Monday, September 26, 2011

Taxes and Job Creations - Really

The Wall Street Journal ran this article last week and the article sums up the Obama tax scheme better than any publication I have read. The Journal has a lot of really good financial articles on their web site. If you don't read it just 'log on'.

The writer does a great job describing the current 'jobs growth program' our President is in the process of selling to the public. Below is a really clear picture on this NEW Jobs Program. As I was reading the article I found myself wondering,
will there ever be an end to our president's 'spreading the wealth around' with taxing cons…? There are some other clips and history thrown in for good measure.

I hope you will find the article(s) helpful.


President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let's call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.
• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create "millions of jobs" through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the
Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phase-outs, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

The White House's economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

WSJ Editorial board member Steve Moore on President Obama's plan to pay for temporary tax cuts by hiking income and business taxes over the long haul.
The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

All of this assumes that American business owners aren't smart enough to look beyond the next few months. They can surely see the new burdens they'll face in 2013, and they aren't about to load up on new employees or take new large risks if they aren't sure what their costs will be in 16 months. They can also reasonably wonder whether Mr. Obama's tax hike will hurt the overall economy in 2013—another reason to be cautious now.

For the White House, the policy calendar is dictated above all by the political necessities of the 2012 election. Mr. Obama will take his chances on 2013 if he can cajole the private economy to create enough new jobs over the next year to win re-election, even if those jobs and growth are temporary. Business owners and workers who would prefer to prosper beyond Election Day aren't likely to share Mr. Obama's enthusiasm once they see the great tax cliff approaching. Look out below.


For many of us our time for gathering in life has passed and we are approaching the end game. We still have time to scatter the knowledge gained through a lifetime of success and failures.

Our history is always the prelude to what ever we are going to do next….So when we ask or wonder 'What's going to happen next' we should always look back…The trick is to look back far enough to a time that most people living have forgotten.

Here is yet another example of forgotten history:

"I think the analogy between the 1890s and today is better than the analogy with the Great Depression … that we often focus on,” said Hugh Rockoff, a Rutgers University economics professor. “One of the many similarities is the real estate crisis. There was a subprime mortgage problem in the 1890s that was very similar to what precipitated the recent crisis.”

Before 1893’s crisis, many farmers bought homesteads on the Great Plains with short-term “balloon” mortgages supplied by small local mortgage companies and banks. The borrower paid only the interest for five years – until the principal then came due.

Mortgage companies bundled those mortgages and sold them to investors in New York and London.

The bundles supposedly were insured – all very much like the securitization of mortgages that preceded our recent crisis – but they plunged in value, igniting an international banking panic.

“Industrial production fell … and unemployment rose to double-digit levels,” Rockoff recalled. “It took years to work our way out.”

Given the years of recovery from the 1890 crisis and the years of the great depression of the 1930 's you have to wonder with more people, bigger debt, no low end jobs to help out the unemployed, how long will this recovery take? Even if we had some business experience in our leadership? What a mistake we make when we elect people to public office who have never had to 'make' payroll week in and week out.

Let's not look so far back..How about the housing crisis in the seventies and the collapse of the saving and loan industry….There were about five hundred or so savings and loans banks that went under and the ones left were absorbed by other banks. Most loans were to marginal home buyers. This was part of the purpose and mission of the savings and loans business. Down turn, people lost jobs, couldn't pay mortgages, and in most parts of the country homes lost 40/50% of their value. It took six to eight years to work our way out. This was less than thirty years ago. You would think we would have remembered this crisis.

The worse question might be, with this level of spending along with the projected debt growth over the next decade can we work our way out this time? It seems that if we continue this irresponsible spending behavior by our government there will be a time of reckoning that can't simply be worked out. (Look where Europe has gotten to….can we be far behind?)

When we don't teach history, or worse know history and dismiss it, the price to us and the generation that follow simply gets worse as the population grows. A really good example would be all the young people who supported Obama in his election seem to have no idea they would be the ones who will work to pay the debt he is creating for most of their work life. They seem to have no idea of debt in general and certainly no idea of what 'interest on the debt' means but enamored of the idea of 'spreading the wealth' around. (I would like to say, "heaven help us" but I am embarrassed to ask Him.)

It would seem the educating these young voters through their college newspapers and other social media tools as to what these debts our congress/president are creating and the impact it will have on their lifves would be a good thing to do. We have a number of colleges in Mississippi that have newspapers created by students. ?????

Just for fun: The platform for the Communist Party in England in 1929 feels familiar in its reading…It's title was Class Against Class…(Nothing ambiguous about this….)

"With talk of class warfare in the air, it’s perhaps useful for the sake of context to re-examine the 1929 platform of the Communist Party of Great Britain, titled “Class Against Class” and representing an avowedly class warfare approach to an economic crisis. Here’s what they had to say on tax policy:

(1) Abolition of all indirect taxes.
(2) Exemption from all kinds of taxation for all wage-earners.
(3) Tax exemption for all working farmers.
(4) Graduated income tax starting with the incomes of £500 per annum, increasing gradually so that all personal incomes over £5,000 per year are confiscated.
(5) Abolition of the right of transfer and inheritance by confiscation of all individual fortunes over £1,000.
(6) Repudiation of the National Debt (special consideration to be given to the position of small investors, the Cooperatives, and trade unions).

This is strikingly different from a modern progressive agenda. In the CPGB’s framework, the source of income is all-important. Gilbert Arenas is a “wage-earner” and thus should be exempt from all taxation, but a successful small businessman would see his income capped at about £200,000 in today’s money.
This wasn’t a big concern for the CPGB because they were also proposing to “nationalize the banks, the land, the mines, the railways, land and sea transport, electrical industries, broadcasting stations, engineering and shipbuilding industries, post and telegraph, chemical, cotton and woolen textile industries, flour milling, boot and shoe industries and building materials, all of which are ripe for running as national industries, untidily owned and controlled by the workers.”
(Wonder why they didn't want to nationalize their auto industry? They may have overlooked it.)

In 1929 these were still fairly new ideas. Almost a hundred years later, dressed up in a different suit, watered down slightly, these ideas have resurfaced. Minority groups against the majority groups, young against old, poor against rich, workers against business, and liberals against conservatives. Our President spends his day campaigning for his reelection. In every speech he searches for ways to divide the citizens of the nation.

When and if jobs are created they will be created by young small business and mostly started by young men and women. They will not be created by congress, the President, our Aunt Tilley…Few, if any jobs, will be for manual workers. Our core chronic unemployed will become more unemployable.

How many people are left (that aren't on the left) still believe that Obama's goal is to do what is necessary to create jobs? How many people believe that Obama's goal is for government to control every aspect of our economy? How many people believe that Obama believes in a government for and by the people and that governments governs at the consent of the people?

Mr. President, in fifty eight weeks the people are taking you and a whole bunch of your supporters to the woodshed.


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