The presidents of my two favorite think tanks, Arthur Brooks (AEI) and Edwin Feulner (Heritage) explain in this USA Today editorial.
Excerpt: (links removed)
First, there is no evidence that tax increases will actually solve our troubles. On the contrary, years of data from around the world show that when nations try to solve a fiscal crisis primarily by raising tax revenues, they tend to fail. In contrast, fiscal approaches based on entitlement reform and spending cuts tend to succeed.
American Enterprise Institute economists Kevin Hassett, Andrew Biggs and Matthew Jensen examined the experiences of 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007. They found that countries with successful fiscal reforms, on average, closed 85% of their budget gaps with spending cuts. The countries with failed reforms, on average, relied at least 50% on tax increases. President Obama’s strategy falls firmly in the latter camp. After discounting the accounting tricks that create fictitious spending cuts, the president’s plan would impose about $3 in tax hikes for every $1 in spending cuts.
That is, his approach would probably land America in the “failed attempt” column. Five years down the line, we would be in the same fiscal mess we are in today, just with higher taxes and a bigger government.
Second, tax hikes aimed at small segments of the population wouldn’t raise much in revenues. Consider the “Buffett Rule” that the president spent many months promoting. According to the Joint Committee on Taxation, it would raise about $47 billion over a decade. The federal government currently spends about $4 billion more per day than it takes in. The Buffett Rule, then, would raise about enough next year to cover 28 hours of government overspending. Heritage Foundation economist Curtis Dubay finds that closing the deficit solely by raising the two highest tax brackets would require hiking them to 159% and 166%, respectively.
Third, as economists and business executives have noted repeatedly, raising taxes on families earning over $250,000 per year is effectively a massive tax hike on small businesses. Most small businesses today organize as S-corporations or other pass-through entities; their income is taxed as personal income. A study by Ernst and Young shows that Obama’s proposed tax hike would force these small businesses to eliminate about 710,000 jobs. Moreover, these households already bear a great deal of tax liability. According to the most recent Internal Revenue Service data, those earning $250,000 and above — roughly 2% of all taxpayers — earn 22% of income, but pay 45% of all federal income taxes.
Simply put, increasing tax rates on the wealthy is not a serious approach to solving America’s fiscal woes. The problem is purely one of excessive spending, not inadequate taxing.
Revenues haven’t changed substantially over the last decade, but government spending is way, way up. That’s what’s causing us to go into debt – massive government spending on turtle tunnels and Solyndra. We can do better than socialism.
A flood of top-end properties are hitting the market as businessmen seek to leave France before stiff tax hikes hit, real estate agents and financial advisors say.
“It’s nearly a general panic. Some 400 to 500 residences worth more than one million euros ($1.3 million) have come onto the Paris market,” said managers at Daniel Feau, a real-estate broker that specialises in high-end property.
[…]While the Socialists’ plan to raise the tax rate to 75 percent on income above 1.0 million euros per year has generated the most headlines, a sharp increase in taxes on capital gains from the sales of stock and company stakes is pushing most people to leave, according Didier Bugeon, head of the wealth manager Equance.
French entrepreneurs have complained vociferously against a proposal in the Socialist’s 2013 budget to increase the capital gains tax on sales of company stakes, which they argue will kill the market for innovative start-up companies in France.
Entrepreneurs in the high-tech sector in particular often invest their own money and take low salaries in the hope they can later sell the company for a large sum.
They say a stiff increase in capital gains tax would remove incentives to do this in France. They also argue that capital has already been taxed several times in the making.
Rich people are not stupid. If you change the rules of the game, they make adjustments. Why on Earth would anyone keep working as hard as before when the government takes more of what they earn and gives it away to left-wing special interest groups? You either stop working as hard as before or you leave the country entirely. Rich people are not our slaves.
