform of that agency, which just happened to be their campaign finance piggybank.  As Columnist David Brooks noted in reviewing Reckless Endangerment by Gretchen Morgenson and Joshua Rosner:

Fannie Mae could raise money at low interest rates because the federal government implicitly guaranteed its debt.  In 1995, according to the Congressional Budget Office, this implied guarantee netted the agency $7 billion.  Instead of using that money to help buyers, [James] Johnson [then Fannie Mae CEO] and other executives kept $2.1 billion for themselves and their shareholders.  They used it to further the cause — expanding their clout, their salaries and their bonuses.  They did the things that every special-interest group does to advance its interests.

Fannie Mae co-opted relevant activist groups, handing out money to Acorn, the Congressional Black Caucus, the Congressional Hispanic Caucus and other groups that it might need on its side . . .

[It] lavished campaign contributions on members of Congress.  Time and again experts would go before some Congressional committee to warn that Fannie was lowering borrowing standards and posing an enormous risk to taxpayers.  Phalanxes of congressmen would be mobilized to bludgeon the experts and kill unfriendly legislation. . . . a foundation that spent tens of millions in advertising. . . . They spent enormous amounts of time and money capturing the regulators who were supposed to police them.

Mr. Brooks notes that only two of the characters in this tale come off as egregiously immoral.  Johnson [a key Democratic party fundraiser] personally made $100 million while supposedly helping the poor.  Representative Barney Frank, whose partner at the time worked for Fannie, was arrogantly dismissive when anybody raised doubts about the stability of the whole arrangement.

Think about the president’s explanations of our financial mess.  He talks about corporate jet owners and conveniently omits the agency which blew up the bubble and who is the main culprit in the loss of trillions of dollars of wealth.  And Barney Frank?  He is the co-author of the Dodd-Frank bill, which will now regulate our banking system.  Does that give you comfort?

We, hopefully, are on the cusp of an agreement between the Republican leadership and the President on raising the limit on the debt ceiling, but, in the process, we have been treated to the “Coming Attractions” of the 2012 White House election strategy.  It isn’t a pretty picture.

By Hal Gershowitz and Stephen Porter