Tag Archives: Capital

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The long-term impacts of the Romney and Obama economic plans

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From the Tax Foundation. (H/T Tom)

Excerpt:

Over the past several weeks, Tax Foundation economists have published a series of studies that analyze the long-term economic and distributional effects of the tax plans outlined by President Barack Obama and Governor Mitt Romney. These comprehensive assessments were done using the Tax Foundation’s Tax Simulation and Macroeconomic Model, which measures how changes in tax policies affect the economic levers that determine economic growth, workers’ incomes and the distribution of the tax burden, says the Tax Foundation.

The candidates’ tax plans would have a starkly different impact on the economy.

  • The Romney plan, which would reduce tax rates on individuals and corporations, would increase gross domestic product (GDP) 7.4 percent over the long run.
  • The Obama plan, which would raise tax rates on individuals, would reduce GDP 2.9 percent over the long run.

These very different futures are the direct consequence of the candidates’ very different approaches to taxing the inputs of production, i.e., capital and labor.

  • Obama would raise taxes on investors, which would reduce the capital stock by 7.5 percent.
  • Romney would reduce taxes on investors, which would increase the capital stock by 18.6 percent.
  • Obama would raise taxes on labor, which would reduce the wage rate by 2.3 percent and hours worked by 0.7 percent.
  • Romney would reduce taxes on labor, which would increase the wage rate by 4.7 percent and hours worked by 2.9 percent.

[…]Tax Foundation’s analysis indicates that for every dollar of tax revenue raised under the Obama plan, the economy loses $10. Under Romney’s plan, for every dollar of tax revenue lost, the economy gains $8.

And more from the Tax Foundation. (H/T Tom)

As a follow-up to the Tax Foundation’s recent assessment of the macroeconomic effects of Governor Mitt Romney’s tax plan, Tax Foundation Senior Fellow Stephen Entin now turns his attention to measuring the macroeconomic effects of President Barack Obama’s tax proposals.

[…]The model results:

  • President Obama’s tax plan would gradually reduce the level of gross domestic product (GDP) by nearly 3 percent, relative to the baseline projection, over five to 10 years.
  • Labor income would be lower by a similar amount, driven down by fewer hours worked and lower wages per hour.
  • The reduction in hours worked, about 0.75 percent, would be the equivalent of about a million jobs lost in today’s economy, with those still employed earning roughly 2.28 percent lower wages.
  • Alternatively, one could view the result as losing four million jobs at unchanged pay levels.
  • The plan would also trim the capital stock by about 7.5 percent (or over $2 trillion in lost investment in plant, equipment and buildings, things that drive productivity, wages and hiring).

The study also measured the economic and distributional effects of President Obama’s corporate tax plan and the tax changes contained in the Affordable Care Act beginning in 2013. The results found that these proposals would lower economic growth while substantially lowering workers’ wages and incomes. Ultimately, President Obama’s tax plans would be very harmful for the nation’s long-term economic outlook.

Do you like prosperity? Would you like to have a job? Would you like to be able to buy things for your friends and family? Would like to be able to give to charities? Then vote for Mitt Romney!

News

How well did tax hikes for the rich work in California?

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Economist Art Laffer explains in Investors Business Daily.

Excerpt:

According to a new report from the Golden State’s Franchise Tax Board, the top 1% of earners paid $25.7 billion in state income taxes in 2007. Two years later, the most recent for which data are available, that figure dropped by half — to $12.3 billion.

Researchers note that the economic downturn contributed to this drop. But that’s not the only cause. A huge number of high-income taxpayers have simply left the state.

Between 1992 and 2008, California suffered a net loss of 869,000 tax filers. About 3.5 million moved into California, while 4.4 million left.

Those that left were disproportionately wealthy. The average adjusted gross income for people leaving the state over that period was $44,700. Meanwhile, the average person moving into California posted income of just $38,600.

So California lost wealthier, more productive residents. And poorer, less-productive folks took their places — some of them, at least.

Smothered under a growing thicket of taxes and regulations, the Golden State’s entrepreneurs and top earners have sought friendlier climes — taking their incomes and the taxes they pay with them.

For many people, moving out of California is equivalent to getting a big raise — because their tax rates plummet. Of the top nine states Californians are flocking to, the average top personal income tax rate is 3.44%. California’s is nearly triple that, at 10.3%.

Also, among those nine states, the corporate tax rate averages 4.59% vs. California’s 8.84%. And their combined state and local tax burden is 9%, versus California’s 11%.

Similarly, if tax rats get to be too high, people will just work harder at getting their capital out of the country. In the case of businesses, they will stop hiring people here and instead open factories and plants in other low-tax countries. It’s socialism that causes outsourcing – taxing and regulating businesses causes them to leave or expand elsewhere.

News

Would the Buffett Rule “stabilize our debt and deficits”?

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The Buffett Tax (click for larger image)
The Buffett Tax (click for larger image)

The Wall Street Journal assesses Obama’s claims about the Buffett Tax.

Excerpt:

Forget Warren Buffett, or whatever other political prop the White House wants to use for its tax agenda. This week the Administration officially endorsed what in essence is the Obama Rule: Taxes must be high simply to spread the wealth, never mind the impact on the economy or government revenue. It’s all about “fairness,” baby.

This was long apparent to those fated to closely watch the 2008 campaign, but some voters might have missed the point amid the gauzy rhetoric about hope and change. Now we know without any doubt. White House aides made it official Tuesday in their on-the-record briefing on the new federal minimum tax that travels under the political alias known as the “Buffett rule.”

The policy goal is to impose an effective minimum tax of 30% on the income of anyone who makes more than $1 million a year. When President Obama first proposed this new minimum tax he declared that the rule “could raise enough money” so that we “stabilize our debt and deficits for the next decade.”

Then he added: “This is not politics; this is math.” Well, remedial math maybe.

The Obama Treasury’s own numbers confirm that the tax would raise at most $5 billion a year—or less than 0.5% of the $1.2 trillion fiscal 2012 budget deficit and over the next decade a mere 0.1% of the $45.43 trillion the federal government will spend. When asked about those revenue projections, White House aide Jason Furman backpedaled from Mr. Obama’s rationale by explaining that the tax was never intended “to bring the deficit down and the debt under control.”

So if it doesn’t do what Obama says it’s supposed to do, what would really do?

The Buffett rule is really nothing more than a sneaky way for Mr. Obama to justify doubling the capital gains and dividend tax rate to 30% from 15% today. That’s the real spread-the-wealth target. The problem is that this is a tax on capital that is needed for firms to grow and hire more workers. Mr. Obama says he wants an investment-led recovery, not one led by consumption, but how will investment be spurred by doubling the tax on it?

The only investment and hiring the Buffett rule is likely to spur will be outside the United States—in China, Germany, India, and other competitors with much more investment-friendly tax regimes. The Buffett rule would give the U.S. the fourth highest capital gains rate among OECD nations, according to a new study by Ernst & Young, to go along with what is now the highest corporate tax rate (a little under 40% for the combined federal and average state rate). That’s what happens when politicians pursue fairness over growth.

When you make it less attractive for people with capital to invest their capital here at home then they will take their capital and invest it abroad. What Obama’s proposal accomplishes is to outsource jobs – the exact thing that he is always complaining about. It’s higher taxes and more regulation, especially EPA regulation, that causes capital (and consequently jobs) to move overseas. If you want capital to come into America, you lower the tax rates.

In other news, the Obama administration is suing a company owned by Warren Buffett for unpaid taxes.