Wintery Knight

…integrating Christian faith and knowledge in the public square

CBO: Unemployment rises to 9.1% in 2013, health care spending doubles by 2022

Here are the raw numbers from the non-partisan Congressional Budget Office, as reported by CNS News:

The Congressional Budget Office (CBO) is projecting that if changes in federal taxing-and-spending policies already enacted and set to take effect at the beginning of next year do in fact take place, the unemployment rate will climb to 9.1 percent.

In a report released on Aug. 22, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, CBO’s baseline projections show that by the fourth quarter of 2013 the national unemployment rate will be 9.1 percent.

[...]Widely referred to as the “fiscal cliff,” the expiration of the Bush tax cuts and over $1 trillion in automatic defense and discretionary cuts as a result of last year’s failed budget deal are set to take effect in January 2013.

[...]If no action is taken by Congress, current CBO projections show that unemployment will not return to pre-recession levels until 2017.

And more CBO: federal health care spending will exceed all discretionary spending by 2016:

Under current law, federal health care spending is on pace to exceed all discretionary spending by 2016, according to the Congressional Budget Office (CBO).

The change is due to large increases in Medicare and Medicaid spending and added spending under the Affordable Care Act (Obamacare) over the next decade, a feat the Tax Foundation calls a “truly unprecedented and scary” scenario.

The nonpartisan tax research group analyzed recent CBO projections of the budget for 2012 to 2022, finding that over the next decade Medicare spending will increase from $550 billion to $1.064 trillion, while Medicaid would more than double from $253 billion to $592 billion.

In addition, new exchanges and subsidies under Obamacare will force mandatory healthcare expenditures to grow from $25 billion to $181 billion in 2022.

“In total, healthcare entitlement spending is due to more than double, from $828 billion this year to $1.837 trillion in 2022,” according to the Tax Foundation.

“This means healthcare spending will overtake all discretionary spending in 2016 – Obama’s last year in office if reelected,” the group said.

And more CBO: taxes will shoot up by more than 30% between 2012 and 2014:

The amount of money the federal government takes out of the U.S. economy in taxes will increase by more than 30 percent between 2012 and 2014, according to the Budget and Economic Outlook published today by the CBO.

At the same time, according to CBO, the economy will remain sluggish, partly because of higher taxes.

“In particular, between 2012 and 2014, revenues in CBO’s baseline shoot up by more than 30 percent,” said CBO, “mostly because of the recent or scheduled expirations of tax provisions, such as those that lower income tax rates and limit the reach of the alternative minimum tax (AMT), and the imposition of new taxes, fees, and penalties that are scheduled to go into effect.”

The U.S. economy, CBO projects, will perform “below its potential” for another six years and unemployment will remain above 7 percent for another three.

And the GAO reports that the Obama administration has waived work requirements for welfare programs, which reduces revenues from employee income taxes and increases spending on welfare programs.

Now you might expect that the Democrats would have some bold plan to tackle unemployment, spending and high taxes. And they do!

Bold policy ideas at the Democrat National Convention

Take a look at this video on bold, innovative tax policy from the DNC convention:

That will fix unemployment for sure.

And they want to augment that tax policy with some reasonable pro-growth regulations:

If you don’t think that this is a good plan to solve our economic problems, then Democrats will say that you’re a racist homophobic Islamophobic sexist bigot.

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Alison Redford opposes conscience rights for pro-life doctors and nurses

Map of Canada

Map of Canada

I’m monitoring the exciting election in Alberta between radical leftist Alison Redford and moderate conservative/libertarian Danielle Smith. The Progressive Conservative party has been dominating the province for years, but their new leader Alison Redford is a liberal extremist on social policy and fiscal policy.

Take a look at Alison Redford’s radically pro-abortion and pro-gay-marriage views:

In a list of party principles approved at the Wildrose annual general meeting last year, members voted in a clause that reads: “Wildrose members believe the Government of Alberta should…implement legislation protecting the ‘conscience rights’ of health-care professionals.” Ms. Smith also told the Rocky Mountain Civil Liberties Association that “Wildrose will ensure conscience rights for marriage commissioners and health professionals,” according to a summary of candidate positions published by the association in August, 2011.

