Tag Archives: Thinking Beyond Stage One

MUST-READ: Correcting the economic myths that liberals/leftists believe

Here’s a nice New York Post. (H/T Mary)

Full text:

According to Barack Obama, “The arguments of liberals are more often grounded in reason and fact.” But according to Margaret Thatcher, “The facts of life are conservative.” Who’s right?

Myth: The deficit was caused by Bush’s tax cuts.

Fact: For over four decades, 1960 through 2000, federal revenues averaged 18.2% of Gross Domestic Product and the trend was virtually flat. The final Bush tax rates became effective in 2003. In 2006 and 2007, well after the new tax rates were in effect, federal revenues were 18.2% and 18.5% of GDP, above historical levels. The federal government collected over half a trillion dollars more in 2007 than it did in 2000.

Myth: Republicans spent like drunken sailors.

Fact: Federal spending from 1960 through 2000 averaged 20.3% of GDP, with a slightly upward trend. The average over all Bush years, 2001 through 2008, was 19.6% of GDP – below the historical average. The 2001-2008 average deficit was also below the 1960-2000 average.

Myth: Republicans exploded the federal debt.

Fact: Per the US Constitution, “all bills for raising revenue shall originate in the House of Representatives.” Democrats controlled the House from 1955 through 1994, leaving the federal debt held by the public at 49.2% of GDP. Republicans then controlled the House from 1995 through 2006 and left it at 36.5% of GDP — below the level left by Democrat Congresses.

At the end of Bush’s presidency the debt was 40.2% of GDP. Now, two years post-Bush and four years of a Democrat Congress, the debt is 64% of GDP, the highest it’s been since Harry Truman was paying off World War II.

Myth: The deficit is due to the Iraq War.

Fact: The Congressional Budget Office calculated that the Iraq War cost $709 billion from 2003 through 2010. Total federal deficits over those eight years added up to $4.944 trillion, with the bulk of that ($2.968 trillion) added in just the last two years, after Bush was out of office.

By contrast, federal spending on education over 2003-2010 was $792 billion, and Obama’s stimulus will cost $814 billion. How often do you hear that our deficit problem was caused by education spending?

Myth: The Reagan and Bush tax cuts only benefited the rich.

Fact: According to the CBO, “The lowest three income quintiles have seen declines in their average tax rates since the early 1980s .¤.¤. The average tax rate on the top quintile has fluctuated more, with periods of increases and decreases, and was somewhat lower in 2007 than in 1979.”

In fact, the top quintile (top 20% of taxpayers) paid about 25% of its income in federal taxes in 2007, about the same as it did in 1982. By contrast, the middle and bottom quintiles paid less than 15% and 5%, respectively, both lower than at any time since 1979. The bottom two quintiles had negative average income taxes – they received more in tax credits than they paid in income taxes. Per the CBO, “In 2007, about 35 percent of households did not owe any federal income taxes.”

Myth: The deficit is due to military spending.

Fact: If federal military spending had been eliminated in its entirety in 2009, the deficit would still have been $776 billion, a historical high. Defense spending is less than one fifth of the federal budget and less than 5% of GDP. When the economy was doing quite well in the 1960s, defense spending was twice as high in those terms. In fact, President Bush presided over smaller defense budgets (as a fraction of GDP) than all presidents from 1941 through 1993.

Myth: “The last eight years,” “the last ten years,” “the last decade,” “the lost decade.”

Fact: From 2000 through 2007 real GDP grew 2.4% annually and real disposable personal income grew 2.8% annually. The economy added 5.5 million net new jobs in those years. The unemployment rate stood at 4.4% in May 2007, just before the newly elected, Democrat-controlled Congress raised the minimum wage.

From August 2003 through December 2007, over eight million net new jobs were created.

Fiscal year 2007 was the last one under a federal budget written by a Republican-controlled Congress, and marked the peak in real GDP, jobs, and the stock market. The bad economy of the “last ten years” was all in the last three years – under federal budgets written by a Democrat-controlled Congress.

Myth: Bush deregulated banks, causing the financial crisis. Fact: President Bush did not deregulate banks, or much of anything else. He increased staffing and spending on economic regulation more than President Clinton did. The number of pages in the Federal Register averaged more in Bush’s first term than at any prior time in US history. He signed the Sarbanes-Oxley Act of 2002, the most sweeping regulation of business since the New Deal.

The New York Times, no cheerleader for President Bush, said in 2003, “The Bush administration is rightly pushing for the Treasury Department to regulate the two giants [Freddie Mac and Fannie Mae], along with the network of federal home loan banks.” It was Barney Frank and other Democrats who helped kill such regulation. Frank said, “These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis.”

Not a Myth: The above facts are matters of historical record. The sources of many myths are computer models rather than results from the real world. Remember the economic model that said the unemployment rate would not go above 8% if Obama’s stimulus was passed? The stimulus was passed, yet the unemployment rate went above 10% and has been above 9% for the last 19 months.

The models that say extending today’s tax rates would add to the deficit assume that tax rates have no effect on taxpayer behavior. That is an assumption virtually all economists, and most non-economists, know is false. Yet Congress requires the CBO to base its predictions on that bogus assumption.

The reality is that government spending is the problem. It is absurdly above historical levels right now and is unsustainable. It is driven by payments for individuals (64% of 2010 federal outlays) and entitlements, especially health care spending. ObamaCare did not bend the health-care cost curve down, either; it bent it up.

We have to go with Margaret Thatcher on this one.

What a great find by Mary!

Let’s re-post a Margaret Thatcher video and bask in her glorious competence and intelligence.

