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Economy improving? New CBO report says that real unemployment is at 15%

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The Washington Times reports. (H/T ECM)

Excerpt:

President Barack Obama’s reelection efforts received a terrible blow today from the non-partisan Congressional Budget Office (CBO), with numbers showing a very grim and poor outlook on the future of America’s economy.

Though the official Department of Labor number shows that the unemployment rate dropped from 8.5% in December 2011 to 8.3% in January 2012, the CBO report states that, “The official unemployment rate excludes those individuals who would like to work but have not searched for a job in the past four weeks as well as those who are working part-time but would prefer full-time work; if those people were counted among the unemployed, the unemployment rate in January 2012 would have been about 15 percent.”

[…]The rate of unemployment has been above 8% since February 2009, making the past three years under President Obama the longest stretch of high unemployment in the United States since the Great Depression.

Additionally, the CBO reports that the unemployment rate in America will stay above 8% through the election of 2012 and even until 2014.

“…the unemployment rate will remain above 8 percent until 2014. The share of unemployed people who have been looking for work for more than six months — referred to as the long-term unemployed — topped 40 percent in December 2009 and has remained above that level ever since.”

When Obama took office in 2009, the official rate was 7.8%. He promised to keep unemployment under 8% when he took office, but only three years into his administration has it finally dropped below 9%.

[…]85% of small businesses are no longer hiring and only 13% rate the U.S. Economy as good or excellent.

Obama seems to think that taxing and regulating job creators is a good idea – that it will create more jobs. He raises taxes and passes more burdensome regulations. Business owners respond by expanding their businesses somewhere else where there is less regulation and lower taxes.

Commentary

New paper on income inequality: Does taxing the rich hurt the middle class?

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Aparna Mathur (right)
Aparna Mathur (right)

Here’s an article by Indian economist Aparna Mathur.

She writes (in part):

In a recent paper that I co-authored with Kevin Hassett, we explored the effect of high corporate taxes on worker wages. The motivation for the paper came from the international tax literature (summarized by Roger Gordon and Jim Hines in a 2002 paper1) that suggested that mobile capital flows from high tax to low tax jurisdictions. In other words, in any set of competing countries, investment flows are determined by relative rates of taxation. The current U.S. headline rate of corporate tax is 35 percent. The combined federal and state statutory rate of 39 percent is second only to Japan in the OECD. With Japan set to lower its statutory rate later this year, the U.S. rate will soon be the highest in the OECD and one of the highest in the world. What effect do these high rates have on worker wages?

When capital flows out of a high tax country, such as the United States, it leads to lower domestic investment, as firms decide against adding a new machine or building a factory. The lower levels of investment affect the productivity of the American worker, because they may not have the best machines or enough machines to work with. This leads to lower wages, as there is a tight link between workers’ productivity and their pay. It could also lead to less demand for workers, since the firms have decided to carry out investment activities elsewhere.

Our paper was one of the first to explore the adverse effect of corporate taxes on worker wages. Using data on more than 100 countries, we found that higher corporate taxes lead to lower wages. In fact, workers shoulder a much larger share of the corporate tax burden (more than 100 percent) than had previously been assumed. The reason the incidence can be higher than 100 percent is neatly explained in a 2006 paper by the famous economist Arnold Harberger.2 Simply put, when taxes are imposed on a corporation, wages are lowered not only for the workers in that firm, but for all workers in the economy since otherwise competition would drive workers away from the low-wage firms. As a result, a $1 corporate income tax on a firm could lead to a $1 loss in wages for workers in that firm, but could also lead to more than a $1 loss overall when we look at the lower wages across all workers.

Following our paper, several academic economists substantiated our results, using different data sets and applying varied econometric modeling and techniques. Some examples of these studies include a 2007 paper by Mihir A. Desai and C. Fritz Foley of Harvard Business School and James Hines Jr. of Michigan University Law School, a 2007 paper by R. Alison Felix of the Federal Reserve Bank of Kansas City, a 2009 paper by Robert Carroll of The Tax Foundation, and a 2010 paper by Wiji Arulampalam of the University of Warwick and Michael Devereux and Giorgia Maffini of Oxford.3 A recent Tax Notes article that I co-authored summarizes these various studies and also the lessons from the theoretical literature on the topic. The general consensus from theory and empirical work is that while we may argue academically about the size of the effect, there is no disagreement among economists that a sizeable burden of the corporate income tax is disproportionately felt by working Americans. On average, a $1 increase in corporate tax revenues could lead to a dollar or more decline in the wage bill.