We let people keep the profits they make so that they will risk their capital and try to invent new things and create jobs. If we don’t let them keep their profits, then they will not save, invest, take risks and create jobs. People who depend on “Obamaphones” don’t create jobs. Only rich people do. And the more you tax the rich, the fewer jobs you will have. That’s the way the world really works. Taking money from those who work and giving it to those who don’t sounds “nice”, but it doesn’t actually help the poor. What helps the poor is having a job, not giving them free stuff paid for by others who work. You should not be able to make more money by not working than by working in this country, either.
From Investors Business Daily, an editorial by Dr. Alberto Alesina of Harvard University, that explains which approach to reducing debt and deficits works best. Is it cutting spending and reducing regulation? Or is it continuing to borrow and spend, and raising taxes?
Let’s see what Dr. Alesina says:
The evidence speaks loud and clear: When governments reduce deficits by raising taxes, they are indeed likely to witness deep, prolonged recessions. But when governments attack deficits by cutting spending, the results are very different.
In 2011, the International Monetary Fund identified episodes from 1980 to 2005 in which 17 developed countries had aggressively reduced deficits. The IMF classified each episode as either “expenditure-based” or “tax-based,” depending on whether the government had mainly cut spending or hiked taxes.
When Carlo Favero, Francesco Giavazzi and I studied the results, it turned out that the two kinds of deficit reduction had starkly different effects: cutting spending resulted in very small, short-lived — if any — recessions, and raising taxes resulted in prolonged recessions.
[…]The obvious economic challenge to our contention is: What keeps an economy from slumping when government spending, a major component of aggregate demand, goes down? That is, if the economy doesn’t enter recession, some other component of aggregate demand must necessarily be rising to make up for the reduced government spending — and what is it? The answer: private investment.
Our research found that private-sector capital accumulation rose after the spending-cut deficit reductions, with firms investing more in productive activities — for example, buying machinery and opening new plants. After the tax-hike deficit reductions, capital accumulation dropped.
The reason may involve business confidence, which, we found, plummeted during the tax-based adjustments and rose (or at least didn’t fall) during the expenditure-based ones. When governments cut spending, they may signal that tax rates won’t have to rise in the future, thus spurring investors (and possibly consumers) to be more active.
Our findings on business confidence are consistent with the broader argument that American firms, though profitable, aren’t investing or hiring as much as they might right now because they’re uncertain about future fiscal policy, taxation and regulation.
But there’s a second reason that private investment rises when governments cut spending: the cuts are often just part of a larger reform package that includes other pro-growth measures.
In another study, Silvia Ardagna and I showed that the deficit reductions that successfully lower debt-to-GDP ratios without sparking recessions are those that combine spending reductions with such measures as deregulation, the liberalization of labor markets (including, in some cases, explicit agreement with unions for more moderate wages) and tax reforms that increase labor participation.
Let’s be clear: This body of evidence doesn’t mean that cutting government spending always leads to economic booms. Rather, it shows that spending cuts are much less costly for the economy than tax hikes and that a carefully designed deficit-reduction plan, based on spending cuts and pro-growth policies, may completely eliminate the output loss that you’d expect from such cuts. Tax-based deficit reduction, by contrast, is always recessionary.
UPDATE: George Mason University economists agree: debt is wrecking the economy and the right way to stop it is with spending cuts, not tax increases. In order to grow the economy we need a balanced approach of spending cuts and tax cuts.
The United States’ high levels of debt are already contributing to slower economic growth and decreased competitiveness. These impacts will worsen if the nation’s debt-to-GDP levels continue to rise, as is currently projected.
[…]High levels of government debt undermine U.S. competitiveness in several ways, including crowding out private investment, raising costs to private businesses, and contributing to both real and perceived macroeconomic instability.
[…]Carmen Reinhart and Kenneth Rogoff examine historical data from 40 countries over 200 years and find that when a nation’s gross national debt exceeds 90% of GDP, real growth was cut by one percent in mild cases and by half in the most extreme cases. This result was found in both developing and advanced economies.
Similarly, a Bank for International Settlements study finds that when government debt in OECD countries exceeds about 85% of GDP, economic growth slows.
