Friday, April 13, 2012

Taxes, Competitiveness, Presidential Politics and Reality

What's the purpose of taxes? Well, increasingly it depends on who's deciding and why the taxes are being proposed.

To raise needed revenues for a limited and proper functioning government or to garner votes and win an election? Let's look closer.

Tax Policy is About Competition, Not Fairness,with which I agree, says this:

"'The economy is like a regular .300 hitter who only batted .250 and then slumped to .230." So said Walter Heller, chairman of President John F. Kennedy's Council of Economic Advisers, about the U.S. economy in 1961, when growth was anemic and unemployment had hit 7%. He could have said the same after last Friday's disappointing jobs report.

Heller's successful plan to combat the recession of the early 1960s was the Kennedy-Johnson tax cuts, which pushed the unemployment rate below 5% and the growth rate above 5% from 2%. Crucially, the administration's marketing pitch didn't talk about "fairness" but about competition. In the 1963 State of the Union Address, for example, Kennedy spoke about obstacles that "undercut our efforts to compete with other nations." He called "one step, above all, essential" to solve the problem: "the enactment this year of a substantial reduction and revision in federal income taxes."

Heller and Kennedy recognized that taxation (not only growth) is all about competition. Cities compete with cities, counties with counties, states with states, and nations with nations. These natural experiments run in real time....

The trouble is that lawmakers (especially at the federal level) insist on discussing tax reform in terms of fairness. Tax competition earns a mention from time to time, but only a mention... .

Internationally, as Nobel Laureate Edward Prescott has written, marginal income tax rates correlate to number of hours worked; heavily taxed Europeans work only half the hours of Americans. And smaller government tends to correlate with stronger growth: As scholars . . . showed in analyzing more than 20 countries over a quarter-century, for every 10 percentage points that a country's government expands into its economy, the country loses up to a percentage point per year in economic growth. . . .

Shifting the American tax debate to the framework of competition feels hard."

President Obama's Approach to Taxation

So what's President Obama talking about with respect to taxes, competitiveness or fairness?

Certainly not competitiveness. Instead he's talking about fairness as perceived through his electioneering eyes.

But his election year tax proposal is not even a serious one. It's just talk while he's running for reelection. After all, what else matters?

In fact, he's proposing to achieve what he labels tax 'fairness' by making the rich pay more taxes. Meanwhile, he's not proposing any tax increase on what he refers to as middle class Americans, including some of the lesser rich, in order for our nation to be able to seriously address our operating deficits and debts.

But we don't need more political gamesmanship. Instead we need serious leadership and some serious straight talk. Not the political theatrics of the President and his allies.

In the President's latest proposal to tax the rich, the vast majority of voters--er taxpayers-- won't be impacted. At least not before the results of this year's election are counted.

Sadly, the President may get away with this ploy and win this fall's election, but even if he does, our financial problems won't then go away. They will have just gotten worse.

And they'll continue during his second term. Then in 2016, if not before, we'll be required to take dramatic measures to address our ongoing financial mess.

Obama to Visit Swing State to Push His Millionaire Tax sums up the farcical political 'fairness' proposal:

"President Barack Obama and fellow Democrats plan to pressure Republicans this week to support a minimum tax on millionaires to improve the tax system's fairness, though most economic analysts say the measure would do little to dent deficits or boost the economy. . . .

Proponents say the Buffett Rule is necessary for fairness, to force the wealthy to shoulder more of the deficit-reduction burden. . . .

Congressional estimators say the Buffett Rule would generate about $47 billion over the next decade, or less than 1% of the $6.4 trillion in deficits projected during that time under Mr. Obama's budget."

Summing Up Our Needs

We need to stop playing political games and stop ignoring our lack of economic growth and fiscal stability.

We need to stop emulating the failed economic and social policies of the European countries and learn from them instead.

We need jobs, and we need more tax receipts. We also need to pay attention to our debt and deficit issues before they overwhelm the ability of the U.S. economy to handle them.

We need smaller and a more responsive government as well.

So what's being proposed by the President in the name of fairness? Simply bigger government and that voters endorse President Obama this fall by rejecting the Republican nominee, Mitt Romney, and his call for less government and a more vibrant private sector approach to economic growth, employment and deficit reduction.

If more taxation and bigger government are the President's answer to our financial dilemma, why not raise taxes on all Americans by enough to credibly impact our national debt and deficits? That would entail an approximate $6.7 trillion in additional taxes.

President Obama has recommended less than 1% of the total needed. What about the other 99%? Where will we get that sum, or even a substantial part thereof?

If we want to get serious about financial management and economic prosperity, the place to begin isn't to take money from people who can pay the most tax.

The legitimate way to financial recovery is to encourage private sector economic growth.

Thus, the salient issue is whether government officials can better make those decisions or whether those decisions are best left to the people.

It's a simple matter of voting for MOM or OPM. I'm for MOM.

That approach would best serve the needs of all Americans.

Rich, middle class, poor, young and old, and all other U.S. citizens.

And while we're at it, the rest of the world's citizens, too.

Thanks. Bob.

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