Taxing Inflation, Part 2 | Simple Pro-Growth Policies

Are we interested in treating the symptoms of poverty and economic stagnation through income redistribution and class warfare, or do we want to go at the root causes of poverty and economic stagnation by promoting pro-growth policies that promote prosperity? ~ Paul Ryan

… Promoting Prosperity

– By: Larry Walker, Jr. –

In the United States, real gross private domestic investment currently represents 14.1% of real GDP, or $1.9 trillion. But it only represented 12.6% in 1993, after the Clinton tax hikes. Then in 1997, the Republican-led Congress passed a tax-relief and deficit-reduction bill that was at first resisted but ultimately signed by President Clinton. The 1997 bill lowered the top capital gains tax rate from 28% to 20%. The reduction in capital gains rates encouraged greater private domestic investment, leading to GDP growth, and increases in both economic activity and tax collections. After the bill passed, real gross private domestic investment grew to 15.6% in 1997, and reached a peak of 17.5% by the year 2000. It was actually the 1997 tax cuts, not the 1993 Clinton tax hike, which produced the boom of the 1990’s.

But then the Dot Com Recession began, lasting from March through November 2001, wiping out capital and reducing gross private domestic investment to a low of 15.6% of GDP. Then Republicans passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. The 2003 Act slashed capital gains rates to 5% and 15%, which boosted gross private domestic investment back to 17.2% of GDP in 2005 and 2006. But then the housing bubble burst and the Great Recession began, lasting from December 2007 through June 2009, eviscerating trillions of dollars in capital. Recessions typically destroy capital, and the Great Recession was no exception. Afraid of losing again, investors have been reluctant to place new capital at risk. Government spending has since spiraled out of control, absorbing capital from the private sector with the lure of low return guaranteed government securities.

Boosting gross private domestic investment back to 2000, 2005 and 2006 levels, or to between 17.2% and 17.5%, would add as much as 3.4% to GDP growth. But Barack Obama, through a series of temporary measures, coupled with threats of higher taxes, has done little to allay investors fears. So the question today is what can the U.S. government do to encourage more private investment in the domestic economy? Following are three simple policies which can and should be implemented right away.

Pro-Growth Tax Policies

Long-term capital gains are currently taxed at a top rate of 15%, while short-term gains are taxed as ordinary income (at rates ranging from 10% to 35%). At the same time, capital losses are limited to the lesser of $3,000 per year, or up to the amount of concurrent capital gains. Interest income and ordinary dividends are currently taxed as ordinary income, while qualified dividends (paid on stocks held for 60 days or longer) are treated as long-term capital gains and taxed at a maximum rate of 15%.

But this is all subject to change next year – with the rate on long-term capital gains increasing to a maximum of 20%, and the tax on interest, ordinary dividends and qualified dividends all increasing to ordinary rates of between 15% and 39.6%. Until Congress either changes or extends the current rates, uncertainty and flagging private domestic investment will prevail. But a more exigent question is whether taxing any form of return on capital investment is fair. What’s a fair tax for the return on investment?

1. Indexing Capital Gains

As discussed in Part I, in India, capital gains are computed differently than in the U.S. Under India’s tax law an investor is allowed to increase the cost of the original investment by the annual inflation index, before computing a capital gain or loss. Capital gains in Israel are also inflation adjusted. And as stated previously, the following countries don’t tax capital gains at all: Belize, Barbados, Bulgaria, Cayman Islands, Ecuador, Egypt, Hong Kong, Islamic Republic of Iran, Isle of Man, Jamaica, Kenya, Malaysia, Netherlands, Singapore, Sri Lanka, Switzerland, and Turkey. Other countries like Canada, Portugal, Australia, and South Africa do levy a tax on capital gains, but the tax only applies to 50% of the gain.

However, in the United States, capital gains are figured without the benefit of an inflation adjustment. What’s wrong with this? What’s wrong is that the U.S. dollar has lost 96% of its value since the Federal Reserve was established and the Tax Code imposed in 1913. Therefore, much of what is thought of as a capital gain in the U.S. isn’t a gain at all, it is rather the recovery of an amount equivalent to (or in some cases less than) the purchasing power of the original investment.

For example, if you had invested $100,000 in 1981, your investment would have the same purchasing power as $261,497 today. That’s because annual inflation has averaged 3.15% in the U.S. over the last 31 years (calculate it here). So an investment of $100,000, 31 years ago, which happened to appreciate by $161,497, hasn’t really made a dime. Yet the federal government will levy a tax of $24,225 (@ 15%) on the investor as a reward for believing in America. But had the same investment been made in India, Israel, or in any of the other 17 above mentioned countries which don’t tax capital gains, the return on capital would have been tax-free. So what’s a fair share?

Does the USA’s current capital gains policy encourage American citizens and corporations to invest more at home, or to move abroad? The answer should be clear. But making matters worse, the tax rate on capital gains is scheduled to increase from 15% to 20% in 2013. And even worse, Barack Obama is proposing to raise the rate to at least 30% on the “wealthy”, while doing nothing for the other 98% of Americans. But on a brighter note, Mitt Romney would eliminate the capital gains tax entirely on taxpayers with incomes below $200,000, while lowering ordinary income tax rates to between 8% and 28%. Romney is on the right track, but he could go a bit farther.

Why not simply index capital gains to inflation, tax real capital gains at ordinary tax rates, and allow an unlimited amount of real capital losses to be claimed within the year recognized? That way it’s not necessary to play the class warfare game. Making capital gains taxes fairer for everyone is a way to increase private domestic investment and GDP, while at the same time attracting capital back to the U.S. and away from what are currently more just investment havens.

2. No Tax on Interest Income

In the U.S., interest income earned on deposits at banks and credit unions, on money market funds, on bonds, and on loans, such as seller-financed mortgages is taxed as ordinary income, subject to ordinary income tax rates. Interest on U.S. Treasury bonds and savings bonds is taxable for federal purposes, but tax-free at the state level. Interest on municipal bonds is tax-free at the federal level and tax-free at the state level if invested within one’s state of residence. Interest on municipal private activity bonds is tax-free for the regular tax, but is taxable for the alternative minimum tax.

Focusing on taxable interest, when the interest rate earned is less than the inflation rate, why is it considered taxable? If an investor isn’t earning at least the inflation rate, there are no real earnings, since the investor suffers a loss in purchasing power. For example, according to FDIC.gov, the national average interest rate paid on bank savings accounts is currently 0.09%, and the average rate on 60-month certificates of deposit, whether over or under $100,000, is 1.06%. Meanwhile, inflation has averaged 1.81% over the last five years (lower than normal due to the recession). So at today’s interest rates, an investor with $100,000 in a savings account is losing something on the order of 1.71% in purchasing power each year. This adds up over time. At current averages it would amount to loss in capital of 8.55% over five years. And that doesn’t include service charges some banks impose for the privilege of having an account.

Interest rates banks pay today aren’t a reward, but rather a punishment. But as if interest rates aren’t pathetic enough, after losing purchasing power while trying to save a dollar or two, the federal government then levies a tax on the decline in value, ensuring that no American will ever get ahead. The return on U.S. Treasury securities isn’t any better. On July 16th, the U.S. Treasury was somehow able to sell 3-year Treasury Notes offering an interest rate of 0.25%, and a yield of 0.366%. That’s laughable especially considering that the interest earned is taxable as ordinary income. Meanwhile, the inflation rate for urban consumers was 2.93% last year, and is expected to reach 3.00% in 2013. Are we paying our fair share yet?

