Economics

Taxing Our Way to Prosperity?

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An important part of the "fiscal responsiblity" that President Obama is pushing has to do with raising the amount of taxes paid as a percentage of GDP. As the Wash Post puts it:

Tax collections under the [budget] plan would rise from about 16 percent of the economy this year to 19 percent in 2013….

Senior White House adviser David Axelrod said in an interview that the proposals reflect the ideas that won the election.

"This is consistent with what the president talked about throughout the campaign," and "restores some balance to the tax code in a way that protects the middle class," Axelrod said. "Most Americans will come out very well here."

More here. Perhaps most Americans will come out very well in the sense that they will pay the same or less in direct taxes. After all, Obama's income tax increases supposedly only kick in on households making $250,000 or more a year.

However, most Americans will not come out very well if the following is true:

Tax changes that are made…to reduce an inherited budget deficit, in contrast, are undertaken for reasons essentially unrelated to other factors influencing output. Thus, examining the behavior of output following these relatively exogenous tax changes is likely to provide more reliable estimates of the output effects of tax changes. The results of this more reliable test indicate that tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.

Who says that? None other than the chair of Obama's Council of Economic Advisers, Christina Romer, in research conducted with David Romer in 2007.

What else is in the budget? Read this for answers.

NEXT: Obama Moves to Overturn Bush Health Care "Conscience" Rule

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  1. We are staying in Iraq. We are sending thousands of troops to Afghanistan. We are running up more debt in two years than Bush ran up in 8 years. BO is continueing all of Bush’s terror policies. Now why did libertarians hate Bush? Let’s see. The war, the terror policies, the deficits. Now libertarians get all of that, even more debt and higher taxes and socialism as a bonus.

    At what point does Reason run a special issue where all Libertarians who voted for BO issue official apologies?

  2. After all, Obama’s income tax increases supposedly only kick in on households making $250,000 or more a year.

    Yeah, fuck those rich people. Stick it to those motherfuckers.

    Oh wait, that rich guy just walked through the building and told us we’re going to have to take low census days (days off without pay) and to expect some trimming of the employee rolls.

  3. all Libertarians who voted for BO issue official apologies?

    I don’t vote. I’m deathly embarassed about making apologies.

  4. I have noticed a recurring theme, lately:
    High taxes and a strong economy go together. For example, taxes were high when Eisenhower was in office, and the economy boomed; if we raise taxes, the economy will boom.

    Correlation is not causation, goddammit.

    I need a drink.

  5. “After all, Obama’s income tax increases supposedly only kick in on households making $250,000 or more a year.”

    My understanding on these sorts of plans is that the expected revenues from these sorts of plans never come close to materializing and so inevitably you either run at deficits or lower the amount for tax increases.

  6. Paul,

    If you didn’t vote, then at least you didn’t contribute to BO. The only upside of this is that for many years people who have family members that are child molestors and serial killers have felt a lot of embarassment about having to reveal being related to such people. Now that so many people are related to BO voters, the stigma for those related to child molestors and serial killers should be a lot less.

  7. “My understanding on these sorts of plans is that the expected revenues from these sorts of plans never come close to materializing and so inevitably you either run at deficits or lower the amount for tax increases.”

    Imagine a two income couple. Husband makes say $200K a year and the wife makes $100K. Obama jacks up the taxes on the rich and suddenly the wife is working long hours for very little wages. The wife says fuck it and quits and stays home to take care of her kids. The economy is that much less productive and BO has that much less tax money. That kind of thinking will happen all over.

  8. From Irving Kristol’s “The Shaking of the Foundations,” published in his “On the Democratic Idea in America” (1972):

    It is less comforting but more realistic to reflect that we don’t live in the world; we live in a particular world; and history records many particular worlds that did indeed come to their ends-sometimes abruptly, more often slowly and insensibly, but always painfully for those who felt themselves to be part of what was being destroyed.

  9. “It is less comforting but more realistic to reflect that we don’t live in the world; we live in a particular world; and history records many particular worlds that did indeed come to their ends-sometimes abruptly, more often slowly and insensibly, but always painfully for those who felt themselves to be part of what was being destroyed.”