Ms. Redford, who opposes the notion of conscience rights, eagerly responded to a reporter when asked about it Wednesday, hoping it will cast the Wildrose as a hard-right party and win back supporters.

“I was very frightened to hear the discussion today.… I certainly respect people’s personal beliefs, but I believe in a province where we have to treat individuals with dignity and respect. We have to live in a community where we respect diversity and we understand that everyone feels safe and included,” Ms. Redford said.

She said doctors would be expected to prescribe birth control and perform abortions, regardless of personal beliefs, to ensure that “all of the unique families in this province have the opportunity to know that when they’re accessing services, they can trust those services can be provided. And when they take on professional responsibilities, I expect them to be able to meet those professional responsibilities. I think it’s a critical discussion in this election.”

[...]The Wildrose says conscience rights cases will be among those heard by justices in a new Human Rights Division of the Alberta provincial court. Anyone filing a complaint and needing legal aid will be referred to a roster of “human rights advocates.”

These advocates will have specialized training in human rights law and be in good standing with the Law Society of Alberta. The division will be funded with money currently used for the Alberta Human Rights Commission, which Wildrose plans to scrap.

Danielle Smith’s view is a moderate view – it’s more moderate than Redford’s leftist view.

On fiscal issues, Danielle Smith has proposed returning some of the money from budget surpluses to taxpayers, but the leftist Alison Redford opposes that.

Take a look at this column.

Excerpt:

[...]…Alison Redford wondered whether or not Albertans could be trusted to spend such bonuses wisely.

Redford and the tut-tutting experts reveal one thing with their criticisms: They believe all money belongs to governments and you and I should be grateful for whatever crumbs we are permitted to keep. If you cannot demonstrate you have a higher purpose for the money you earn than the schemes proposed by politicians, bureaucrats and academics, then you have no right to complain if government taxes away giant gobs of your income to spend on the “public good.”

On the other hand, the proposal by Smith to send each Albertan a cheque whenever the provincial budget is in surplus is an indication that Wildrose believes what you earn is yours and government should tax away only as much as is necessary to fund essential services. If a government finds itself with more money on its hands than it needs to cover the spending it budgeted for in a given year, it should be obliged to return the overage to taxpayers rather than rub its hands with glee and look for new ways to spend.

Again, Danielle’s view is a moderate view – it only returns money to taxpayers if there is a surplus. Redford, on the other hand, has been spending like a drunken sailor since she took office, and most Albertans I know think that tax increases are just around the corner.

The latest poll shows the Wildrose with a 13-point lead over the Alison Redford’s leftist Progressive Conservative party.

Details:

Wildrose: 43% (+10)

PC: 30% (-6)

Danielle Smith: 56% approve, 32% disapprove (57-30 in Calgary, 50-42 in Edmonton)

Alison Redford: 48% approve, 43% disapprove (45-45 in Calgary, 45-43 in Edmonton)

You can watch an interview about the election here.

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Canada’s tax revenues steady as they lowered corporate tax rates

Canada: Corporate tax cuts, not stimulus spending

Canada: Corporate tax cuts, not stimulus spending

From the Daily Caller.

Excerpt:

The chart shows Canada’s federal corporate tax revenues as a share of gross domestic product (GDP) and the federal corporate tax rate. The tax rate plunged from 38 percent in 1980 to just 15 percent by 2012. Amazingly, there has been no obvious drop in tax revenues over the period.

Canadian corporate tax revenues have fluctuated, but the changes are correlated with economic growth, not the tax rate. In the late 1980s, a tax rate cut was followed by three years of stable revenues. In the early 1990s, a plunge in revenues was caused by a recession, and then in the late 1990s revenues soared as the economy grew.

In 2000, Canadian policymakers enacted another round of corporate tax rate cuts, which were phased in gradually. Corporate tax revenues initially dipped, but then they rebounded strongly in the late 2000s.

The rate cuts enacted in 2000 were projected to cause substantial revenue losses to the Canadian government. That projection indicates that the reform didn’t have much in the way of legislated loophole closing. But the chart shows that the positive taxpayer response to the rate cut was apparently so large that the government did not lose much, if any, revenue at all.