The federal government currently taxes interest income at rates ranging between 10% and 35%, yet those rates are scheduled to increase to between 15% and 39.6% in 2013. Barack Obama’s solution is to do nothing for anyone making less than $250,000, and to raise rates to 36% and 39.6% on those making more. Mitt Romney’s solution is to eliminate the tax on interest for taxpayers with incomes below $200,000, while lowering ordinary income tax rates to between 8% and 28%. But Romney shouldn’t even have to play the class warfare game.

Either taxing interest is fair, or it’s not. And if it’s not fair, then it’s not fair for any American. If the U.S. government is serious about encouraging savings within its borders, then at the very least it will eliminate the tax on interest. It’s that simple. In no case should any investor earning less than the rate of inflation be insulted with an income tax bill. And to be truly fair, a capital loss deduction should be allowed when a long-term saver loses purchasing power by getting trapped at rates below the rate of inflation.

3. No Tax on Dividends

In 2003, President George W. Bush proposed to eliminate the U.S. dividend tax stating that “double taxation is bad for our economy and falls especially hard on retired people.” He also argued that while “it’s fair to tax a company’s profits; it’s not fair to double-tax by taxing the shareholder on the same profits.” Perhaps he was right.

In Brazil, dividends are tax free, since the issuer company has already paid a tax. In Japan, since 2009, capital losses may be used to offset dividend income. But in the U.S. dividend income is first taxed to corporations at rates ranging from 15% to 35%, before being paid to shareholders. Investors then get hit with a second tax on the same income ranging from 10% to 35% on ordinary dividends, or limited to 15% on qualified dividends (on stock held for greater than 60 days). And income tax rates on dividends are scheduled to increase to between 15% and 39.6% in 2013, on both ordinary as well as qualified dividends.

Naturally, Barack Obama’s solution is to raise taxes on dividends. Obama plans to keep Bush’s lower 10% tax bracket in place, but to raise top tax rates to 36% and 39.6% on those most likely to invest in dividend paying ventures, those making more than $250,000. Mitt Romney, on the other hand, would eliminate the tax on dividends for taxpayers with incomes below $200.000, while lowering ordinary income tax rates to between 8% and 28%. I believe that Romney is on the right track; however, if double taxation is unfair, then it’s just not fair – no matter how much income is involved.

Dividends should either be taxable to the corporation or the individual, but not both. And lest we forget, a tax on dividends may also be punitive, in the sense that when an investor’s returns are lower than the rate of inflation, purchasing power is being lost, not gained. If the government insists on taxing both entities, then the tax should only apply to individuals on the amount of return in excess of the rate of inflation.

Summary

No American should have to pay a tax on capital gains or interest income, unless the return on investment exceeds the rate of inflation. No American should have to pay a tax on dividends when the tax has already been paid by a corporation. Whether it’s easier to just do away with investment taxes altogether is subjective, but I do believe that it’s in best interests of the United States to entirely eliminate them for every American. No American should ever be taxed after suffering a decline in the purchasing power of their capital. At the very least, the basis of capital investments should be adjusted for inflation, and capital losses should be deductible in full and concurrently. If the return on investment is less than the rate of inflation, then there is nothing to tax.

Barack Obama has proposed to do nothing for 98% of taxpayers, and to raise taxes on the investment income of those making more than $250,000. He’s so stuck on the class warfare tack that he has totally forgotten to put anything on the table which would encourage greater levels of savings and investment within the United States. If Obama is somehow successful, I would expect more capital and more jobs to be shipped overseas.

Mitt Romney has proposed policies which will encourage greater savings and investment. Although his plan isn’t perfect, it’s far better than the alternative. Romney would eliminate the tax on capital gains, interest and dividends for taxpayers making less than $200,000. He would also lower the bottom tax rate to 8% from 10%, and top rates to 28% from 35%. Romney’s policies are more likely to retain capital within the U.S. and to attract more from abroad, which will lead to increases in gross private domestic investment, GDP, economic activity, employment and wealth creation.

Data: Spreadsheet on Google Drive

Taxing Inflation: Why Americans Invest Overseas

Artificially Raising Taxes Reduces GDP

– By: Larry Walker, Jr. –

“Tax increases appear to have a very large, sustained and highly significant negative impact on the economy.” ~ Christina Romer, just prior to leaving the Obama Administration –

U.C. Berkley Professor and President Obama’s former Chair of his Council of Economic Advisers (CEA), Christina Romer, published a paper in 2010, concluding that a tax increase of 1 percent of GDP, about $160 billion today, reduces output over the next three years by nearly 3 percent, or $480 billion at current GDP figures. And according to the Bureau of Economic Analysis, per capita personal income is currently running at around $37,500. Thus, Barack Obama’s plan to raise taxes on the most productive American citizens would result in a loss of around 12.7 million jobs over the ensuing three-year period. But fortunately, U.S. policy makers aren’t naïve enough to place their trust in the hands of a novice. I wonder what India’s economists think.

In India, GDP is expected to grow by 6.5% this year, and by 7.1% in 2013, or more than 3 times the rate of the U.S. And according to the President of the Confederation of Indian Industry, Adi Godrej, “Artificially raising taxes will reduce GDP.” What he says in the following one minute video should be common sense. To paraphrase Mr. Godrej, ‘The tax to GDP ratio is best increased when GDP growth is good. When GDP growth is good, economic activity, tax collections, and the tax to GDP ratio increase. But it goes exactly the other way when GDP growth slows down. Thus, high rates of taxation are against the interests of the country. Reasonable tax rates with policies designed to increase GDP growth is the best way to increase the tax to GDP ratio.’

U.S. Capital Gains Taxes

In 1997, the Republican-led Congress passed a tax-relief and deficit-reduction bill that was resisted but ultimately signed by President Clinton. One of the things the 1997 bill did was lower the top capital gains tax rate from 28 percent to 20 percent. It was actually the 1997 tax cuts, not the 1993 Clinton tax hike, which produced the boom of the 1990’s. The reduction of capital gains rates encouraged greater investment, which lead to GDP growth, and an increase in both economic activity and tax collections.

The same policy will work today. However, what Barack Obama is proposing is exactly the opposite. Obama’s notion of raising income taxes on some taxpayers, health care taxes on others, and capital gains rates on investors, to name a few, amounts to an artificial tax hike, which most economists agree will result in a reduction of GDP. Thus, Obama’s tax hikes are not in the best interests of the country. But he doesn’t appear to care about our common welfare.

Obama’s policies are admittedly not about economic growth, but rather about furthering his self contrived, yet erroneous, notion of fairness. Yet the truth is that the very concept of taxing capital gains is in itself unfair. The method in which capital gains are calculated in the United States is antiquated, illogical, and actually hinders our ability to reach a full recovery. In order to understand the dilemma, one must put himself in an investors place.

An Example: Let’s say an investor makes a five year commitment to invest $100,000 into a public or private company stock. And let’s say the rate of inflation is averaging 3.0% per year. By the time the investment is sold, what cost $100,000 five years ago, may cost as much as $115,000, due to inflation. So if no gain is realized on the investment, the investor automatically loses $15,000 in purchasing power.

Now let’s assume that five years later the investment has grown from $100,000 to $115,000. Under the current U.S. tax code, upon redemption of the stock, the investor is subject to a 15.0% tax on the gain. A capital gain of $15,000 is calculated by subtracting the amount of the original investment from the sales price ($115,000 – $100,000), and the amount of tax due is $2,250 ($15,000 * 0.15).

So to summarize, an investor made a 5-year investment of $100,000, recognized a long-term capital gain of $15,000, paid a capital gains tax of $2,250, and got to keep $12,750, or 85.0% of the gain. Most people think this is fair enough, but there are a few scoffers out there who think a 15% capital gains tax is too low. So let’s examine the question of fairness.

