Greetings from the Left Coast!
Social media is ablaze with indignation over announcements by several businesses, many of them in the restaurant industry, who have now announced that they will be either cutting back on the number of employees or cutting back their employees' hours to less than 30 hours per week as a result of the impending employer mandates that are part of the Affordable Care Act (a.k.a. ObamaCare). Many are urging boycotts of these businesses, which seems a bit strange, because a successful boycott would necessarily harm the businesses and therefore lead to even fewer people having jobs.
But let's take an objective look at the facts about what businesses are now facing:
As of January 1, 2014, all businesses that have more than 50 full-time employees must provide them with health insurance or pay a fine. And there will be no such thing as "basic" health insurance - all plans must conform to the government mandate in terms of what must be covered, and what the deductible and annual/lifetime limits can be. One of the things that all business owners who do provide coverage will have to do over the coming year is to review that coverage to make sure it measures up to the government requirements.
The cost of a plan that does meet those requirements is estimated to average about $1.79 per hour per full-time employee. As Betsy McCaughey writes in today's New York Post, that's incidental if you're hiring neurosurgeons, but a significant incremental expense if you're hiring bus boys or sales clerks. In most cases, this will double the health care costs of employers in the retail and fast-food industries. Across all industries, for business of 101 - 1,000 employees, health care costs are expected to go up by about 9.5%. For businesses over 1,000, the increase will be roughly 4.5%.
According to a recent study by the McKinsey & Co. management consulting group, as many as a third of all employers are considering canceling their coverage altogether, because it will be less expensive to pay the $2,000 annual fine per employee than it will be to provide coverage that conforms to the government mandate. Those employees would then either go onto Medicaid (if they qualify), or purchase insurance through one of the state-run insurance pools. In the latter case, depending on their income, a portion of their premium would be subsidized by the government, paid for, in part, by those $2,000/employee fines. And, regardless of what you may have heard, part of the funding will also come from reducing payments to Medicare Advantage plans, and from slowing the growth in payments to Medicare providers such as hospitals, hospices, home health care agencies, and skilled nursing facilities - which is likely to make some of these providers less inclined to accept Medicare patients.
For some employers, hiring that 51st employee may turn out to be cost-prohibitive. Consider a restaurant with 50 employees, that currently pays minimum wage (not uncommon for employees that get a large portion of their income from tips) with few or no benefits. In fact, let's say this restaurant was paying more than Washington's minimum wage of $8.55/hour - let's say our restaurant is paying $10/hour, just to make the math simple. Today, hiring that 51st employee costs roughly $20,000 (2,000 hours x $10). But as of January 1, 2014, hiring that 51st employee would mean paying the $2,000 annual fine for employees 31 - 51: that's an additional $42,000. So hiring that 51st employee will actually cost the business $62,000, not $20,000. In all likelihood, that employer simply will not hire that 51st employee.
The other alternative, of course, is to reduce employee hours to less than 30 hours per week, which is the threshold under the ACA that defines a "full-time" employee. However, fines under the employer mandate also are imposed on workers who are not full-time, because a combination of employees working an aggregate of 120 hours per month will count as one full-time employee. This provision will be particularly painful for seasonal businesses, where it is often not cost-effective to provide insurance benefits to employees who will only be with the business for a short period of time.
Businesses have to make a profit or they don't survive, which means that all of their employees lose their jobs - which, by the way, is also the logical outcome of a successful boycott. When the government takes action that drives up the cost of doing business, something has to give, and not all businesses have the ability to simply raise prices to pass those costs on to their customers. The retail and fast-food industries in particular are extremely competitive. There is nothing in the ACA that requires a business to simply eat those increased costs, even if they are able to do so.
The most surprising thing to me is that anyone is actually surprised by this. Thanks for listening.
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Tuesday, November 13, 2012
Thursday, November 8, 2012
Four More Years? Some Predictions
Greetings from the Left Coast, which, once again, has lived up to its nickname by remaining solidly "blue."
Well, the people have spoken. And, incredibly, they have decided to give Barack Obama four more years. The second-guessing and what-went-wrong analyses will go on for at least that long. Certainly the media had a lot to do with it. If they had done their job in the first place, he wouldn't have been elected in 2008, let alone re-elected with the economy in the dismal shape it's in today. All you need to do is go back and review what the media said about the state of the economy in the run-up to the 2004 election, when, in fact, it was in much better shape than it is today, and compare it to their reporting this campaign season. Add to that their deliberate inattention to the Benghazi story, making it easy for their man to run out the clock, and Barack Obama becomes the first president in modern times to be re-elected with a smaller percentage of the vote than he got the first time around, despite having run the most despicable campaign I can remember in my 60 years on this planet.