    That is an interesting quote. The question is exactly what world is being destroyed here? I think that BO supporters think the world of capitalist America is being destroyed and replaced by new kinder socialist America. I think they may be surprised. The government is literally going to go bankrupt is something is not done. If the government goes bankrupt, that will be the end of socialism and big government as we know it. Like Margarat Thatcher used to say, “the problem with Socialism is that eventually you run out of other people’s money to spend”.

    This is going to end in a huge train wreck. It may be that rather than some dawn of a new socialist age, Obama is the last gasp of 20th Century big government. The final straw that finally breaks the bank and forces the country to face reality.

  10. “After all, Obama’s income tax increases supposedly only kick in on households making $250,000 or more a year.”

    If memory serves, when the federal income tax was first adopted over 90 years ago, it was supposed to be only a tax on the “wealthy.” The vast majority of Americans were unaffected. Today, anyone who earns income of virtually any sort is subject to the income tax.

    Then came the Alternative Minimum Tax, which again was supposed to be only a tax on the “wealthy.” Today, vast numbers of middle class taxpayers are subject to what was supposed to be a wealth tax.

    Now Obama tells us he is only raising taxes on the “wealthy.” Do we see a pattern here or what?

  11. “Taxing Our Way to Prosperity?”

    Yes I Can!

  12. If you make 40K and thought your taxes would not increase under this administration with a Democratic congress, you were wrong.

    How’s that snake oil taste?

  13. Correlation is not causation, goddammit.

    Fine, but I don’t want to hear anything about how lower taxes increase revenue or strengthen the economy, since historically there isn’t even correlation there, let alone causation.

    To me it just makes common sense that progressive taxation leads to economic prosperity, since more people have more money to spend.

  14. I don’t want to hear anything about how lower taxes increase revenue or strengthen the economy, since historically there isn’t even correlation there, let alone causation.

    It’s my money, asshole. I worked for it.

  15. I gritted my teeth and voted for Bob Barr, would’ve rather voted for Ron Paul.

    Obamatrons smashed my rear window of my car with a Ron Paul ’08 sticker, guess that’s what thay think of free speech. It was even after the election.

    /no other cars got smashed on that block
    //It is my company car and it had the sticker on it of over a year with no problems.

  16. The wife says fuck it and quits and stays home to take care of her kids. The economy is that much less productive and BO has that much less tax money. That kind of thinking will happen all over.

    You probably should have picked a better example; that’s a feature not a bug if you like your social engineering red flavored.

  17. To me it just makes common sense that progressive taxation leads to economic prosperity, since more people have more money to spend.

    Serious question:

    What exactly are you using as the metric for progressive taxation?

    These argumemnts always seem to get conflated.

    1) The Rich received a larger share of national income during the Bush years than previously(true)

    2) The Rich received a larger share of the tax cuts during the Bush years than other income classes (true)

    3) The Rich paid a lower portion of income taxes during the Bush years than previously (false)

    To me #3 is what defines ‘progressive taxation’.

    I don’t have a problem with progressive taxation. “But more people have more money to spend” is a function of absolute tax rates, not how they shift over the income scale.

  18. The good news is that higher taxes means housing prices will come down, so Fannie, Freddie, and other large lenders will never see their level 3 assets recover to 2005 prices during Obama’s 12-year presidency – unless he decides to go Mugabe with the Bureau of Engraving and Printing. Then we’ll ALL be earning over 250K a year and be taxed at 90%.

  19. Exactly! Now that taxes are going up on those earning over 250,000 a year, Obama has an extra incentive to inflate the hell out of the money supply in order to insure that anyone working at McDonald’s will be earning at least that much. Soon, we’ll all be millionaires and billionaires, paying even more extortionate tax rates for the privilege. Unfortunately, a McDonald’s hamburger will cost $25. Or maybe even a lot more.

  20. One thing to keep in mind is that starting in the 80’s the bracket entry points started to be adjusted for inflation every year. So bracket creep is much more mitigated than it was in the 70’s and prior decades.

  21. We are staying in Iraq.

    That is a fascinating perspective on our plans to pull out of Iraq.