Most of us are aware that the dollar has lost roughly 96% of its value since 1913 (see chart at the top). With that in mind, if instead of investing the $100,000, as in the example, the investor chose to hide it under a mattress, what would happen? For one thing, no taxes would be due. But at the same time, when the money is spent, 5 years later, its purchasing power will have declined by $15,000, again due to inflation. In fact, the reason most people choose to invest their money is to simply maintain the purchasing power of their savings.

In the example, the investment barely appreciated enough to keep pace with inflation. Therefore, no gain was realized. Inflation ate up $15,000 of the investor’s purchasing power, which was merely recovered through appreciation in the stock. But now along comes the U.S. government to lend a helping hand. And because of its antiquated and illogical tax policies, the federal government levies a 15% tax on what, for all practical purposes, isn’t a gain at all. The government then collects what it deems to be its fair share of a gain, but the investor hasn’t actually gained a dime. In fact, once the tax is paid, the investor realizes a loss in purchasing power. Does that sound fair? Who knew that maintaining the value of the currency in ones possession was a taxable event?

Capital Gains in India and Elsewhere

In India, capital gains are computed differently than in the U.S. Under India’s tax law an investor is allowed to increase the cost of the original investment by the annual inflation index, before computing a gain or loss. Had this been done in the example above, the basis of the original investment would have been stepped up to $115,000 before computing a net capital gain of $0 ($115,000 – $115,000). In India, it is considered unfair to tax someone for merely recouping the inflation adjusted value of an investment. It’s unfair because the sales proceeds of an investment are derived from the current value of the currency, whereas its cost was based on a value that existed in the past (five years prior in the example above).

The following countries are even more progressive, they don’t tax capital gains at all: Belize, Barbados, Bulgaria, Cayman Islands, Ecuador, Egypt, Hong Kong, Islamic Republic of Iran, Isle of Man, Jamaica, Kenya, Malaysia, Netherlands, Singapore, Sri Lanka, Switzerland, and Turkey. Other countries, like Canada and South Africa do levy a capital gains tax, but only on 50% of the gain. A few nations even allow their citizens to defer capital gains taxes entirely by allowing them to rollover their gains into a new investment within certain time frames.

One has to wonder why anyone in their right mind would be encouraged to invest in the United States. Considering that inflation doesn’t stop when an investment is sold, while the money is sitting around waiting for the tax to be paid, it continues to lose value. And once the tax is paid, the remainder continues to diminish in value until it is ultimately reinvested. In light of the colossal decline in the value of the U.S. dollar over the past 100 years, the question we should be asking ourselves is not what rate to levy on capital gains, but rather why the tax even exists?

Pro-Growth Tax Policies

No wonder many Americans choose to invest abroad, and in some cases to renounce their citizenship entirely. These days, if you want a fair shot, and if you want to pay your fair share, you might have to set your sights beyond the shores of the United States. The bottom line is that the U.S. Tax Code needs an overhaul. Our tax policies should be upgraded to something more along the lines of reason and common sense. Like India, we should at the very least index the basis of long-term capital investments to inflation, for purposes of determining taxable gains (and deductible losses). This concept should be applied to all forms of capital investment.

If the federal government refuses to implement policies which encourage GDP growth, then how does it expect the economy to grow? When our wealth is being slowly eroded by inflation, and then we’re taxed on the deteriorating value of our currency, it pretty much makes investing in the U.S. futile. If the federal government wants to encourage investment in the U.S., which is what it should do, in order to stimulate GDP growth and create jobs, then our elected officials should stop talking about raising tax rates on both ordinary income and capital gains, and start discussing ways to lower the tax burden and make our system fairer and comparable to more just investment havens.

Here’s some more food for thought. Why is interest income taxed? When a saver is earning less than 1.0% at a domestic bank, while inflation is running at more twice that rate, why is the federal government entitled to any part of what amounts to a decline in purchasing power? What you earn on a bank account these days isn’t interest income; it’s more like a taxable capital loss. What about dividends? Dividends are already taxed once at the corporate level, are not deductible by corporations for tax purposes, and then are taxed again after distribution to the investor (double taxation)? Taxing interest and dividends isn’t fair either, and the practice should therefore be repealed.

No American should ever have to pay a tax on capital, especially when upon its return the inflation adjusted value is the same or less than the original amount. Is the U.S. taxing the eroding value of the dollar because it makes sense, or perhaps because when the tax code was conceived no one anticipated that the dollar would lose 96% of its value over the ensuing 100 years? If you think our current method of taxing interest, dividends and capital gains is fair, then please explain your reasoning. If you think that taxing the deteriorating value of the dollar is a way to foster economic growth, then why has real GDP growth only averaged approximately 1.5% in the United States over the last 12 years?

“Action expresses priorities.” ~ Mahatma Gandhi

References:

India Tax Laws and Tax System 2012

Tax Rates in India

India Mart – Computation of Capital Gains

Nine Million Dollars – Long Term Capital Gains Tax (LTCG) on Property Sale

Heritage Foundation – Tax Cuts, Not the Clinton Tax Hike, Produced the 1990s Boom

Wikipedia – Capital Gains Tax

Economic Dependence vs. Independence, Part 2

* Continued from Part 1 *

School #2 – Higher Income Tax Rates

Within the second school of thought, Barack H. Obama speaks as though something most of us believe in no longer exists, or is at threat of extinction. According to Obama, ‘the idea that if you work hard, you can do well enough to raise a family, own a home, and put a little away for retirement’ is at risk, and that ‘this is the defining issue of our time’. But what he doesn’t understand is that like God, natural rights and divinely inspired ideals never change. The basic ideal Obama is referring to is called freedom. So is our freedom suddenly at risk of extinction? If it were, could it possibly be restored by raising taxes on the most productive members of our society?

“What’s at stake is the very survival of the basic American promise that if you work hard, you can do well enough to raise a family, own a home, and put a little away for retirement. The defining issue of our time is how to keep that promise alive. No challenge is more urgent; no debate is more important. We can either settle for a country where a shrinking number of people do really well, while more Americans barely get by. Or we can build a nation where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. At stake right now are not Democratic or Republican values, but American values – and for the sake of our future, we have to reclaim them.” ~ Barack Obama, January 24, 2012. Blueprint for an America Built to Last.

Newsflash: We are still free. The American Dream has been in existence ever since our Founding Fathers penned the Declaration of Independence. There’s a reason it wasn’t named the ‘Declaration of Dependence’, for that is what we were delivered from. The Declaration of Independence in itself is the only blueprint America will ever need. It doesn’t guarantee anyone success, but it does allow us the freedom to succeed by any means we deem necessary. For those who want to do well enough to raise a family, own a home and put a little away for retirement, lower across the board tax rates are the way to go. But entrusting more of what money one is able to garner to a wicked and lazy servant, such as our current bloated federal government, is of no use towards that end.

Big government is like the servant who was given one talent, except instead of burying and returning it to his master; he spent it, then borrowed another in his master’s name, and spent that as well, returning to his master a bill for two additional talents. Under the second school of thought, we’re taught to take from those who are productive, to throw it away, and then borrow more in their name, eventually turning them from free men into indentured servants. So although no man can take our freedom from us, we can voluntarily give it away. How is an economy supposed to grow when resources are taken away from its most productive members, and squandered?

For this lazy and wicked government, one dollar is too many and a thousand is never enough, so why is it deserving of anything at all? We entrusted the federal government with a $2,600,000,000,000 surplus of Social Security savings, yet where is it today? It’s now part of the $16,000,000,000,000 national debt, the portion of which the government claims to have borrowed from itself. And who will the government get the money from to pay back what it has borrowed from itself? The government will return to those same productive members of the private sector and demand even more. How dare you! It’s time to identify those who are responsible and throw those worthless servants outside, into the darkness!