In four years, we went from "hope and change" to seniors threatening to "burn this motherf***er down" and c**k-punch Romney if he won. We saw Obama follow precisely the path he accused others of in the last campaign: "When you don't have a record to run on, you paint the other guy as someone people should run away from." We saw the phoney "war on women," which was given legitimacy by a compliant media. We saw Romney falsely accused of indirectly killing a man's wife by being responsible for taking away her health insurance. We saw him falsely accused of wanting to take away women's access to contraceptives. Elect Romney, we were told, and he would overturn Roe v. Wade and completely eliminate "a woman's right to choose," which was patently ridiculous, because it is not possible for any president to simply overturn a Supreme Court decision. Republicans, we were told, were for dirty air and dirty water, and for letting autistic children fend for themselves.
But apparently enough voters believed all of that to put Obama over the top - a realization that saddens me. It isn't pleasant to realize that so many of my fellow citizens are that susceptible to lies and manipulation. We may have had an excuse in 2008 in that the media didn't do its job in telling us who Obama was and what he believed. But we've seen him govern for four years now, and we've seen that he is, as some of us tried to say in the beginning, an extreme left-wing ideologue who wants to reshape the nation to fit his ideology and has no desire to compromise. We've seen the results of his four years: continuing high unemployment, anemic economic growth, disdain for the separation of powers, and a willingness to simply ignore laws that he finds inconvenient to the pursuit of his goals. There is no excuse this time for not knowing who Barack Obama is. But we re-elected him anyway.
It's possible that we've finally reached the tipping point in the electorate that we've been warned about. When nearly 50% of the population pays no federal income tax, and 10% of the population pays 70% of all the federal income tax collected, we are in a dangerous place as a nation. Why shouldn't a large portion of the population vote for bigger government and more entitlements if they're not the ones who have to pay for it? If you add in those who simply can't be bothered to educate themselves on the issues beyond the 5-second sound bites on the six o'clock news, those people may now be in the majority. Only time will tell. And if you think I'm overstating the case, consider that the top Google search trend in the few days before election day was "who is running for president." Most of those searches came out of North Carolina, with Ohio and Pennsylvania coming in second and third, respectively. All three, of course, being "swing states" that were enormously important in the election, and that had been saturated by ads for months.
But, nevertheless, today's reality is that Barack Obama will be our President for four more years. So what should we expect? Here are some predictions that I really hope are wrong. We'll circle back in a few years and see how many I got right:
Well, the people have spoken. And, incredibly, they have decided to give Barack Obama four more years. The second-guessing and what-went-wrong analyses will go on for at least that long. Certainly the media had a lot to do with it. If they had done their job in the first place, he wouldn't have been elected in 2008, let alone re-elected with the economy in the dismal shape it's in today. All you need to do is go back and review what the media said about the state of the economy in the run-up to the 2004 election, when, in fact, it was in much better shape than it is today, and compare it to their reporting this campaign season. Add to that their deliberate inattention to the Benghazi story, making it easy for their man to run out the clock, and Barack Obama becomes the first president in modern times to be re-elected with a smaller percentage of the vote than he got the first time around, despite having run the most despicable campaign I can remember in my 60 years on this planet.
In four years, we went from "hope and change" to seniors threatening to "burn this motherf***er down" and c**k-punch Romney if he won. We saw Obama follow precisely the path he accused others of in the last campaign: "When you don't have a record to run on, you paint the other guy as someone people should run away from." We saw the phoney "war on women," which was given legitimacy by a compliant media. We saw Romney falsely accused of indirectly killing a man's wife by being responsible for taking away her health insurance. We saw him falsely accused of wanting to take away women's access to contraceptives. Elect Romney, we were told, and he would overturn Roe v. Wade and completely eliminate "a woman's right to choose," which was patently ridiculous, because it is not possible for any president to simply overturn a Supreme Court decision. Republicans, we were told, were for dirty air and dirty water, and for letting autistic children fend for themselves.
But apparently enough voters believed all of that to put Obama over the top - a realization that saddens me. It isn't pleasant to realize that so many of my fellow citizens are that susceptible to lies and manipulation. We may have had an excuse in 2008 in that the media didn't do its job in telling us who Obama was and what he believed. But we've seen him govern for four years now, and we've seen that he is, as some of us tried to say in the beginning, an extreme left-wing ideologue who wants to reshape the nation to fit his ideology and has no desire to compromise. We've seen the results of his four years: continuing high unemployment, anemic economic growth, disdain for the separation of powers, and a willingness to simply ignore laws that he finds inconvenient to the pursuit of his goals. There is no excuse this time for not knowing who Barack Obama is. But we re-elected him anyway.
