The Uninformed Voter

Even with the stock market hitting a new high, I think that there is a reasonable chance that the U.S. economy will experience a slow-down, if not a double-dip recession, this year.  The fourth quarter of last year's GNP growth has been revised up to a still-anemic +0.1% and four significant economic events have occurred since then: 1) as a result of the fiscal cliff, an increase of the tax rate on high-earners to almost 40% and on dividends to 20%, 2) an increase in the payroll tax rate on everyone by 2 percentage points, 3) the real start of the myriad taxes and regulations associated with Obamacare, and 4) the $43 billion reduction in federal spending that came with the recent sequestration.  With the continuing government spending resolution due to occur in Congress at the end of this month, there is still another element of uncertainty facing American companies ... causing them to approach any business expansion with caution

OK, given that an economic slow-down might occur, how will it be viewed by the uninformed voters in the U.S.?  Obviously, the Obama Administration will be beating the demagogic drums and blaming such a slowdown on the sequestration events.  But, as can be seen from above, three tax increases will be taking considerable money out of the economy and giving it to the government (see: Breitbart Story) whereas the sequestration might slightly ease the pressure on the Federal Reserve Bank to fund America's crippling deficits ... which, I think, might even be a plus for our economy.  And, given that this country will still be running close to a trillion dollar fiscal deficit this year and the Federal Reserve Bank will still be printing about $85 billion of monetary stimulus each month (with "quantitative easing"), by all logic an economic slowdown should not occur.  So, if and when it does as I predict, it should be fully the responsibility of the Obama Administration and its hostile business and taxing environment.

But do you think that uninformed voters will understand this logic?  Or will they give the Democrats even more (destructive) economic leverage in the Congressional elections of 2014?

Carried Interest

I, along with (seemingly) President Obama, have long been an opponent of the “carried interest” tax treatment on the earnings of hedge-fund managers (for my detailed argument, see: Fewer Happy Returns).  In fact, I believe that this has been one of the driving forces behind our President’s “fairness” obsession to raise taxes.  (Or maybe he is just using it as a convenient excuse?)  This January he already has gotten the capital gains rate increased from 15% to 20% … I suspect, among other things, in order to increase the taxes on carried interest … i.e., tuck it to hedge fund managers.  But, in the process, he is also screwing ordinary middle-class investors.

However, of late I have been curious about how this favorable tax treatment came into being.  I first went to Wikipedia (see: Wikipedia Entry ) where I did not find its genesis … but it does say that it has been an issue since the mid-2000s.  My suspicion is that this tax treatment was initiated within the IRS itself.  As per the Wikipedia entry, there apparently were some unsuccessful attempts by the Democrats to erase this rule in the 2008 to 2012 time frame.  Moreover, there was actually such a law passed in the Democrat-led House of Representatives in 2010 … see: Gibson Dunn Comments.  Curiously, it apparently died (as most things did) in the Harry Reid (D, Nevada) controlled (with an iron hand) Senate.  So, like many controversial issues, the Democrats have been able to have their cake and eat it too.

Pass This Jobs Bill Now!

President Obama (The Barry) has proposed new taxes to pay for his proposed $447 billion "jobs" program (see: The NY Times Agrees).  I suspect this tax proposal is as much to play politics as it is to pay for his dog's breakfast of "new" jobs proposals.  That is ... The Barry knows that the Republicans will not go along with any tax increases now and therefore he can call them out during next year's campaign and blame them for what surely will be high unemployment rates then.  In other words, it is a bald-faced set up to try to keep his job rather than grow new jobs for the rest of Americans.

However, surprisingly, I agree with a few of the bullet points in this new taxes proposal ... independent of whether his jobs proposals will or will not help the economy ... and so I will list these points as outlined by the NY Times editorial and indicate my feelings about each:

1) Capping the value of itemized deductions and other tax breaks at 28% (of adjusted gross income?).  I AGREE  This, in effect would be an extension of the alternative minimum tax in the current tax code ... a step that I have already proposed (see: Taxing Ideas).

2) Ending tax breaks for oil and gas companies.  I DISAGREE  If we are going to become energy indipendent then we cannot punish the very companies that would make this happen.  I have opined on this in more detail in the past (see: Oily Decision).

3) Not letting hedge-fund managers pay taxes on most earnings at the capital gains rate.  I AGREE  This has been an egregious loophole through which the wealthest on Wall Street have avoided paying their fair share of our government's cost.

4) Curbing tax breaks for corporate jets.  I DISAGREE  This is pure two-faced silliness by a man who flies, at taxpayer expense, in the most expensive flotilla of jets of any other American entity.  Is he bound and determined to kill the private-jet building business?  Even Warren Buffet has disagreed with this proposal.