U.S. taxpayers will have given the current administration over $10,000,000,000,000 during its recent four-year term, and where is that? Did the government return it two-fold? Did we even get back the flaunted $1.79 we were promised for each dollar spent on unemployment benefits and food stamps? No. Not only has the government squandered every dime, but it has handed us a bill for an additional $6,000,000,000,000 in accumulated debt. You know we’re gonna identify and throw each and every irresponsible, lazy and wicked government servant out into the darkness, from the top down.

Conclusion

Under the morally correct theory, tax cuts lead to a smaller government and more private sector freedom, allowing productive men and women of all races and backgrounds to create wealth, by leveraging their own resources. But under the morally bankrupt theory, wealth is never created with resources handed out through redistributive schemes, as redistribution merely keeps its recipients poor and dependent, while robbing society’s most productive members of their capital.

Put another way, every man and woman is endowed by their Creator with certain talents, but not everyone achieves equal results – some produce thirty fold, some sixty, and some one hundred fold. This has been true since the beginning of creation. But then there are those rare birds, who not only squander the talents entrusted to them, but incur huge deficits along the way, some thirty, some sixty and some one hundred fold. Because these wicked and lazy servants seek to drag as many as they can latch onto down with them, they must be cast out.

The radical left thought it could rewrite American history, within a couple of years, by conning us into believing that we had lost something which, in reality, has always been in our possession. But radical left-wingers are severely misguided. Our freedom will not be taken away without a fight. America didn’t need a new blueprint. What we needed four years ago is the same thing we need today, someone to execute the blueprint written by our Founding Fathers 236 years ago. Therefore, the radical left-wing must be expelled. In conclusion, the centre-right philosophy is more in line with what America needs today: lower taxes, less government, and more economic freedom.

“In the last times there will be scoffers who will follow their own ungodly desires. These are the men who divide you, who follow mere natural instincts and do not have the Spirit.” ~ Jude 1:18-19

“He who has ears, let him hear.” ~ Matthew 13:9

Photo Credit: Baruch College Blogs – Remembering What Was Meant To Be Forgotten

Economic Dependence vs. Independence, Part 1

Two Schools of Thought

* By: Larry Walker, Jr. *

“Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. The man who had received the five talents went at once and put his money to work and gained five more. So also, the one with the two talents gained two more. But the man who had received the one talent went off, dug a hole in the ground and hid his master’s money.” ~Matthew 25:14-18

One interpretation of the Parable of the Talents is that the master is an employer who hired three workers and paid them different amounts according to their ability. The first two workers were productive, doubling their employer’s investment. The third didn’t like the employers pay structure, and chose not to work, giving up a potential paycheck. In the age we live in today, the era of big government, government is the new master. An oversized government takes the eight talents from the employer in taxes, before it can employ anyone, redistributes one talent to each of the unemployed, and then squanders the rest on worthless thingamajigs. In the following year, bloated government returns, and demands of the employer another eight talents to do it all over again. Eventually the employer moves to Costa Rica to get away from its oppressive master, and big government goes bust.

School #1 – Lower Income Tax Rates

In the first school of thought, the words of former President’s John ‘Calvin’ Coolidge, Jr., John F. Kennedy, Ronald W. Reagan, and George W. Bush forever live, reminding us that high income taxes are the single largest barrier to job creation and economic growth. And if we don’t lack job creation and economic growth today, then what do we lack – higher taxes and more social welfare benefits? Perhaps we should listen more to reasoned voices from America’s past, and pay less attention to the failed Western European influenced bloviating of the present.

“There is a limit to the taxing power of a State beyond which increased rates produce decreased revenue. If that be exceeded intangible securities and other personal property become driven out of its jurisdiction, industry cannot meet its less burdened competitors, and no capital will be found for enlarging old or starting new enterprises. Such a condition means first stagnation, then decay and dissolution. There is before us a danger that our resources may be taxed out of existence and our prosperity destroyed.” ~ Calvin Coolidge, January 8, 1920. Address to the General Court beginning the 2nd year as Governor of Massachusetts.

“The largest single barrier to full employment of our manpower and resources and to a higher rate of economic growth is the unrealistically heavy drag of federal income taxes on private purchasing power, initiative and incentive.” ~ John F. Kennedy, Jan. 24, 1963. Special message to Congress on tax reduction and reform.

“We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much” ~ Ronald Reagan – 40th US President (1981-1989)

“He said, tax the rich. You’ve heard that before haven’t you? You know what that means. The rich dodge and you pay.” ~ George W. Bush – 2004

Across the board income tax cuts always deliver results, as they allow productive members of society, from all races and social classes, from the least to the most productive, to earn and keep more of their own money. As this phenomenon occurs, those affected are incentivized to produce, consume, save and invest more. The resultant growth spills over into the broader economy allowing nonparticipants to reenter the workforce, or enter for the first time. This concept was good enough for Coolidge, JFK, Reagan and G.W. Bush, whose across the board tax cuts delivered for each an era of relative growth and prosperity for millions of Americans. So what’s the excuse today? For answers, we return to the Parable of the Talents:

“Then the man who had received the one talent came. ‘Master,’ he said, ‘I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.’ His master replied, ‘You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. Take the talent from him and give it to the one who has the ten talents. For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him. And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.’” ~ Matthew 25:24-30

The radical left believes that if the servant who was given one talent had instead been given two or five, he might have been as productive as the others. Although some would think this a possibility, it wasn’t likely, for in the parable, each was given an amount according to his ability. The worthless servant simply proved himself to be lazy and wicked. But instead of casting him out into the darkness, the radical left, which has become a bastion of the lazy and wicked itself, believes it is the responsibility of the productive to provide sustenance for those unwilling to work.

The moral of this story is that when the free market is given liberty to place money into the hands of the fruitful, it benefits all who are willing to participate. So politicians who constantly clamor for higher taxes on more productive persons, including corporations, have it backwards. The lesson teaches us that when resource allocators are allowed to direct their own capital at will, jobs are created and the economy grows. It also teaches us that when wicked and lazy people are given an opportunity to succeed, they instead run and hide.

Taxes are too high!

The point is not that we are a nation of wicked and lazy people, but rather that income taxes are still, after all the lessons learned throughout American history, way too high. Yet the government demands more. Today, the minimum income tax rate in the United States is 10%. But add to that 13.3% in mandatory Social Security and Medicare taxes, and lowest rate is really 23.3% (25.3% in normal years) for most Americans. Even the poorest working person in America has 13.3% of their income confiscated from each paycheck (7.65% of which is paid by their employer). Compare this with Coolidge’s bottom tax bracket rate of 1.5% in the mid 1920’s, an era which predated the imposition of Social Security and Medicare taxes, and you begin to understand the dilemma. In fact, the top tax rate in the 1920’s was 25.0%, which is less than the 28.3% paid by most in the middle class today (a 15% income tax, plus 13.3% in Social Security and Medicare taxes).

These days, the American middle class muddles along after handing around 30.0% of its income over to the government, while those who are more productive are forced to give up as much as 45.0%. Yet the government demands more. If you take a moment to contrast the minimum income tax rate of 1.5% in the mid-1920’s with today’s minimum rates of 13.3% to 23.3%, you will understand the real disparity. Looking back through American history, it is clear that we suffer not so much from income disparity, as from an income tax disparity. In other words, we are much poorer than our ancestors.

In the mid-1920’s, our great grandparents worried about paying income tax rates ranging from 1.5% to 25.0%, while today we are forced to contend with taxes ranging from 13.3% to 45.0%. We worry about how much the government will confiscate beyond a virtually guaranteed minimum rate of 13.3% of the first $106,800 in earnings, which is 886.7% higher than our ancestors lowest tier. As things stand today, the government isn’t giving us anything; instead it is taking our talents and burying them under a pile of debt. So by lowering income tax rates across the board, the government won’t be giving anything to anyone, but rather proportionally reducing the amount it already takes from everyone.

