The amount of money the federal government takes out of the U.S. economy in taxes will increase by more than 30 percent between 2012 and 2014, according to the Budget and Economic Outlook published today by the CBO.
At the same time, according to CBO, the economy will remain sluggish, partly because of higher taxes.
“In particular, between 2012 and 2014, revenues in CBO’s baseline shoot up by more than 30 percent,” said CBO, “mostly because of the recent or scheduled expirations of tax provisions, such as those that lower income tax rates and limit the reach of the alternative minimum tax (AMT), and the imposition of new taxes, fees, and penalties that are scheduled to go into effect.”
The U.S. economy, CBO projects, will perform “below its potential” for another six years and unemployment will remain above 7 percent for another three.
A new budget report released Tuesday predicts the U.S. government will run a $1.1 trillion deficit in the fiscal year that ends in September, the fourth year in a row over $1 trillion, though a slight dip from last year.
[…]The report is yet another reminder of the perilous fiscal situation the government is in, but it is commonly assumed that President Barack Obama and lawmakers in Congress that little will be accomplished on the deficit issue during an election year.
[…]”Four straight years of trillion-dollar deficits, no credible plan to lift the crushing burden of debt,” said House Budget Committee Chairman Paul Ryan, a Republican. “The president and his party’s leaders have fallen short in their duty to tackle our generation’s most pressing fiscal and economic challenges.”
“We will not solve this problem unless both sides, Democrats and Republicans, are willing to move off their fixed positions and find common ground,” said Senate Budget Committee Chairman Kent Conrad, a Democrat. “Republicans must be willing to put [tax increases] on the table.”
The study also predicts modest economic growth of 2 percent this year and forecasts that the unemployment rate will remain above 8 percent this year and next. That is based on an assumption that President Barack Obama will fail to win renewal of payroll tax cuts and jobless benefits by the end of next month.
That jobless rate is higher than the rates that contributed to losses by Presidents Jimmy Carter (7.5 percent) and George H.W. Bush (7.4 percent). The study predicts unemployment to remain above roughly 5 percent — until 2016. The agency also predicts that unemployment will remain at 7 percent or above through 2015
Deficits in 2007 under George W. Bush were $160 billion and the unemployment rate was around 4-5%.
Typically, I try to tie the beginning of Wonkbook to the news. But today, the most important sentence isn’t a report on something that just happened, but a fresh look at something that’s been happening for the last three years. In particular, it’s this sentence by the Financial Times’ Ed Luce, who writes, “According to government statistics, if the same number of people were seeking work today as in 2007, the jobless rate would be 11 percent.”
Remember that the unemployment rate is not “how many people don’t have jobs?”, but “how many people don’t have jobs and are actively looking for them?” Let’s say you’ve been looking fruitlessly for five months and realize you’ve exhausted every job listing in your area. Discouraged, you stop looking, at least for the moment. According to the government, you’re no longer unemployed. Congratulations?
Since 2007, the percent of the population that either has a job or is actively looking for one has fallen from 62.7 percent to 58.5 percent. That’s millions of workers leaving the workforce, and it’s not because they’ve become sick or old or infirm. It’s because they can’t find a job, and so they’ve stopped trying. That’s where Luce’s calculation comes from. If 62.7 percent of the country was still counted as in the workforce, unemployment would be 11 percent. In that sense, the real unemployment rate — the apples-to-apples unemployment rate — is probably 11 percent. And the real un- and underemployed rate — the so-called “U6” — is near 20 percent.
There were some celebrations when the unemployment rate dropped last month. But much of that drop was people leaving the labor force. The surprising truth is that when the labor market really recovers, the unemployment rate will actually rise, albeit only temporarily, as discouraged workers start searching for jobs again.
Yeah, because taking money away from private sector job creators costs jobs. That is straight out of Henry Hazlitt’s “Economics in One Lesson”: Public Works Means Taxes.