[…]While fundamental tax reform is required to correct a host of structural inefficiencies, policymakers can quickly reduce the U.S. statutory rate of 35% to the OECD average rate of 26% or less.
That’s what research tells us. But that’s not what we are doing, because we voted for Barack Obama.
Raising taxes on all those above $250,000 as Obama proposes would raise just $34 billion. That’s a whopping 3% of our $1.1 trillion deficit. Even if you seized all their income, it would only run the government for three months.
So the idea that taxing the wealthy will reduce the deficit is false. This is just class warfare, pure and simple.
Even so, Obama compounds the fib by going on to say his tax hike will have virtually no impact on small businesses. He notes, for example, that 97% of all small businesses would be untouched by his tax hike.
True, but irrelevant, as Treasury Department data show. For while there are 34.8 million small businesses in America, 30 million of those employ no workers.
Just 4.8 million, or 12%, employ workers. But an even smaller number — just 1.2 million — earn 91% of all the small business income. These are Obama’s “rich.”
But while they make up just 3% of all small businesses, they employ a stunning 54% of the total private U.S. workforce.
They are, in short, the nation’s job creators. And their owners, who report their small-business income on their personal income tax return, will be taxed at a higher rate by Obama.
So don’t be fooled. It’s not really the “wealthy,” as Obama says, who’ll get taxed. It’s small businesses. And it will have a devastating impact on jobs.
How devastating? A recent study by Ernst & Young noted that Obama’s tax hike, far from being “balanced,” would cost 700,000 people their jobs.
And it will no doubt kill hundreds of thousands if not millions more jobs in the future as would-be entrepreneurs decide not to start businesses in such a hostile tax and regulatory environment.
It’s important for us to realize that the people voting for Obama have no idea about these facts. A lot of people are annoyed that we lost the election last week. I think that if we want to win the next one then we have to start to think about becoming more persuasive with the people around us. We have to learn to deflate the slogans of those on the left with facts.
GOP presidential challenger Mitt Romney tonight charged that President Barack Obama’s jobs plan is a failure, with millions out of work and looking for help.
“My plan is to put people back to work in America,” Romney said tonight at the first of three presidential debates scheduled for the 2012 presidential election season.
“Look at the history of the past four years. We have 23 million people unemployed. Keeping with the status quo is not going to work for the American people.”
Obama returned to his oft-repeated theme of blaming George W. Bush, asserting the taxation approach Romney was proposing was nothing more than a return to the “trickle-down” economy of the Republican plan.
Obama began the debate by reciting familiar campaign themes, suggesting once again that his administration inherited from Bush one of the worst economies in the history of the United States.
But Romney struck a theme of energy independence and advancing small business as keys to getting the U.S. economy growing again. He accused Obama of proposing “trickle-down government,” represented by more government regulation and more taxation.
Romney disputed Obama’s assertion he was locked into a tax cut, charging that under the Obama administration the middle class has been pressed by reduced income, diminished job opportunities and increased food and energy costs.
From the first moments of the debate, Romney looked Obama directly in the eye, took exception to president’s assertions about Romney’s policies, and gave more precise answers.
Obama pressed that Romney’s economic plan called for $5 trillion in tax cuts and $2 trillion in military budget increases, a program Obama asserted would demand tax increases on middle-income earners.
“Look, I’ve got five boys and I’m used to somebody saying something that’s not true and hoping that by repeating it I’m going to believe it,” Romney countered, asserting that everything Obama said about his tax program was inaccurate.
Obama insisted Romney’s tax-reduction plan of necessity would either increase the deficit or demand tax increases for the middle class, charging that under Romney’s definition Donald Trump would be a small business.
Objecting to Jim Lehrer’s interruption that the first segment was exceeding the 15-minute limit, Romney charged that Obama would increase taxes on small businesses at the cost of 700,000 jobs.
As the discussion advanced to the nation’s deficit, Obama reiterated his statement that he inherited a massive deficit, and appeared on the defensive.
“You have been president for four years, you said you would cut the deficit in half and you have run $1 trillion in deficits each of the four years,” Romney attacked. “That does not get the job done.”