The Exxon Mobil Fallacy

For example, many on the radical left routinely spout off, that since Exxon Mobil Corp made $42 billion in profits last year, more should be taken away from it and given to the government. While it’s true that Exxon Mobil earned net after-tax profits of $42.2 billion in 2011, the company actually made a profit of $146.7 billion before taxes. That is to say, once you deduct out $33.5 billion in sales based taxes, $40 billion in other taxes and duties, and $31 billion in income taxes, it was left with $42.2 billion (see income statement below).

In effect, Exxon Mobil paid 71.2% of its pretax profits, or $104.5 billion, in sales based taxes, other taxes and duties, and income taxes, before it was able to take home 28.8%, or $42.2 billion. If 71.2% isn’t enough for left-wing radicals, then how much is enough? Is profit a dirty word? Exxon Mobil is a producer, and the more leeway granted to the productive, the more wealth is created. If the government takes even more capital away from producers like Exxon, who would radical left-wingers propose it be given to? Is there another entity around that can turn higher profits than Exxon Mobil? Left-wingers have it all backwards.

The radical left surmises that we should take more away from Exxon and give it to the government, so that the government may in turn give a small penance to nonworking, nonproducing members of society, and squander the rest. They propose to take away more of Exxon Mobil’s resources and incentives because the company and its industry return large profits. But the morally correct thing to do is to take more away from the nonproductive, like our debtor-government in Washington, DC, and let companies like Exxon Mobil go gangbusters. Would you rather invest your money in Exxon Mobil’s stock, which is paying a better than $8 per share dividend, or in the U.S. Government, which is currently running a debt per U.S. taxpayer of $139,000 (subject to increase each second)? This should be a no-brainer.

Continued … Economic Dependence vs. Independence, Part 2

Photo Credit: Baruch College Blogs – Remembering What Was Meant To Be Forgotten

Manipulation 401 : U-3 vs Real Unemployment



Another 522,000 left the labor force in April 2012.

April’s Bogus Unemployment Rate

* By: Larry Walker, Jr. *

Now that economists, media pundits, and the Obama administration have weighed in with half-hearted and inaccurate theories respecting April’s decline in the U.S. unemployment rate, it’s time to set the record straight. We learned yesterday, that the official rate declined from 8.2% in March to 8.1% in April, but what’s really beneath the decline? To know, one must have an understanding of how the unemployment rate is calculated, and how to access the appropriate reports. From there it’s just a matter of simple mathematics. After poring through the numbers, I have concluded that the official unemployment rate actually rose to 8.3% in April, while the real unemployment rate ticked up to 11.1%.

According to the U.S. Bureau of Labor Statistics (BLS), as of May 4, 2012, “Nonfarm payroll employment rose by 115,000 in April, and the unemployment rate was little changed at 8.1 percent.” What’s wrong with this pronouncement? The quandary is that nonfarm payroll employment comes from Establishment Data, reported in Table B-1, and has nothing to do with the official unemployment rate. The official unemployment rate is completely derived from Household Data, which is found in Table A-1.

Nonfarm payroll employment and the official unemployment rate are inapposite (one has nothing to do with the other). In fact, if you take a gander at Table A-1, from which the unemployment rate is officially derived, you will notice that the number of employed persons actually declined by 169,000 from March to April of 2012. Does it make sense that establishments reported the creation of 115,000 jobs, while households reported losing 169,000 jobs? Which data set are we to trust? Well, since most of the hoopla surrounds the decline in the unemployment rate, we shall focus on Household Data.

As I outlined in Manipulation 101: The Real Unemployment Rate, the Labor Force is comprised of those who are either Employed or Unemployed, and the Unemployment Rate is calculated by dividing the number of unemployed persons by the size of the labor force, as follows:

[ (A) Total Unemployed / (B) Labor Force = (C) Unemployment Rate ]

Thus, the official unemployment rate of 8.2% in March, as reported by the Bureau of Labor Statistics on April 6, 2012, was calculated as follows:

[ 12,673,000 / 154,707,000 = 8.2% ]

As shown in the table below, at the end of March 2012, 12,673,000 persons were officially unemployed, out of a labor force totaling 154,707,000, equaling an unemployment rate of 8.2%. Got it?

To take it a step further, if 12,673,000 persons were unemployed, out of a labor force of 154,707,000, then it should follow that the remaining 142,034,000 were employed. I found this to be consistent with BLS data and labeled the number of employed as item (D) in the table above. Next, in order to determine whether or not the decline in the unemployment rate is completely bogus, we must take into account some additional statistics from Table A-1, so I included the number of persons “Not in the Labor Force” (E), and the “Civilian Noninstitutional Population” (F). Now we will compare the March statistics to April’s calculation.

The April Employment Situation Summary concluded that a total of 12,500,000 persons were unemployed, out of a labor force totaling 154,365,000, equaling a decline in the official unemployment rate to 8.1%, from 8.2% in March. So what changed?

Comparing the monthly changes in the table below, you will note that from March to April, the number of unemployed persons (A) declined by 173,000. This would be a good thing, if they were all able to find jobs, right? So how many found jobs? Well, none. As you can see, according to Table A-1, the number of employed persons (D) also fell by 169,000. Since the number of employed and unemployed persons both declined, where did they go? As you can see the entire labor force declined by 342,000. Is it a coincidence that 173,000 plus 169,000 equals 342,000? No, it’s not.

The number of unemployed persons declined by 173,000, not because they were able to find work, the BLS merely removed them from the labor force. The BLS also removed an additional 169,000 persons from the labor force, who were considered employed just a month prior. Thus, 169,000 persons were ushered directly from a status of employed in March, to completely out of the labor force by the end of April. Does this raise any eyebrows? Also noteworthy are changes in the number of persons “Not in the Labor Forcewhich increased by 522,000, and the “Civilian Noninstitutional Population” which increased by 180,000. How de we reconcile this?

Reconciliation

The table below summarizes the truth behind the decline in the official unemployment rate.

Here’s what happened.

  1. The number of unemployed persons declined by 173,000 in April.

  2. The number of employed persons declined by 169,000 in April.

  3. The labor force declined by 342,000 in April, which is the sum of #1 plus #2.

  4. The 342,000 persons in #3, who officially dropped out of the labor force in April, were added to those considered “Not in the Labor Force”.

  5. The Civilian Noninstitutional Population (working age population) increased by 180,000 in April, but none entered the labor force.

  6. The number of persons counted as ”Not in Labor Force” increased by 522,000 in April, which is the sum of the 342,000 persons who were previously counted as unemployed (173,000) and employed (169,000), plus the 180,000 new working age persons who were swept under the rug.

Sequitur

To sum it up, in April, 342,000 persons dropped out of the labor force, while another 180,000 new entrants fell by the wayside. In effect, a total of 522,000 persons were removed from the labor force. So what would the official unemployment rate have been had the 342,000 April dropouts been instead left in the labor force and counted as unemployed? The answer is 8.3%, as shown below. Thus, the true unemployment rate ticked up by 1 basis point, from 8.2% in March to 8.3% in April, rather than down by 1 basis point as the BLS reported.

The labor force has historically grown at an annual rate of 1.0% (mirroring population growth), but looking back to December of 2008, it is safe to state that the labor force stopped growing altogether since Obama’s inauguration (see chart below). [Note: The labor force participation rate has likewise declined from 65.8% to 63.6% over the same period, or by 220 basis points.]