When the Obama administration releases a report on the Friday before a long weekend, it’s clearly not trying to draw attention to the report’s contents. Sure enough, the “Seventh Quarterly Report” on the economic impact of the “stimulus,” released on Friday, July 1, provides further evidence that President Obama’s economic “stimulus” did very little, if anything, to stimulate the economy, and a whole lot to stimulate the debt.
The report was written by the White House’s Council of Economic Advisors, a group of three economists who were all handpicked by Obama, and it chronicles the alleged success of the “stimulus” in adding or saving jobs. The council reports that, using “mainstream estimates of economic multipliers for the effects of fiscal stimulus” (which it describes as a “natural way to estimate the effects of” the legislation), the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job.
In other words, the government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the “stimulus,” and taxpayers would have come out $427 billion ahead.
When the government takes a dollar from a job creator, they take half of it for themselves, and then they often give the other half to some favored group, like a “green energy” company or Planned parenthood or a labor union. Then they who turns around and give half of that handout right back to Obama as a campaign donation. The only way to stop them from doing more of this stimulus is to stop giving them money.
Consider this article by the Cato Institute, which discusses how the Reagan tax cuts affected the unemployment rate.
Excerpt:
In 1980, President Carter and his supporters in the Congress and news media asked, “how can we afford” presidential candidate Ronald Reagan’s proposed tax cuts?
Mr. Reagan’s critics claimed the tax cuts would lead to more inflation and higher interest rates, while Mr. Reagan said tax cuts would lead to more economic growth and higher living standards. What happened? Inflation fell from 12.5 percent in 1980 to 3.9 percent in 1984, interest rates fell, and economic growth went from minus 0.2 percent in 1980 to plus 7.3 percent in 1984, and Mr. Reagan was re-elected in a landslide.
[…]Despite the fact that federal revenues have varied little (as a percentage of GDP) over the last 40 years, there has been an enormous variation in top tax rates. When Ronald Reagan took office, the top individual tax rate was 70 percent and by 1986 it was down to only 28 percent. All Americans received at least a 30 percent tax rate cut; yet federal tax revenues as a percent of GDP were almost unchanged during the Reagan presidency (from 18.9 percent in 1980 to 18.1 percent in 1988).
What did change, however, was the rate of economic growth, which was more than 50 percent higher for the seven years after the Reagan tax cuts compared with the previous seven years. This increase in economic growth, plus some reductions in tax credits and deductions, almost entirely offset the effect of the rate reductions. Rapid economic growth, unlike government spending programs, proved to be the most effective way to reduce unemployment and poverty, and create opportunity for the disadvantaged.
President Bush signed the first wave of tax cuts in 2001, cutting rates and providing tax relief for families by, for example, doubling of the child tax credit to $1,000.
At Congress’ insistence, the tax relief was initially phased in over many years, so the economy continued to lose jobs. In 2003, realizing its error, Congress made the earlier tax relief effective immediately. Congress also lowered tax rates on capital gains and dividends to encourage business investment, which had been lagging.
It was the then that the economy turned around. Within months of enactment, job growth shot up, eventually creating 8.1 million jobs through 2007. Tax revenues also increased after the Bush tax cuts, due to economic growth.
In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.
The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.
Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:
GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.
The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.
It worked for Reagan and it worked for Bush – they made unemployment go down, while Obama’s public works spending has made unemployment go up. Those are the facts. And we have to live in the world as it is. We may not like it, it may not be intuitive to us, it may not line up with our feelings, but that is the way the world is. When you let people with capital keep more of the money they earn, they hire more people and they try to make more money. When the rich risk their capital, they take the rest of us up with them – either by giving us jobs, or by offering us things that we are free to buy or not. Things like iPods, laptops and kitchen appliances. And the more competition there is among sellers in a free market, the lower the prices go, and the higher the quality gets.
Finance Minister Jim Flaherty announced Sunday the government will scrap 70 tariff items to save Canadian businesses about $32 million a year.
“This builds on our government’s commitment in Budget 2010 to make Canada a tariff-free zone for industrial manufacturers,” Flaherty said in a statement. “By lowering costs for these businesses, we are enhancing their ability to compete in domestic and foreign markets and helping them invest and create jobs here at home.”