[youtub=http://www.youtube.com/v/okHGCz6xxiw]

She had a background in the hard sciences, like Angela Merkel, another conservative.

I think if Christian women want to impress men, they should talk like  the Iron Lady. Liberalism / leftism is really just selfishness, envy and blaming others for your own choices. What man wants to marry someone like that?

Sometimes good intentions meet unintended consequences

A funny video from those crazy libertarians. (H/T Ari)

We should avoid making decisions on the basis of wanting to feel good about ourselves, because it can harm the very people we say we want to help. The right thing to do is to consider the consequences for ALL parties involved in a policy.

Obama’s federal budget: thinking beyond stage one

House Republican Leader John Boehner
House Republican Leader John Boehner

Everyone who reads Thomas Sowell knows that the most important question to ask when talking about any economic proposal is “And Then What Happens?” That was the point of his one-two punch of introductory books on economics, “Basic Economics: A Citizen’s Guide to the Economy” and “Applied Economics: Thinking Beyond Stage One”. Don’t examine the intentions of the proposal. Examine the incentives it creates.

But this idea goes back even earlier to Henry Hazlitt, who wrote about it in “Economics in One Lesson”. (The link goes to a statement of the “one lesson”)

…the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Well, what are the long-term effects of Obama’s federal budget, for all groups?

Congressman John Boehner has a breakdown of some of the budget numbers on his blog.

The President’s budget calls for $1.4 trillion in new taxes that will affect every American.  There’s a $646 billion “cap and trade” energy tax; a $636 billion tax on income and small businesses; new  taxes on investors by raising capital gains and dividend rates; a resurrection of the death tax; and a reduction in charitable deductions which will result in $4 billion less in donations each year to charities across America.

But it’s worse than that. A while back, I wrote about how Obama wanted to discriminate against religious schools by denying them renovation funds. In the budget, he continues his anti-religious trend by de-funding private charities. This is the part that Christians who voted for Obama need to pay attention to, because this matters to us.

Boehner notes:

The proposed reduction in charitable deductions is especially troubling, since it would hurt charities at a time when American families are struggling and in need of assistance.

But remember, when government expands, the state becomes more secular. The capabilities and influence of private religious groups decreases as the state de-funds them and takes over their duties. Instead of people depending on their neighbors’ charity, they now depend on the state. Instead of letting workers decide where to give charity, workers are forced to fund secular government programs.

Boehner cites this Wall Street Journal piece:

According to the Center on Philanthropy at Indiana University, total itemized contributions from the highest income households would have dropped 4.8% — or $3.87 billion — in 2006 if the Obama policy had been in place.  That year, Americans gave $186.6 billion to charity, more than 40% from those in the highest tax bracket.  A back of the envelope calculation by the Tax Policy Center, a left-of-center think tank, estimates the Obama plan will reduce annual giving by 2%, or some $9 billion.

Before Obama’s budget, you might have given charity to a Crisis Pregnancy Center. Now that money could be spent by the government on coerced abortions abroad. Before Obama’s budget, you might have given charity to support William Lane Craig’s web site Reasonable Faith. Now that money could be spent destroying human embryos. Elections matter.

Representative Mike Pence
Representative Mike Pence

Congressman Mike Pence goes over the budget numbers on his blog.

The following is a summary of the Administration’s plans to increase taxes by $1.4 trillion over the next ten years.

Taxing Small Businesses: In 2010, the President’s budget will increase taxes on all taxpayers that earn more than $250,000. The majority of the burden for this $637 billion tax increase will be borne by small businesses that pay taxes as individuals. Small businesses create 60 to 80 percent of all new jobs in America. These new taxes will stifle job creation and economic growth in the midst of a recession.

Taxing Energy Consumers: The budget also proposes to raise taxes by $646 billion on consumers of oil, coal, and natural gas through a complicated “cap and tax” program that will increase the cost of energy for every American. These carbon-based fuels provide about 85% of all energy output in the U.S. This new tax will increase the cost of energy by up to $3,128 per household annually, taking more money out of the pockets of hard working families struggling to pay their bills each month.

Taxing Investors Part I: Under the President’s budget, taxes on capital gains and dividends would increase from 15 to 20 percent, increasing taxes on investors by $338 billion over ten years. These taxes would directly affect investors and shareholders, including many 401k holders and pension funds, most impacted by the declining stock market and would further discourage investments during a time when new investments are essential to jumpstarting our economy.

Taxing Charitable Giving: The budget also caps the value of itemized deductions at 28% for those with an income over $250,000 (married) and $200,000 (single), which will reduce charitable giving by $9 billion a year. The current economic crisis has severely damaged charitable organization’s ability to provide for people who are most affected by the recession, and the budget would leave these charities with at least a $9 billion deficit.

Taxing Death: The budget reinstates the death tax scheduled to be fully repealed in 2010. According to the Joint Committee on Taxation, the death tax has “broad economic effects” and one study has found that the death tax is responsible for lowering overall employment by 1.5 million jobs.

Taxing Investors Part II: The budget would more than double taxes on carried interest, increasing taxes up from the capital gains rate (15%) to the income tax rate (35%). Carried interest is interest gained on profits from investments and is generally used to pay investment fund managers based on the fund’s performance for investors. This tax hike is yet another attack on profit, private equities, and investments in the middle of a recession.

High taxes and big spending is not good for business, and therefore not good for job growth. I predict double-digit unemployment (around 12%) by year’s end as a result of this socialist budget.

Already, Gateway Pundit is reporting that Caterpillar has laid off 2,454 employees, with more layoffs on the way. Hot Air has video on the layoffs here: Obama saying that his bailout will reduce layoffs, and the CEO saying that the bailout will not prevent layoffs.

Ooops.