Final question: What would the unemployment rate be if the 1.0% per annum shortfall in the labor force, since January of 2009, was restored? Well, since 40 month’s have passed, the labor force should have grown by 3.33% ((1.0% / 12) * 40). And since the labor force stood at 154,626,000 in December of 2008, it should have grown to 159,775,000 by April of 2012, a difference of 5,149,000. Thus, the real unemployment rate is 11.1%, not 8.1%, as shown below.

Are we really moving the right direction? That depends on ones definition of the word “right”. Is manipulating the truth right?

“Anyone who doesn’t take truth seriously in small matters cannot be trusted in large ones either.” ~ Albert Einstein

Data:

Spreadsheets

Real GDP Per Capita — Dead!

Moving Forward — Without Obama

* By: Larry Walker, Jr. *

Why do I get the eerie feeling that we’ve gotten nowhere in the last four years? The answer is because we’ve gone precisely nowhere with Obama. As the chart above displays, on a per capita basis, real gross domestic product has declined by a cumulative -0.20% during Obama’s four-year term (through Q1 2012).

President’s Ronald Reagan and Bill Clinton both inherited rather weak economies. Each achieved real GDP per capita growth of 1.52% in the first year in office, but by the second year, Reagan’s cumulative GDP had declined to -1.35%, while Clinton’s rate climbed to 4.34%. Yet by the end of the fourth year, Reagan’s policies resulted in cumulative GDP per capita growth of 8.47%, versus Clinton’s 8.19%. Man, whatever Reagan was onto needs to be codified and replayed, over and over and over again. Needless to say, both were overwhelmingly re-elected.

George W. Bush inherited a really crummy economy. After only achieving real per capita growth of 0.08% in his first year, by his fourth, Bush’s policies had grown the economy to cumulative real GDP per capita of 5.06%. And with that, Bush ’43 was easily re-elected.

The policies of Reagan, Clinton and Bush ’43 moved America ‘forward’. That’s what I call progress – moving the economy forward in real and measurable terms. Terms that every American could see, touch and feel in their own billfolds, as real GDP per capita was spread around, lifting many from poverty and mediocrity into new realities.

Why Real GDP Per Capita?

Why measure GDP on a per capita basis? GDP is an aggregate figure which does not consider differing sizes of nations. Therefore, it should be stated as GDP per capita (per person) in which total GDP is divided by the resident population on a given date.

Why use chained dollars? When comparing GDP figures from one year to another, it is desirable to compensate for changes in the value of money – i.e., for the effects of inflation. The factor used to convert GDP from current to constant values in this way is called the GDP deflator. Unlike the Consumer price index, which measures inflation or deflation in the price of household consumer goods; the GDP deflator measures changes in prices of all domestically produced goods and services in the economy.

It is only by comparing cumulative changes in real GDP per capita that we are able to understand whether today’s economic policies are helping or hurting. Furthermore, by making the comparison in 4 and 8 year increments we are able to determine whether to re-elect a POTUS or send him packing, or to continue with the same party affiliation or make a break towards independence. So where do we stand today?

GDP is Dead

Although Barack Obama also inherited a bad deal, his policies made it worse. The economy was declining at a real per capita rate of -1.27% in 2008, but by the end of 2009, Obama turned that into a decline of -4.33%. That’s a fact. Then, by the end of his second year, Obama’s stimulus programs resulted in a slight improvement, as the economy achieved negative cumulative growth of -2.15%. Although similar to Reagan’s second year decline to -1.36%, that’s where all similarities end.

Now in his fourth year (as of Q1 2012), Obama has achieved cumulative real GDP per capita growth of -0.20%. Compared to Reagan, Clinton, and Bush ‘43’s fourth year benchmarks of 8.47%, 8.19% and 5.06%, Obama is clearly a first-term loser. In absolute terms, the economy has gone nowhere under Obama. In terms that really matter, inflation adjusted dollars, as a percentage of the population; the economy hasn’t moved at all under the policies of Barack Obama. We are still below zero as far as real per capita growth – below zero, in spite of $6.3 trillion of additional debt. If Barack Obama is re-elected, he will be the only POTUS in modern history to be reinstated based on driving our economy into the ground.

Forward

“If you cry ”Forward” you must be sure to make clear the direction in which to go. Don’t you see that if you fail to do that and simply call out the word to a monk and a revolutionary, they will go in precisely opposite directions?” ~ Anton Chekhov

Forward? Yes, we will be moving forward – without Obama. The distraction of rising student loan interest rates is irrelevant in a shrinking economy. The concepts of a fair shot and a fair share are inapposite and unworthy of further discussion given the circumstances. And this garbage about being the only American around capable of giving a nod to take out a dangerous radical jihadist is just that – garbage.

I care about my children, my grandchildren, my parents, my sisters, my friends, my business, my customers, my community and my neighbors, but I could care less about Afghanistan. Why are Americans still dying in that cesspool? If Obama really wants to take responsibility for all of his actions, then why not include the fact that 69% of U.S. Afghan War casualties have occurred during his 39 month command? Explain that! How did Obama manage the war for only 30% of the time, 3 years out of 10, yet wind up responsible for 69% of the casualties?

Between the trail of blood, death and destruction abroad and his tanking of the economy at home there’s really no reason to grant Obama a second chance. It’s time for Obama to give up the keys, stop impersonating a president, and go home. Only new leadership will move America forward.

References:

Bureau of Economic Analysis, Table 7.1. Selected Per Capita Product and Income Series in Current and Chained Dollars (A) (Q)

Spreadsheet:

Per Capita Product and Income

Rising Interest on Federal Debt | Don’t Double My Rates

Hey, Don’t Double Obama’s Rates!

* By: Larry Walker, Jr. *

Mr. Obama asked students at the University of North Carolina yesterday afternoon to tell their members of Congress one thing: Don’t double my rates.

Once again, Mr. Obama doubled down on flimflam, this time misdirecting towards rising interest rates on student loan debt — instead of targeting the rising cost of interest on the federal debt. According to the White House, interest on the federal debt is projected to surpass $1.0 trillion per annum by the year 2020. Mr. Obama also failed to mention the $494 billion tax hike scheduled to hit American taxpayers on January 1, 2013.

According to Mr. Obama, “Five years ago, Congress cut the rates on federal student loans in half. That was a good thing to do. But on July 1st — that’s a little over two months from now — that rate cut expires.  And if Congress does nothing, the interest rates on those loans will double overnight…. And just to give you some sense of perspective — for each year that Congress doesn’t act, the average student with these loans will rack up an additional $1,000 in debt — an extra thousand dollars.  That’s basically a tax hike for more than 7 million students across America…”

If rising interest rates on student loan debt represents a tax hike, what are we to make of next year’s higher income tax rates?

Nine years ago, Congress cut income tax rates across the board. That too was a good thing to do. But on December 31st — that’s a little over eight months from now — those rates expire. And if the U.S. Senate does nothing, income tax rates will rise overnight… Tax policies in seven different categories will expire, including the Bush Tax Cuts, the payroll tax cut, and the AMT Patch. Plus five of the 18 new tax hikes from Obamacare will begin. And just to give you some sense of perspective — Taxmageddon is a $494 billion tax increase, so each year that the U.S. Senate doesn’t act, every man, woman, and child in America will rack up an additional $1,500 in income taxes — an extra fifteen hundred dollars. That’s an extra $6,900 for every U.S. taxpayer (the 50% of us who actually pay income taxes) – an extra six thousand nine hundred dollars.

So should my three children, who are all in college, be worried more about rising interest rates on student loans, dismal employment prospects, looming tax hikes, or rising interest on the federal debt?