Romney pointed out that when the economy was growing as slowly as it is now, more slowly than when Obama took office, this is no time to increase taxes.
“You never balance the budget by increasing taxes,” Romney insisted. “I don’t want to go down the path of Spain.”
Romney said “ignoring the 10th Amendment is not the way to have a vibrant economy.”
Romney said the key to education is great teachers, and he raised a reference to the U.S. Constitution regarding citizen rights.
“I interpret our founding documents as providing a responsibility for religious freedom – to pursue happiness by taking care of the less fortunate – but massive government involvement limits freedom – the path we are taking is not working with 23 million Americans unemployed and 50 million on food stamps.”
Obama said the responsibility of the federal government was important in improving the educational system in America.
“Budgets reflect choices. If we cut taxes to benefit people like Gov. Romney and me, it makes a difference,” Obama. He again demanded specifics of the GOP plans.
“When it comes to making college affordable, whether it be two years or four years, we cut out the middleman and eliminated banks from making a profit in student loans. Gov. Romney believes in education but he tells kids to borrow from their parents to go to college.”
Romney responded, “Mr. President, you are entitled to your own airplane and your own house – but not to your own facts.”
Romney said Obama put $90 billion into green jobs, but half of the recipients went bankrupt and others were owned by contributors to your campaign, and questioned the number of teachers that would have hired.
Romney proposed grading schools to know which were succeeding and which were failing.
“Massachusetts schools are ranked No. 1 in education because I care for education for all our children,” Romney said.
Look: you know how much I love the guy, and you know how much of a high information viewer I am, and I can see the logic of some of Obama’s meandering, weak, professorial arguments. But this was a disaster for the president for the key people he needs to reach, and his effete, wonkish lectures may have jolted a lot of independents into giving Romney a second look…
The person with authority on that stage was Romney – offered it by one of the lamest moderators ever, and seized with relish. This was Romney the salesman. And my gut tells me he sold a few voters on a change tonight. It’s beyond depressing. But it’s true.
Call it the curse of incumbency. Like many of his predecessors, President Obama fell victim Wednesday night to high expectations, a short fuse, and a hungry challenger.
If Republican presidential candidate Mitt Romney didn’t win the first of three presidential debates outright, he more than covered the spread. He was personable, funny, and relentlessly on the attack against a heavily favored Obama.
The president looked peeved and flat as he carried a conversation, for the first time in four years, with somebody telling him he’s wrong.
This debate was a blowout – and that’s just the reaction of the left.
Left-wing reactions on Twitter
Bill Maher: (HBO)
Peter Beinart (The New Republic)
Piers Morgan: (CNN)
And CHRIS MATTHEWS too:
Something else ran down his leg tonight, and it wasn’t a tingle, it was a tinkle.
Romney leading by 4 points in swing states
The latest poll of swings states from the left-wing Politico shows Romney leading Obama by 4 points, even with a 2 point oversampling of Democrats.
This week, Politico released its latest Battleground pollof the presidential race. Despite coming from the left-wing news site, the poll is one of my favorites. Its put together by respected pollsters from both parties, makes available its full cross-tabs and uses a very modest and reasonable turnout model for its sample. Including leaners, the sample in the poll is D+2. Nationally, Obama leads by 2-3 points, but, in the critical swing states, Romney now has the edge.
Each candidate leads in states considered “safe” for their party. In safe GOP states, Romney leads by 8. In safe Democrat states, Obama leads by a massive 22 points. But, in the more numerous and more important “toss up” states, Romney leads by 4, hitting the critical 50% threshold.
In the slightly different category of “battleground” states identified by Politico, Romney leads by 2, 49-47. Romney’s lead over Obama is powered primarily by his edge with independents. Romney leads Obama by 4 among the important swing voters. By 11 points, these voters think Romney would do better on the economy than Obama, 51-40.
Romney also has a big edge with middle class families, who prefer him over Obama by 15 points, 56-41.
My prediction for this election remains Romney 52, Obama 47.