In 2009, Canada was dragged into a recession by the elephant economy next door, and that knocked the wind out of corporate tax revenues. However, it is remarkable that even with a recession and a tax rate under 20 percent, tax revenues as a share of GDP have been roughly as high in recent years as they were during the 1980s, when there was a much higher rate. Jason Clemens of the Macdonald-Laurier Institute notes that Canadian corporate tax revenues have been correlated with corporate profits, not the tax rate.

If a corporate tax rate is high, there is a “Laffer effect” when the rate is cut, meaning that the tax base expands so much that the government doesn’t lose any money. Estimates from Jack Mintz and other tax experts show that cutting corporate tax rates when they are above about 25 percent won’t lose governments any revenues over the long run.

This data is no surprise to supply siders – we expect this because of past experience with tax cuts.

Tax cuts: do they work?

Consider this article by the Cato Institute discusses how the Reagan tax cuts affected the unemployment rate.

Excerpt:

In 1980, President Carter and his supporters in the Congress and news media asked, “how can we afford” presidential candidate Ronald Reagan’s proposed tax cuts?

Mr. Reagan’s critics claimed the tax cuts would lead to more inflation and higher interest rates, while Mr. Reagan said tax cuts would lead to more economic growth and higher living standards. What happened? Inflation fell from 12.5 percent in 1980 to 3.9 percent in 1984, interest rates fell, and economic growth went from minus 0.2 percent in 1980 to plus 7.3 percent in 1984, and Mr. Reagan was re-elected in a landslide.

[...]Despite the fact that federal revenues have varied little (as a percentage of GDP) over the last 40 years, there has been an enormous variation in top tax rates. When Ronald Reagan took office, the top individual tax rate was 70 percent and by 1986 it was down to only 28 percent. All Americans received at least a 30 percent tax rate cut; yet federal tax revenues as a percent of GDP were almost unchanged during the Reagan presidency (from 18.9 percent in 1980 to 18.1 percent in 1988).

What did change, however, was the rate of economic growth, which was more than 50 percent higher for the seven years after the Reagan tax cuts compared with the previous seven years. This increase in economic growth, plus some reductions in tax credits and deductions, almost entirely offset the effect of the rate reductions. Rapid economic growth, unlike government spending programs, proved to be the most effective way to reduce unemployment and poverty, and create opportunity for the disadvantaged.

The federal revenues as a % of GDP were steady.

The conservative Heritage Foundation describes the effects of the Bush tax cuts.

Excerpt:

President Bush signed the first wave of tax cuts in 2001, cutting rates and providing tax relief for families by, for example, doubling of the child tax credit to $1,000.

At Congress’ insistence, the tax relief was initially phased in over many years, so the economy continued to lose jobs. In 2003, realizing its error, Congress made the earlier tax relief effective immediately. Congress also lowered tax rates on capital gains and dividends to encourage business investment, which had been lagging.

It was the then that the economy turned around. Within months of enactment, job growth shot up, eventually creating 8.1 million jobs through 2007. Tax revenues also increased after the Bush tax cuts, due to economic growth.

In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.

The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.

Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:

  • GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
  • The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
  • The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.

The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.

Tax revenues increased after the Bush tax cuts – due economic growth.

Those are the facts. That’s not what you hear in the media, but they are the facts.

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Melanie Phillips: the UK should reform the Child Benefit to favor marriage

Dina send me this UK Daily Mail article by Melanie Phillips.

Excerpt:

I would say that Child Benefit itself was always a really bad idea, and real reform should get rid of it altogether.

This is because it rewards the wrong thing. It incentivises having children, whereas the state should only incentivise having children in circumstances which are advantageous for society. Since Child Benefit is awarded with the birth of every child regardless of circumstances, it has put rocket fuel behind Britain’s astronomical rate – and rising – of fatherless children born to elective lone mothers.

The rationale for this is, first, that welfare benefits should be focused on solving child poverty. This totally ignores the fact that lone parenthood is itself a major cause of child poverty; and no less important, that even more than material goods children desperately need their fathers.