Rising Interest on the Federal Debt

Based on Obama’s fiscal year 2013 budget, per Table 27-13, Baseline Budget Authority and Outlays by Function, Category, and Program, Gross Annual Interest on Treasury Debt Securities is projected to grow from $453.9 billion in 2011 to over $1.0 trillion by 2020, and to surpass $1.2 trillion by the year 2022 (see Chart below). Since this represents about half of the government’s current revenue, that doesn’t leave much room for anything other than Social Security and Medicare.

Today’s college students need to give serious and careful thought to a lot more than interest rates on student loan debt. Within the next eleven years, on a cumulative basis, the U.S. Government will incur more than $9.3 trillion in interest on the federal debt (see Chart below). That equates to roughly $30,000 for every man, woman and child in America. And since only 50% of working Americans pay income taxes, for those fortunate enough to obtain gainful employment, it amounts to nearly $131,378 each. And that’s just over the next eleven years — an extra one hundred and thirty one thousand three hundred and seventy eight dollars.

Thanks, Mr. Obama, for sugarcoating the dire consequences of your lack of a cohesive economic plan, and for sacrificing my children and grandchildren’s futures in lieu of your own selfish ambitions.

Tables

Reference:

Table 27-13. Current Services Budget Authority and Outlays by Function, Category, and Program

Passing the Buck and Taking Names | Obama’s GSA

* By: Larry Walker, Jr. *

“Ultimately the buck stops with me… I’m going to be accountable.” ~ Barack Obama *

What a load of bull! Harry Reid’s U.S. Senate hasn’t passed a budget resolution since April 29, 2009. Barack Obama hasn’t presented a budget, at least not one acceptable to either Democrats or Republicans, since the day he set foot in office. Yet he thinks he should keep his job. But that’s not how it works in America. Obama was given a fair shot; he had his fair share of opportunities, but he chose to pass the buck, running his mouth instead of governing, and now it’s time to give someone else a shot.

U.S. Gross Domestic Product has grown by a mere 7.59% from 2007 to 2011, or at an average annual growth rate of a pathetic 1.90%. But Federal Agency spending has increased by 32.04% over the same period, or at an average annual growth rate of 8.01%. Does the fact that Agency spending outpaced the economy by 322% sound any alarms? Well if we had a chief executive who was paying attention it would. This is an outrageous, hair-raising, mind-boggling, egregious, statistical fact, yet all U.S. taxpayers have heard for the last three plus years are threat after threat of higher taxes.

The Bush tax cuts are out, no they’re in. The payroll tax cut is gone, no it’s back. The AMT Patch is dead, no it’s still breathing.’

And now we have to contend with yet another threat, Taxmageddon. Taxmageddon is a $494 billion tax increase that strikes at the beginning of 2013. This time it’s the largest tax increase in U.S. history, scheduled to hit us smack in the face on January 1, 2013. Under current law, tax policies in seven different categories will expire, including the Bush Tax Cuts, payroll tax cut, the AMT Patch, plus five of the 18 new tax hikes from Obamacare will begin, see Taxmageddon: Massive Tax Increase Coming in 2013.

Unusual uncertainty remains unusually uncertain.

With Taxmageddon looming, the GSA scandal is well-timed. It has undeniably exposed the truth. And the truth is that the federal government has been living large through its discretionary spending, throwing our future to the wind, while we’ve been left sitting on pins and needles. Since the economy is practically at zero growth, where do these morons think the money to pay higher taxes will come from? I find it amazing, simply amazing, that no one has been in charge of the national purse for the last three-plus years. Absolutely no one has kept tabs on how our tax dollars were spent. We deserve better.

With an estimated $6.3 Trillion borrowed and squandered on Obama’s watch, and red flags abounding, it makes me sick to my stomach that politicians are suddenly concerned. You would have to be blind or not paying any attention to federal spending whatsoever to not notice the humongous 6,896.30% increase in the GSA’s expenditures from 2007 to 2011. Why blame the GSA? Blame yourselves, or blame Obama. The buck stops with Obama, right? So fire him. Put Obama on trial.

Maybe if someone wasn’t on the golf course, on vacation, or campaigning every other week (at our expense), and instead actually took time to study the budget “line by line”, and to work with Congress on cutting and capping spending, the GSA incident wouldn’t have occurred. I call it not doing the job you were elected to do. But hindsight is 20/20; foresight is not reelecting someone who has proven he can’t handle the job.

Does the following condensed OMB table, Outlays by Agency, which compares government spending growth from 2007 to 2011, raise any flags? If you ask me, the entire record is a red flag. The General Services Administration is an obvious bell ringer, its expenditures having grown from $27 million in 2007, to over $1.8 billion in 2011, or by 6,896.30%. But it’s not the only agency that should concern us, frankly they all should.

As you scan through the following highlights, keep in mind that the entire U.S. economy grew by a mere 7.59% over the four-year period, or at average annual growth of 1.90%.

  • The Department of Agriculture’s four-year spending growth was 65.11%, with average annual growth of 16.28%. You would think they were actually growing crops or raising livestock, but we know that’s not the case, so why have annual expenditures increased by $54.9 billion? Cut it.

  • The Department of Commerce’s four-year spending growth was 53.36%, with average annual growth of 13.34%. You would think they were actually manufacturing products or providing services, but we know that’s not the case, so why have annual expenditures increased by $3.5 billion? Cut it.

  • The Department of Energy’s four-year spending growth was 55.95%, with average annual growth of 13.99%. You would think they were actually producing electricity, mining coal or drilling for oil, but we know that’s not the case, so why have annual expenditures increased by $11.3 billion? Cut it.

  • The Department of Labor’s four-year spending growth was 177.58%, with average annual growth of 44.40%. You would think they were actually performing job placement services, but we know that’s not the case, so why have annual expenditures increased by $84.4 billion? Cut it.

  • The Department of State’s four-year spending growth was 77.29%, with average annual growth of 19.32%. You would think they were annexing nations and granting Statehood, in order to increase GDP, but we know that’s not the case, so why have annual expenditures increased by $10.6 billion? Cut it.

  • The Department of Veterans Affairs’ four-year spending growth was 74.36%, with average annual growth of 18.59%. Is this sustainable on average annual GDP growth of just 1.90%? Not hardly. So why have annual expenditures increased by $54.1 billion? Cut it.

  • The Corps of Engineers–Civil Works’ four-year spending growth was 158.75%, with average annual growth of 39.69%. You would think they were actually building roads and bridges, but we know that’s not the case, so why have annual expenditures increased by $6.2 billion? Cut it.

  • The Small Business Administration’s four year spending growth was 424.51%, with average annual growth of 106.13%. You would think they were actually making loans directly to small businesses, but we know that’s not the case, so why have annual expenditures increased by $4.9 billion? Cut it.

  • The Social Security Administration’s (On-Budget) four-year spending growth was 182.82%, with average annual growth of 45.70%. On-budget spending isn’t mandated, it’s not the entitlements portion in which Social Security Taxes offset payments to retirees and those with disabilities. No, this is interest and principal repayments of previously looted funds, and coverage of shortfalls due to the payroll tax cut and other gimmicks. You would think they were actually increasing benefit checks or lowering Medicare premiums, but we know that’s not the case, so why have annual expenditures increased by $100.4 billion? Cut it.

  • Total Federal Outlays experienced four-year spending growth of 32.04%, with average annual growth of 8.01%. With that kind of spending, you would think our economy would have grown by more than 7.59% over the four-year period, and achieved far more than average annual growth of 1.90%, but we know that didn’t happen, so why have annual expenditures increased by $874.4 billion? Has the economic stimulus program of 2009 become permanent? Cut it.

  • And last but far from least, the General Services Administration’s four-year spending growth was a whopping 6,896.30%, with average annual growth of 1,724.07%. You would think they were throwing some really wicked parties, or something. Oh, it turns out that was the case! No wonder annual expenditures increased by $1.9 billion. Just cut it.