    We are running up more debt in two years than Bush ran up in 8 years.

    We are running higher deficits during a recession. That does not mean a lot.

    BO is continueing all of Bush’s terror policies.

    False.

  22. The Rich received a larger share of national income

    Correction: the rich earned more. The idea that there’s a “national income” of which we “receive a share” is Marxist bullshit, used to rationalize theft.

    -jcr

  23. We are running higher deficits during a recession. That does not mean a lot.

    Uh, no. This deficit is HUGELY bigger than we’ve ever run for any recession.

    On the plus side, poeple as stupid as you apparently own computers. So things can’t be that bad.

  24. “One thing to keep in mind is that starting in the 80’s the bracket entry points started to be adjusted for inflation every year.”

    Another thing liberal Democrats like Ted Kennedy and Tip O’Neil fought tooth and nail to prevent.

    That and indexing exemptions and the basic deduction.

  25. If you didn’t vote, then at least you didn’t contribute to BO.

    BO is continueing….Now that so many people are related to BO voters…

    Man, would y’all please start using Right Guard?

  26. Man, would y’all please start using Right Guard?

    That is a devious name for a gun-rights group. I love it.

  27. Max Hats,

    Maybe you missed it, but we are leavig 50,000 troops in Iraq ofr 2010 and beyond. Are you that brain dead or do you just want to beleive in BO that badly?

  28. The Rich received a larger share of national income

    Correction: the rich earned more. The idea that there’s a “national income” of which we “receive a share” is Marxist bullshit, used to rationalize theft.

    Correction II: The rich created more wealth.

  29. Correction II: The rich created more wealth.

    Win.

  30. Maybe you missed it, but we are leavig 50,000 troops in Iraq ofr 2010 and beyond

    Obama was quite explicit in his speech at Lejune (Bragg?) yesterday that all troops will be out by the end of 2011.

    If in Jan 2012 there are still troops in Iraq*, it will be impossible to parse this as anything other than a big honking broken promise. Not only to americans but also to the Iraqi govt.

    That would seem adverse to his re-election chances (as ‘read my lip’s was – similarly Obama probably won’t get attacked from the right, but the left split will doom him)

    *except for Marines at the embassy

  31. What’s up with Max Hats? Where’s the ALL CAPS? The economic ignorance is still there along with the HOPE disposition but why no ALL CAPS?

  32. “One thing to keep in mind is that starting in the 80’s the bracket entry points started to be adjusted for inflation every year. So bracket creep is much more mitigated than it was in the 70’s and prior decades.”

    That’s for wage income only – not capital gains.

    In order for the inflaton effect to be eliminated or mitigated from capital gains, the cost basis of the asset would need to be adjusted for the inflation that occured over all the years the asset was held to figure the real profit on sale.

    Since it isn’t, that is another one of the justifications of a lower tax rate on capital gains (along with the double taxation effect).

  33. And of course the threshold for the Alternative Minimum tax is NOT adjusted for inflation.

  34. My fave tax story. I have a relative that was sposed to get a fat refund last year due to earned income tax credit. They owed a large, very delinquent student loan. Govt kept the refund and payed the student loan. This year, the relative got an extra 1700 bucks refund for the student loan interest deduction on top of a fat refund for eitc.
    Nope. Nothing wrong with this picture.

  35. Obama was quite explicit in his speech at Lejune (Bragg?) yesterday that all troops will be out by the end of 2011.

    Correction: the SOFA signed by President Bush is quite explicit that all troops will be out by 2012. Obama is merely trying to take credit for what was done before he took over.

    Too lazy to look it up, but I heard that even if Obama were to confiscate 100% of the income of people earning more than $250,000, he would still be running a deficit.

  36. At times like these, It is good to be poor.

    All I gotta do now is start preachin the Gospel, have the congrgants buy a church with living quarters, and I will be off the grid. Speaking financially anyways.

    and the meek shall inherit the earth. (neil peart)

  37. BO is continueing all of Bush’s terror policies.

    Max, could you let us know which of Bush’s terror policies have been materially changed by Obama. Because, frankly, I’m not seeing much change so far.

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