The second great cry that went up when Child Benefit was first introduced was that benefits for children should be given to the mother alone, because men are feckless no-goods and would only blow such money on drink and fags. And then people were surprised that young men felt marginalised and felt no need to anchor themselves to a wife!

The unmentionable fact is that Child Benefit has been a disaster and should be replaced by incentives for marriage in the tax and benefits system — incentives which in turn do not penalise single-earner households. But that, of course, would require courage to face down the shibboleths of the left.  And that is one thing that the Cameron government shows a near-pathological aversion to displaying.

UK conservatives aren’t very conservative.

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New paper on income inequality: Does taxing the rich hurt the middle class?

Aparna Mathur (right)

Aparna Mathur (right)

Here’s an article by Indian economist Aparna Mathur.

She writes (in part):

In a recent paper that I co-authored with Kevin Hassett, we explored the effect of high corporate taxes on worker wages. The motivation for the paper came from the international tax literature (summarized by Roger Gordon and Jim Hines in a 2002 paper1) that suggested that mobile capital flows from high tax to low tax jurisdictions. In other words, in any set of competing countries, investment flows are determined by relative rates of taxation. The current U.S. headline rate of corporate tax is 35 percent. The combined federal and state statutory rate of 39 percent is second only to Japan in the OECD. With Japan set to lower its statutory rate later this year, the U.S. rate will soon be the highest in the OECD and one of the highest in the world. What effect do these high rates have on worker wages?

When capital flows out of a high tax country, such as the United States, it leads to lower domestic investment, as firms decide against adding a new machine or building a factory. The lower levels of investment affect the productivity of the American worker, because they may not have the best machines or enough machines to work with. This leads to lower wages, as there is a tight link between workers’ productivity and their pay. It could also lead to less demand for workers, since the firms have decided to carry out investment activities elsewhere.

Our paper was one of the first to explore the adverse effect of corporate taxes on worker wages. Using data on more than 100 countries, we found that higher corporate taxes lead to lower wages. In fact, workers shoulder a much larger share of the corporate tax burden (more than 100 percent) than had previously been assumed. The reason the incidence can be higher than 100 percent is neatly explained in a 2006 paper by the famous economist Arnold Harberger.2 Simply put, when taxes are imposed on a corporation, wages are lowered not only for the workers in that firm, but for all workers in the economy since otherwise competition would drive workers away from the low-wage firms. As a result, a $1 corporate income tax on a firm could lead to a $1 loss in wages for workers in that firm, but could also lead to more than a $1 loss overall when we look at the lower wages across all workers.

Following our paper, several academic economists substantiated our results, using different data sets and applying varied econometric modeling and techniques. Some examples of these studies include a 2007 paper by Mihir A. Desai and C. Fritz Foley of Harvard Business School and James Hines Jr. of Michigan University Law School, a 2007 paper by R. Alison Felix of the Federal Reserve Bank of Kansas City, a 2009 paper by Robert Carroll of The Tax Foundation, and a 2010 paper by Wiji Arulampalam of the University of Warwick and Michael Devereux and Giorgia Maffini of Oxford.3 A recent Tax Notes article that I co-authored summarizes these various studies and also the lessons from the theoretical literature on the topic. The general consensus from theory and empirical work is that while we may argue academically about the size of the effect, there is no disagreement among economists that a sizeable burden of the corporate income tax is disproportionately felt by working Americans. On average, a $1 increase in corporate tax revenues could lead to a dollar or more decline in the wage bill.

Conservatives and liberals have the same goal. We both want to help the poor. Liberals think that taking money from the rich and giving it to the poor helps, but all it does it cause the rich to move their capital and jobs elsewhere, leaving the poor poorer. Conservatives let the rich keep their money and encourage them to risk it trying to make more money by engaging in enterprises that create wealth – creating products and services from less valuable raw materials. In a socialist system, the rich get poorer, but so do the poor. In a capitalist system, the rich get very rich, but the poor also gain more wealth. That’s what happens when corporations like Apple make IPads out of junky raw materials. That’s how wealth is created – by letting people who want to make things keep more of what they earn. We all benefit from encouraging people to make new things and provide value for their neighbors.

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