5) Ending the lower tax rates installed by George W. Bush.  I DISAGREE  If The Barry's proposal to cap tax deductions (see #1 above) comes about, then there will be no need to scrap the Bush tax cuts as I strongly suspect that government receipts will grow anyway.

The Democrats, as of this hour, have not yet filed The Barry's "pass this jobs bill now." bill.  What's up?

Is this just political theater afterall?

Data Drives Out Speculation

The Barry took off the gloves last night and pretty much gave the speech that two days ago I predicted he would make (see: Laser-like Focus).  He kicked off his 2012 campaign with the proposal to "spend" $447 billion of money our government doesn't have to create jobs.  But as one can see from the above chart I "borrowed" from the Powerline blog (see: Powerline) there appears to be a clear inverse relationship between such Keynesian economics and job creation.  I even think Obama's proposal to continue the cuts in the FICA tax is more a political move than an economic one.  Can one seriously say that the extra few dollars a week in everyone's paycheck is going to cure our economic malaise?  Or will the long-term damage that this does to the Social Security System negate any short-term "stimulus effect." And, for that matter, has the FICA tax cut last December helped one bit in creating jobs?  I don't see any evidence to support this notion.

The more I reflect on the United States jobs problem, the more I am convinced it is a policy issue and not a process issue.  Our current government unfortunately has continually exhibited an anti-business bias in its day-to-day actions -- from trying to stop Boeing from building the Superliner in South Carolina ... to its recent rapping of Gibson Guitar's knuckles in Tennessee over the wood that it uses ... to the stopping of oil exploration in the Gulf of Mexico.  And, if one takes a serious look at the tax increases that The Barry has or plans to impose on U.S. businesses (if you doubt me, please take a gander at: Obama Tax Hikes), one can understand their reticence to invest in the future and thus grow jobs.

I'm sorry President Obama, even though you "hope" it will get you re-elected, more of the same just doesn't cut it in my book.

Further Thought:  One might add to the list of Obama's anti-business actions ... the recently-passed health care law.  Again, to see exactly how this act works against U.S. companies, refer back to the link above referring to Obama Tax Hikes and see how oppressive this unilateral action has/will become to capitalism.

Taxing Ideas

The Barry, in his press conference today, was sticking to his guns about the need to increase taxes in order to reduce our government's crippling deficits ... otherwise cancer research will disappear, weather forecasting would be crippled, no more food inspections, and our children won't get college scholarships.  Now he does have the bully pulpit and a nation full of fiscal dunces who are easily deluded by such demagoguery ... so such tried-and-true scare tactics are likely to work ... particularly when, in the latter part of July, many Americans start getting letters threatening to stop their Social Security checks and food stamps.

Now assuming that the Republicans will eventually have to blink and cave-in on tax increases in order to get meaningful government spending cuts (which somehow will never happen), I offer what might be acceptable (to me) "reductions in revenue spending" (the new Democrat euphemism for tax increases):

- Offer U.S. corporations a year-long opportunity to repatriate overseas profits at one-half our statutory corporate tax rate.
- Lock in the Bush tax cuts forever but then concurrently beef up the alternative minimum tax provisions in our tax code so that corporations, "millionaires and billionaires," and even ordinary taxpayers must effectively pay income taxes at no less than five percentage points below the statutory rate that would otherwise apply to their gross income.  Consequently, many of the tax loopholes (such as "It Pays to Work" and mortgage interest payments on McMansions) now utilized by such parties might lose much of their effectiveness.  And this would be the first step toward a flat tax (wherein across-the-board tax rates could then be reduced further).
- Eliminate the earned income tax credits entirely (essentially welfare payments through the tax system).
- Increase the upper ceiling on the income to which the FICA tax applies by say 20% and then have it automatically adjust upwards annually by our rate of inflation.
- Double co-pays for Medicaid and Medicare doctor visits (a backdoor tax)

I have no idea as to the amount of increased revenues that such provisions would engender, but I bet it would be substantial ... but not nearly enough to balance the budget.  Therefore, we need to talk about meaningful spending and entitlement cuts (haha) ...

Afterthought:  I was lucky enough to see Mark Halperin's original comment on Morning Joe this Thursday AM about The Barry's performance in yesterday's news conference.  After being egged on and assured that any scurrilous comment would be bleeped out (it wasn't), Halperin said that The Barry was being "a dick."  He later apologized and said he might have made a career-limiting quip.  I hope not ... he is my current left-leaning hero.