Obama's Dirty Little Trick

     Under the guise of a debt reduction proposal President Obama unleashed the opening salvo of his 2012 reelection campaign.  And from the looks of it, things are about to get nasty.  Sadly, we are in for more than a year of vitriolic class warfare the likes of which we have not seen in a long while. His supposed debt reduction plan is actually a prolific series of tax increases combined with dubious future savings and next to no concrete spending cuts.  Obama's "plan" perverts billionaire investor Warren Buffet's statements regarding taxation of the super rich into wide ranging tax increases on people, businesses and job creators earning as little as $200,000 a year.  But perhaps even more disturbing than the giant tax hikes to fund further wasteful spending is the intentional obfuscation and trickery used by the President to attempt to dupe the American people into supporting his tax and spend agenda.   

     We won't belabor our first point because it is all over the news and even the AP has reported the fact that people with higher incomes pay a higher percentage of their income in taxes to the federal government.  In fact the top 1% of wage earners pay about 40% of ALL Federal income taxes while approximately the bottom 50% of wage earners pay 0 dollars of Federal income tax.  Don't take my word for it, check the numbers, they are easily available from the government itself.  So the general notion that the "rich" don't pay much is taxes is nothing but a political device perpetuated to drum up support for higher taxes. 
      What about the much hyped "Buffet Rule" to make those rich people pay their fair share you may ask.  Lets consider Warren Buffet, the billionaire investor who famously said he pays a lower percentage in taxes than his secretary (or words to that effect).  Buffet is a member of a very small class of super rich investors that make the overwhelming majority of their money from their securities and/or real estate investments, the gains on which are taxed at a lower rate.  The reason these "capital gains" are taxed at a lower rate is that we want to encourage people to invest their money in companies so that those companies can access capital to grow and CREATE JOBS.  We need more of this, not less.  If the Buffet Rule were enacted and applied as Obama seemed to suggest, the rule would apply to only about 22,000 people in the whole country (about a third as many people as attend one NFL game).  This is simply too small of a group, rich although they may be, to make much of a difference.  So the the purpose of  Obama's Buffet Rule is not debt reduction but to sew anger at this tiny group of super rich such that Obama can take that anger and channel it into support for much broader tax increases. 

     If you look back at Obama's speech you will see that he slides seamlessly between those making $1 million a year (Buffet Rule candidates) and those with a worth $1 million (someone who might own a small business or a couple of houses).  Turns out there are many more people that are "worth" $1 million than make a million a year.  Enough that raising their taxes could help fund Obama's insatiable spending habit (never mind the negative effects on the economy).  It also turns out that this group of people already pay a lot higher percentage in income taxes that the middle class and they are a major driving force in small business job creation.  So Obama's dirty little trick is to sew anger at a very few super rich investors and use this anger to raise taxes on the job creating sector which already pays higher taxes than anyone else.  Quite a class warfare gambit, I hope it fails.

Thanks for reading:

                                            --Hand

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
 
                                       Thomas Jefferson

Stimulus Redux

     Last night President Obama proposed a new "job creation" bill and is now on the road trying to sell it and himself to the American people.  According to numerous news outlets the proposal has a price tag of about $450 Billion. So maybe this is stimulus light after the $700+ billion already spent in the name of boosting the economy.  The "new" plan includes extension of the payroll tax cut, "targeted" tax cuts for hiring workers, billions for infrastructure construction, billions for remodeling schools, further extension of unemployment benefits, money to local governments to keep government employees from being fired as well as litany of other piecemeal proposals.

     First off, much of this ought to sound very familiar. More money for "shovel ready" infrastructure projects, an umpteenth extension of unemployment benefits, a temporary payroll tax cut that is already in place and some targeted tax breaks for hiring.  Not much new there.  We all know the lackluster results created by the last round of these sorts of measures, which probably gives us a pretty good idea of the results this round will bring.  So why are these alleged economic stimuli unlikely to produce significant results?  Never fear, we here at the New Invisible Hand have  a theory:

     The first reason that Obama's "new" plan will fail even if enacted is the plan itself. The small piecemeal tax cuts for hiring are awash in red tape. The effort it takes for an employer to document how long a new employee has been unemployed and comply with all the criteria required to get the tax break eats away much of the benefit of the tax break. Second, the extension of unemployment benefits will act to keep unemployment high.  Whenever you subsidize something, you will get more of it.  Unemployment is no different. Some people will choose to remain unemployed and collect a check from Uncle Sam.       

    The overarching reason that Obama's "new" stimulus package will fail just as the last one did is Obama himself.  Fairly or unfairly (We happen to believe fairly), Obama is viewed by the business community (the actual job creators) as anti-capitalist and therefore anti-business.  So even when Obama proposes "pro-business" items such as tax breaks for hiring, there is a sense that he is only doing this out of desperation and does not fundamentally believe in these sorts of policies.  And further, once there is some improvement in the economy, he will go back to his actual agenda that focuses on more taxes, more government spending, more redistribution of wealth and more regulation.

   So long as Obama is in office, it will be difficult to convince job creators that they should take risks to expand, hire, start new businesses and otherwise engage in job creating activity because they don't believe that they will be rewarded for taking those risks.  In fact with the anti-business Obama in office, taking such risks is a lose lose proposition for business. Either such risks will fail and their business will be damaged or they will succeed and then be faced with higher taxes and more regulation. 

If we want job creation we need to elect a President that wants business to succeed and prosper.  Voting Obama out of office in 2012 will do far more to spark job creation than any stimulus plan proposed in the interim.

Thanks for reading

                    -Hand

"I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it."

             -- Benjamin Franklin