Conservatives and liberals have the same goal. We both want to help the poor. Liberals think that taking money from the rich and giving it to the poor helps, but all it does it cause the rich to move their capital and jobs elsewhere, leaving the poor poorer. Conservatives let the rich keep their money and encourage them to risk it trying to make more money by engaging in enterprises that create wealth – creating products and services from less valuable raw materials. In a socialist system, the rich get poorer, but so do the poor. In a capitalist system, the rich get very rich, but the poor also gain more wealth. That’s what happens when corporations like Apple make IPads out of junky raw materials. That’s how wealth is created – by letting people who want to make things keep more of what they earn. We all benefit from encouraging people to make new things and provide value for their neighbors.

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News

Fact check of Obama’s budget: is there really $4 trillion in deficit reduction?

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Here’s a story from the House Budget Committee, where Paul Ryan is the leader.

Paul Ryan made these two charts to help him discuss Obama’s new budget with Obama’s budget director.

Debt Increase in President's Budget
Debt Increase in President’s Budget

And:

Actual savings is 410 billion, not 4 trillion
Actual savings is 410 billion, not 4 trillion

Watch these clips to see Paul Ryan and Scott Garrett use the charts to do nasty things to Obama’s budget director.

Clip 1 of 3:

Clip 2 of 3:

Clip 3 of 3:

Guy Benson discusses both videos at Townhall.com.

Excerpt:

Ryan does a masterful job of puncturing Zients’ arguments, but let’s reiterate a few points that may have gotten lost in the shuffle.

(1) The White House is claiming that spending cuts within the Budget Control Act of 2011 — which is entirely separate from the FY 2013 budget — should count as savings “achieved” by their new proposal.  This is silly on its face, but crosses into laughable territory when one recalls that throughout much of the debt fight, President Obama adamantly opposed a cuts-for-debt-ceiling-hike quid pro quo.  He was on the record in favor of — demanding, in fact — zero cuts. Republicans dragged him into the BCA against his will; now he’s trying to take credit for that past action in next year’s budget.

(2) The White House says Obama’s budget “saves” $850 Billion by not fighting two wars at peak spending levels for another full decade.  This money was never proposed because the scenario is pure fiction.  These risible “savings” represent a White House bear-hug of Moon-Yogurt accounting. “Heaven help us” is right.

(3) Zients’ isn’t able to recall how much money this budget adds to the national debt.  You’d think the White House Budget Director would have that figure committed to memory (he likely does, but doesn’t want to admit it on camera), but let’s help him out:  The budget he’s defending adds nearly $11 Trillion to the debt, on top of the roughly $5 Trillion increase over which this president has already presided.  I seem to recall an infamous Right-wing zealot calling this sort of governance “unpatriotic.”

Next, we have Rep. Scott Garrett, a strong conservative from Northern New Jersey, asking Zients when the president’s budget comes into balance.  Zients refuses to directly respond to the question, perhaps because the correct answer is “never”…

Indeed, the closest Obama’s budget ever comes to balancing (expenses = revenues) within the ten-year projection window is 2017’s annual deficit of $617 Billion, which is still more than double the size of President Bush’s average annual deficit. Finally, Garrett lures Zients into a trap over Obamacare.  Garrett asks if a family making less than $250,000 per year (“the rich” cut off) is subject to a tax increase if they fail to comply with Obamacare’s individual mandate…

The president sold Obamacare to the public by characterizing the resulting mandatory pay-out as a “fine,” not a tax increase.  He even mocked George Stephanopoulos’ suggestion that it met the dictionary definition of a tax hike.  Once the law passed, however, the administration’s lawyers pulled an about-face and have defended the mandate in court by arguing that the fine is, in fact, a tax increase after all.  Zients has apparently reverted back to the outmoded argument, thus undermining his own administration’s legal defense of their signature “accomplishment.”

What I find frustrating is the media does such a poor job of vetting these “4 trillion dollar” claims that Obama makes. Sometimes, I wonder why anyone listens to mainstream media at all. What do you really learn?