Our government is spending at a rate which is 322% greater than the underlying economy. We call this “unsustainable”. What do you call it? The egregious growth of the GSA’s expenditures should have been caught long before it became a public scandal. Has anyone in the District of Columbia been paying attention for the past three years? You would think Obama would have caught this with his vast experience running companies, governing States, and all. Oh that’s right, he doesn’t have any experience.

I just gave you $340.2 billion of simple budget cuts, while Obama refuses to acknowledge the problem. If you still don’t get it, here’s the wrap.

The economy isn’t growing. The government is spending at a rate which is 322% greater than its underlying economy. Every additional dollar of tax revenue sucked out of our stagnant economy will cause the economy to decline further, while government continues to live the high life. Since there is no additional revenue to garner, government spending must be cut. The economy was on fire in 2007 on dramatically less government spending. Therefore, returning to the budget of 2007 damages nothing, other than Obama’s plan to bankrupt the nation. If Obama isn’t trying to bankrupt the USA, then what is he doing?

Fire Obama! Cut government spending. Cut the B.S. Cut it big. And cut it now!

References:

Table 4.1—Outlays by Agency: 1962–2017

BEA—Gross Domestic Product and Personal Income

Spreadsheets

Obama’s Secretarial Tax Fallacy

By: Larry Walker, Jr.

There’s no way Obama’s secretary paid a higher effective tax rate than the Obamas. You don’t believe it? Are income taxes such a mystery that we can’t figure it out? Well, let’s run the numbers and see.

According to Jake Tapper of ABC News, Mr. Obama released his 2011 federal income tax today, with he and his wife reporting an adjusted gross income of $789,674. The Obamas paid $162,074 in total tax – an effective federal income tax rate of 20.5%.

The White House also reported that President Obama’s secretary, Anita Decker Breckenridge, makes $95,000 a year. White House spokeswoman Amy Brundage told ABC News that Breckenridge “pays a slightly higher rate this year on her substantially lower income, which is exactly why we need to reform our tax code and ask the wealthiest to pay their fair share.”

The only problem with this story is that Amy Brundage doesn’t know how to compute a tax return, or an effective tax rate. If Ms. Breckenridge were single, made wages of $95,000, and had no other dependents or deductions, her standard deduction would have been $5,800 and her personal exemption $3,700. So taking Ms. Breckenridge’s income of $95,000 and subtracting her deductions of $9,500 results in taxable income of $85,500, and a total income tax of $17,564 (click the tax return image below to enlarge). Thus, her effective tax rate is 18.4% (17,564 / 95,000). The last time I checked 18.4% was less than not greater than 20.5%.

Is the Obama Administration so delusional that it believes the American public doesn’t understand basic math? Get a clue! Or ask an accountant. In my opinion we’re all paying way too much for the incompetence of this government. The mainstream media should be ashamed for not verifying the numbers. And Obama’s definitely on the wrong track, one which should (should have) lead to the end of his short and sorry career. That suits me fine.

Note: What I have calculated above is the maximum effective tax rate possible for a single person with $95,000 of gross income. However, if Ms. Breckenridge is married her tax rate will be lower, if she has dependents her total tax will be reduced, if she owns a home and pays mortgage interest, gives to charity, or pays a substantial amount in State taxes she could itemize deductions on Schedule A, any combination of which would make her effective tax rate substantially lower than 18.4%.

Fair Shot, Fair Share and a Glass of Algae

* By: Larry Walker, Jr. *

“Lake Erie is facing its worst toxic algae bloom since the 60’s and somehow it is going unnoticed…” ~ JoeOH111 *

According to Mr. Obama, you don’t have a fair shot right now, and it’s all because millionaires aren’t paying enough income tax. If millionaires would just give the federal government its fair share, then you, I, and everyone else would have a fair shot…, and a glass of algae.

What, pray tell, is a fair shot?

The best definition I can surmise is “a lawful chance at odds.” But don’t we all have this already? For example, the odds of winning the recent $640 million Mega Millions jackpot were 1 in 176 million. In order to guarantee a win, one would have had to spend $176 million buying up every combination. So if some nefarious millionaire had purchased all 176 million combinations, would he or she have had an unfair advantage?

Well, perhaps, but what millionaire would be dumb enough to blow $176 million on lottery tickets? What are the odds of that ever happening? The odds of one person buying all 176 million winning combinations, across multiple States, would probably be 1 in (infinity). In other words, a guaranteed win is impossible, at least when it comes to the Mega Millions lottery. But a fair shot is open to anyone who plays the game. “You gotta be in it to win it.”

According to CBS News, one person purchased $2,600 worth of lotto tickets, and another threw down $55, while the more frugal played their usual dollar or two. Did the one who blew $2,600 have an unfair advantage over $55 and $1 players? I will concede that the $2,600 player had an advantage, but I would hesitate to call it unfair. The poor sap simply had more to lose, yet not a dime more to gain. Not one dime. Now let’s flip over to the Mega Trillions Federal Debt Lotto.

Mega Trillions Federal Debt Lotto

If a taxpayer earns $176 million in taxable income and pays $29.9 million in federal taxes (a rate of 17%), while another earns $50,000 and pays $8,500 in taxes (also a rate of 17%), and yet another earns $25,000 and pays $0, does either have an unfair advantage? Since both the millionaire and the $50,000 wage earner pay the exact same tax rate (17%), the non-taxpayer has an advantage. But is it an unfair advantage? I would say so, especially since in the recent past we all pitched in at every level of income. Yet the one paying $29.9 million in taxes has a lot more to lose than both the $8,500 payer, and the non-taxpayer.

But who wins in this crapshoot? With the federal government borrowing and spending hundreds of billions of dollars, in advance, and squandering it to produce test-tube sewage-fed algae biomass for fuel, while Lake Erie and other U.S. lakes are full of “free” blue-green scum, the answer is no one. You’d have to be an idiot to waste hundreds of billions of dollars manufacturing something that’s sitting right in front of your face, wouldn’t you? Hindsight is 20/20, foresight is priceless.

When it comes to the national debt, those who don’t pay federal income taxes make out like bandits, they have nothing to lose. And those who already pay more than their “fair share” (i.e. taxed enough already) have nothing to gain. It’s not the 2% of top earners that worry me, they generally pay their bills on time, but rather the federal government which has already borrowed more than 100% of our entire economy, an amount estimated to reach $16.3 Trillion by September 30th of this year.

Only a depraved leader would have his nose in other peoples finances while ignoring his own debt laden, broken, overspent, and soon to be bankrupt enterprise. The federal government is not the solution to our problems; it’s the $16.3 Trillion in the hole, deadbeat, money squandering, largest debtor-nation in the Universe, leach, which is forever in the way and constantly on our collective back.

The moral of this story: Never confuse motion with action.

In other words, quit giving speeches and fix the problem. No one is going to vote for a tax increase in the middle of an election cycle, no matter how many speeches are enounced and dribbled. Especially not the one proffered, which in the end will barely cover one day’s worth of current deficit spending. No not a one! We don’t have a revenue problem; no, no, no, what we have is a deadbeat, money squandering, and largest debtor-nation in the Universe, ass-backwards, leach of a federal government problem. Get a clue!

Rather than paying more taxes, or spending multi-millions on lottery tickets to become multi-millionaires all over again, our well-to-do brethren would do better by investing in their own casinos, creating jobs and fair shot opportunities for others. And that leads us back to square one all over again: cut taxes, cut spending, and get out of our way and off our backs.

Photo Credit: Lake Erie, Stirred Up | Via: NASA Earth Observatory (March 21, 2012)