Various sectors — including food processing, apparel, electrical equipment and furniture — will benefit from the move.
The Conservatives had previously eliminated the duty on imported machinery and equipment in an attempt to make Canada a tariff-free zone for industrial manufacturers by 2015.
The Tories say that since 2009 they have eliminated more than 1,800 tariff items and have provided more than $435 million in annual tariff relief to Canadian businesses.
The study released Wednesday by KPMG International found Canada’s corporate tax rate has dropped by more than 16 per cent over the last 11 years.
Canadian companies are actually paying less than their American counterparts.
On average, Canadian companies pay 28 per cent of their income in federal and provincial tax, well below the 40 per cent paid by American companies.
But Canada’s corporate tax rate is higher than Europe’s 20 per cent and the OECD average of 26 per cent.
Canadian corporate taxes fell three per cent in 2011, from 31 per cent in 2010.
“Canada’s corporate tax rate falls around the middle of the pack among the OECD countries,” said Elio Luongo, KPMG’s Canadian Managing Partner for Tax.
“But Canada’s general corporate tax rate is anticipated to continue to fall in 2012, when the federal tax rate will be 15 per cent, versus 16.5 per cent in 2011.”
I’ve written before about how Democrats oppose the job creation that would occur if the United States developed energy in Alaska, the Gulf of Mexico and the Ohio shale. Additionally, Obama has also opposed building the Keystone XL pipeline, which would have created 20,000 jobs paid for by a Canadian company. But Canada has no problems with developing their own energy resources, because their government operates independently of the environmentalist left.
Excerpt:
As world leaders gather in South Africa to discuss climate change this week and next, Canada’s environment minister says he plans to defend Alberta’s oilsands and is willing to argue they are an “ethical” and reliable energy source.
Heading into the 17th Conference of the Parties meeting, Environment Minister Peter Kent says he will not sign on to any deals that mandate some countries reduce greenhouse gas emissions while others don’t — as his government argues was the case under the Kyoto Protocol. He is also unequivocal in his defence of northern Alberta’s bitumen production, a position he expects will be supported by Alberta Environment Minister Diana McQueen when she joins him at the end of the week.
“We still need to — and the industry needs to and our provincial partners need to — be aggressive in ensuring international friends and neighbours and customers recognize Alberta’s heavy oil is no different from heavy oil produced in any number of other countries which don’t receive nearly the negative attention or criticism,” he says. “It is a legitimate resource.”
Kent has made headlines in the last year by arguing that Alberta’s oil is “ethical.”
“We talk about this on quite a regular basis,” Kent says. “I think it’s important we correct where we find … misunderstanding, misinformation or deliberate ignorance to demonize, to criticize and to attempt … to create a boycott.”
In January, on his second day as environment minister, Kent referred to Alberta’s oilsands product as “ethical oil” during an interview with a newspaper reporter.
Reports immediately linked Kent’s comments to the title of conservative activist Ezra Levant’s recent book, Ethical Oil: The Case for Canada’s Oil Sands.
The book essentially compares Canada’s human rights record to those of other oil-producing countries, and argues Canada’s “ethical oil” is preferable to “conflict oil” produced in countries with poor human rights records, such as Sudan, Venezuela, Saudi Arabia or Iran. The argument removes environmental issues, such as greenhouse gas emissions, from the equation, though Levant notes Alberta’s data on environmental issues is more transparent than information shared by other countries.
So in total I’ve presented three reasons why the Canadian economy is booming, while the American economy is stuck in neutral. Obama opposes free trade, lower corporate taxes and domestic energy production. When you elect a socialist lawyer, you get a Greece/Spain economy. When you elect a capitalist economist, you get Canada’s booming economy, and consequently, a lower unemployment rate. Recall that our recession began exactly when we elected Nancy Pelosi to the House leadership and Harry Reid to the Senate leadership in 2007. Democrats wreck economies. There is no reason why America cannot be more prosperous than Canada, but we have to not elect an abject buffoons as our leaders.
WINTERY KNIGHT 