Dear Friends: It has been quite a sardonic day in the news. First, Obama claims that he is a “warrior for the middle class”. As a member of the middle class family in which both spouses are severely underemployed, I feel the shrapnel from his administration’s destructive economy policies.
Next, there is the dashing group photo from a “Open Government Workshop”:
Hat-tip Tammy Bruce
I think I have an explanation: The group was being asked who wanted Obama to be re-elected in 2012.
Third: Your “WTF?” Moment of the Day: Obama And His Slaves. This is an original and insightful photo-essay on HillBuzz that is a must see. The centerpiece is Obama and his umbrella. He doesn’t seem to have much luck with umbrellas.
And concluding with a gem of sardonic humor, here is an essay from the Shrine’s economic guru and financial prophetess, Professor Athena, for you to enjoy!
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Déjà vu All Over Again
After the long August break, the newest desperate push from the White House is a two-pronged attack that is being shilled as “not class warfare, it’s math!” The Buffett love is certainly flowing through to the folks now. Capital gains taxes would go up under the President’s plan, because “it is only fair”, along with regular earned income as tax cuts under the Bush administration are reversed and losses of current deductions for higher-income earners are added to the total new tax bill.
This increase, which an article in today’s Wall Street Journal estimates is a ratio of 3 dollars of tax increases for each 1 dollar in spending cuts will cost small business job creation at a time when venture capital and financing is under attack. Doctors and hospitals and drug companies are projected under the President’s plan to see a reduction in their Medicare repayments (which of course naturally translates to higher health care costs to compensate through the private systems for what the government is not paying). There are also more taxes levied on corporate America as it is sanctimoniously explained to those in the room less smart than the President (which is apparently everybody) what we should be investing in, i.e. education, technology, and infrastructure. In other words, the 2009 just-shy-of-a-trillion is all gone and the federal government wants more. They did such an excellent job with that $500 million they loaned to Solyndra!
The problem with the administration’s new war on conservative fiscal policies is that their claim that “it’s math” is misleading in that, while it is indeed math, it doesn’t count if it’s a wrong answer the last time we were in Algebra class. Claiming that rich people need to “pay their fair share” and contending they don’t already pay more in taxes than the middle class is a false contention. A quote from a recent Wall Street Journal article:
An analysis by the nonpartisan Tax Policy Center projects that for 2011, households with more than $1 million in income will have an average federal tax rate of 29.1%, compared to a rate of about 12.4% for households with income of $40,000 to $50,000. The center counts all federal taxes, including income, payroll and estate taxes.
Internal Revenue Service data suggest a similar pattern for individual income tax, according to an analysis by the Tax Foundation, a nonpartisan research group. It found that households with income between $40,000 and $50,000 have an average tax rate of about 6.8%, while households with income over $1 million have an average rate of 24.6%.
Let’s examine what is really wrong about this continuation of the class warfare so popular in Omaha and other liberal domiciles. An article in the Sept. 19th Wall Street Journal reported that only 22,000 households in America reported annual incomes of over $1 million. Does anyone honestly believe that we can balance the federal budget on incremental adjustment in just those households? The answer is no, and what the government is coming for are incomes much, much smaller. They are coming for larger than the 35% maximum that households in the $200-250M income pay, because that encompasses a greater number of households and income, and they can continue to spend while blaming someone else for their own lack of understanding about what policies at the federal government level actually enhance creation of private sector jobs. See Ronald Reagan and TEFRA, 1986. Some deductions were lost, but the overall marginal tax rates were lowered, and millions of jobs followed. Even some Congressional Democrats have referenced this point recently.
Paul Ryan said it best to Chris Wallace yesterday on Fox’s Sunday show, “If you tax investment you get less of it”. Investment money is scarce these days. Banks are dealing with a monstrous onslaught of new regulation, potential claw-back fines on their loan servicing (thank you, Richard Cordray), and now the regulatory authority for FNMA and FHLMC (Fannie Mae and Freddie Mac) is letting it be known that fees being charged to loan originators will go up dramatically next year. Though this change could conceivably be beneficial for taxpayers and FNMA and FHLMC bondholders, the administration has at the same time been prompting refinance for delinquent home borrowers whose loans are GSE-qualifying EVEN if their loans are underwater! To get your arms around this double-speak, you truly have to wade into the swamp that is the mind of a liberal Democrat. They are punishing the borrowers who are current on their mortgages by charging to them the expense of bailing out the deadbeats who are not.
If there is one populist trend in politics now that is getting scant attention, it is this one. Americans who are paying their bills on time deserve to be hopping mad! One takeaway from all this from a business policy standpoint is that federal bureaucrats don’t really want banks to make home loans anymore. The largest banks, all of whom took on subprime debt and are full on non-qualifying loans, have no interest in the narrowly-profitable plain vanilla housing markets. They are exiting that market. That will leave only mortgage companies (the very entities who loaded up on subprime mortgages) originating mortgages, and we have to hope they are not all as bad at assessing risk as Countrywide. Anybody want to call Vegas for odds on that one? Please take my advice and find a loan shark if you have less than perfect credit or can’t afford 20% down payment.
Also in the administration’s plan is a true poison pill disguised as a tax break. It is a continuation of the payroll tax cut, which is paid into Social Security. In other words, let’s give everyone earning a paycheck a small break today to further compromise the Social Security Trust Fund, running it into the red further as more baby boomers become eligible for benefits. To do this, a family earning $50M in annual wages will save about $1500, or 3.1%. This is of course being mirrored in the employer contribution, for a whopping chunk of negative draw-down set aside for Social Security ($240 billion on top of the $80 billion from this year).
But don’t worry. Obama says that he will cover the forgone revenue the Social Security Trust Fund by transferring money from the government’s general fund. Seriously! And, or course we all know what good shape that general fund is in. You can’t make this stuff up! Grandma, we aren’t the ones pushing your wheelchair over the cliff, it’s those Republicans who can’t do math or accounting or anything. Really.
American businesses are smarter than what this administration gives them credit for. They have stopped hiring and are holding onto cash for prudent reasons that remain unobscured to those of us who are in the private sector. Ask any small business owner the main factors that are holding them back, and they say “orders” and “health care costs”. In other words, they cannot hire people when the economy is very weak and when their fixed costs are going up.
The way you stimulate jobs is to make it less expensive to hire new workers, and though the payroll tax has the appearance of being that, it won’t prompt much hiring, first of all because it is so incremental (not enough cumulative front-end effect) and second because it is expected to be temporary. Businesses do not budget workers short-term, and instead do their planning at least a year in advance. For short-term needs, they have overtime and temporary workers who can be used much more inexpensively to meet production needs.
Why is the administration repeating the same mistake, where they attempt to bully Congress into passing legislation designed to increase taxes to order to buy more middle class voter loyalty only to see it fail to make it past the House of Representatives? The answer is either that they are the definition of insanity, where you keep repeating the same experiment and expecting a different outcome. Or, it may be that they genuinely believe they can run against a Congress they can label as “do nothing”. If so, it is a weak political platform indeed, and they deserve to lose because of it.
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