Today’s post comes from an article by Thomas McClanahan of the Kansas Star entitled: “The Obama Years Could Become Our ‘Lost Decade’.” The primary value of Mr. McClanahan’s position is to shed light on the reality of economic history. Specifically, he destroys the myth that people like Obama and other liberals like to espouse is that higher tax rates can produce a healthy, growing economy. These people often point to the 1950s era of high tax rates and good economic growth.
They fail to point out a number of faults in this argument:
- First, while marginal tax rates were higher, the number of deductions was also extremely high. For those of you old enough, you probably remember that at one point in time people could right off the cost of the infamous “three martini lunch,” their membership at private golf courses, and a whole host of other frivolous tax deductions that made a mockery of the high marginal rates. The correct analysis, something these people never do, is to look at the effective, actual tax rates, not the published marginal tax rates.
- Life today is far different than it was in the 1950s. Today, there is a global economy and global competition which is cut throat. High taxes in one country forces companies to move production and manufacturing to other lower tax countries. This was not the case in the 1950s. The world and much of its ability to manufacture had been destroyed by World War II. The U.S. was one of the few remaining economic giants. That is not the case today and to think we can use 1950s economic theory and tax rates is nonsense.
- These liberal leaning economists and politicians like Obama miss the whole point of freedom: you cannot have personal freedom if you do not have economic freedom. As the government confiscates, and eventually wastes, more and more of our wealth via taxes, we have less freedom to live where we want, to send our kids to the schools we want, to start up a new business, etc. Their cold, academic, analytical approach to the economy and economic policy is void of human compassion and respect for freedom.
- Record high unemployment and underemployment for record lengths of time.
- Record high deficits spending to the tune of over $5 TRILLION in just four years.
- One failed economic policy after another including Cash For Clunkers, Cash For Appliances, Economic Stimulus Program, HARP Mortgage program, etc.
- The first ever credit rating downgrade in the history of the country.
- Record high numbers of Americans on food stamps and collecting unemployment benefits.
- Cronyism economics that has led to dozens of failed political crony-linked businesses, which has wasted billions of taxpayer dollars, including Solyndra, A123, ENER1, Abound Solar, SpectraWatt, Fisker Motors, etc.
- Energy prices are up well over 50% over the past few years, creating a heavy drag on the economy.
- A Federal government bureaucracy that is bloated and riddled with criminal fraud and inefficiency, creating a another heavy drag on economic growth.
But I talk too much. Let Mr. McClanahan explain how Obama’s “taxing the rich” strategy and divisive rhetoric will likely cause us to waste away another four years, eight years total, chasing economic polices and theories that have been proven wrong, both in the real world in and in the world of logic.
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The Obama years could become our ‘lost decade’
By E. Thomas McClanahan
Updated: 2012-12-02T00:07:20Z
After five years of lousy economic performance, you would think people would be sick of it by now. Guess not. How else to explain why we’re having a big fight over inequality instead of arguing over how to jump-start growth?
There’s no denying inequality has increased. Median wages haven’t kept up while families in the upper tax brackets have prospered. But even so, getting the economy back on its typical growth path of 3.4 percent a year should be the overriding imperative.
That would do wonders for the immediate problem of too few jobs and too many jobless — not to mention the problem of lagging incomes and insufficient federal revenue.
Sadly, that’s not the topic du jour.
Prosperity harbors a contradiction. Rapid economic growth requires a relatively high degree of inequality, which is more tolerable when the pie tends to grow for all.
In hard times, those who succeed and enrich themselves draw more envy and the political left amps up its obsession with punishing the rich — expressed in the form of taxes that impair the economy’s potential.
The current inequality obsession has gotten so bad some people think we would be better off running the top tax rate back up to 91 percent, where it was in the 1950s. Those were prosperous times, they say. Businesses were still created. Investment was healthy. And there was less inequality!
The New York Times’ Paul Krugman gave this a try in a recent column, with the added notion that we would also be better off — less inequality! — if organized labor had the same heft it did in the ’50s. As a Nobel laureate, he had to know better.
Today, the economy is weak even with relatively low tax rates. Yet Krugman and his fellow travelers say the solution to our woes is a job market dominated by labor monopolies — unions — and a tax rate that gives upper-income investors and business owners virtually no incentive to earn an additional dollar.
Krugman forgot that the 1950s were a unique period in our history. Much of the developed world’s industrial capital was incinerated in war and was still being rebuilt. Of course the American economy prospered. How could it not?
Moreover, as James Pethokoukis of the American Enterprise Institute recently pointed out, jobs were plentiful in those years in part because the post-war boom came at a time when the size of the labor force was reduced, not only by a Depression-era birth dearth but the loss of potential workers killed or wounded in war.
Krugman would profit from reading a recent column by his Times colleague, Eduardo Porter. It includes several passages that were amazing to find in The Times.
A sample: The U.S. tax system is “one of the most progressive” in the developed world. It does “more to redistribute resources and reduce inequality” than tax codes in other countries. But progressive taxes “make it hard to raise money” because they “encourage people to reduce their tax liability rather than to increase their pretax income.” And:
Hitting top earners with high rates “can discourage work and investment.”
Porter was arguing for flatter, European-style taxes like the value-added tax or a carbon tax — levies few people can avoid, which produce revenue like gangbusters. Porter doesn’t think Washington does enough to support low-income families compared with big-government social democracies, which rake in much more revenue.
The European debt crisis, however, highlights the flaws in that model.
It’s true we must have more revenue and the Simpson-Bowles plan, once assumed to be a roadmap for the fiscal cliff talks, would have produced more by carving loopholes from the tax code. But it also would have encouraged growth by rolling back the top rates. Forget it: Obama now insists we dispense with the rollback. To heck with growth: He wants to carve out the loopholes and raise the rates.
If he gets his way, we could face four more years of economic anemia — which means we may someday look back on the Obama years as the Japanese look back on their “lost decade.”
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