It's possible that we've finally reached the tipping point in the electorate that we've been warned about. When nearly 50% of the population pays no federal income tax, and 10% of the population pays 70% of all the federal income tax collected, we are in a dangerous place as a nation. Why shouldn't a large portion of the population vote for bigger government and more entitlements if they're not the ones who have to pay for it? If you add in those who simply can't be bothered to educate themselves on the issues beyond the 5-second sound bites on the six o'clock news, those people may now be in the majority. Only time will tell. And if you think I'm overstating the case, consider that the top Google search trend in the few days before election day was "who is running for president." Most of those searches came out of North Carolina, with Ohio and Pennsylvania coming in second and third, respectively. All three, of course, being "swing states" that were enormously important in the election, and that had been saturated by ads for months.
But, nevertheless, today's reality is that Barack Obama will be our President for four more years. So what should we expect? Here are some predictions that I really hope are wrong. We'll circle back in a few years and see how many I got right:
- The Affordable Care Act (a.k.a. ObamaCare) is here to stay. (This statement really isn't a prediction, it's now a fact of life.) Four years from now, we will be much too far down that road to unwind things, or to do more than implement some minor tweaks. As Obama knew all along, by the time the majority of Americans find out they've been lied to about the cost of the program, their ability to keep their own insurance if they like it, etc., it will be too late. It only remains to be seen how much damage will be done to the economy from companies deciding not to hire new employees because of the cost of providing them with health care, or cutting them back to fewer than 30 hours per week so they aren't required to do so, or dumping their health plans altogether and pushing their employees to the health insurance exchanges because it's less expensive for the employers to pay the annual fine than it is to pay the premiums.
- Sometime in the next four years, unless stopped by an Israeli attack, Iran will obtain nuclear weapons.
- The Muslim Brotherhood will turn Egypt into an Islamist state and renounce Egypt's peace treaty with Israel.
- At some point in the next four years, possibly as a result of increasing instability in the Middle East, the average price of a gallon of gas will top $5.00.
- Unemployment will not drop below 6% in the next four years, unless the number is manipulated by more and more people giving up on finding a job and dropping out of the labor force. We will be told that this is the "new normal."
- Economic growth will continue at its current anemic level of roughly 2% per year, which will not be enough to return us to pre-recession employment levels by the end of Obama's second term.
- Federal deficits will continue to average $1 trillion per year.
- Sometime in the next four years, America's credit rating will be downgraded again.
- President Obama will continue to blame Republicans in general, and former President Bush in particular, for our ongoing economic problems.
Tuesday, September 11, 2012
How Long Can You Get Away with Blaming Bush?
Greetings from the Left Coast!
My rant of the day is against those purveyors of revisionist history that are maintaining that four years simply aren't enough for poor President Obama to clean up the gigantic mess that George Bush left behind.
Please. That doesn't fly with those of us who lived through it and were paying attention. For the benefit of those of you who didn't, or perhaps did but weren't paying attention (maybe you were just too young), here are the facts.
The economy is cyclical. Recessions come around every now and then, regardless of which party holds the Oval Office, and nobody has figured out yet how to stop them from happening. But what government does in response to them certainly can effect their severity and how long it takes to recover from them.
The economy was already in decline when George Bush took office in January of 2001. Before the end of the year, he was dealing with the double-whammy of the dot-bomb bubble burst and the aftermath of 9/11. Instead of whining about the horrible situation he had inherited from the Clinton administration, he took decisive action: he cut taxes. In response, by the beginning of 2002, the economy was growing again, and continued to grow through most of the rest of his term. Between 2001 and 2005, annual GDP growth averaged 2.8%. The number of jobs grew by an average of 6.5%. Median income increased. Average salaries increased. According to a report released by the U.S. Congress Joint Economic Committee, the U.S. outperformed its "peer group of large developed economies" (Canada, the European Union, and Japan) over that period - it led in real GDP growth, investment, industrial production, employment, labor productivity, and price stability. All while we were fighting wars in Afghanistan and Iraq. The budget deficit peaked at $600 billion in 2004, and was on its way back down...until the Democrats took control of both Houses of Congress in the 2006 elections. They took office in 2007, passed the 2008 budget, and, for the first time in history (but, unfortunately, not the last) we ran a deficit in excess of $1 trillion. The fact is that most of Bush's years in the White House were pretty good years economically. When he left office, the average price for a gallon of regular gas was $1.79. I don't know about you, but I'd love to see that again.
I think that most of us understand that the late-2008/early-2009 recession was largely the result of the bursting of the housing bubble - and specifically, the collapse of the sub-prime mortgage market, which took a lot of financial institutions down with it. Many will argue that this was Bush's fault, since it happened "on his watch." But I believe that the historians of the future will spread the blame more widely...and there is plenty to go around. Democrats had a very large role in fueling the growth of sub-prime mortgages by strong-arming lending institutions to make loans to low-income borrowers in the name of fairness and economic justice - low-income borrowers who, it turned out, were not capable of making their payments. The Congressional record is clear that the Republicans wanted more oversight of Fannie Mae and Freddie Mac. The hearings were filmed by C-SPAN, and are out there on YouTube for the world to see...as Democrat after Democrat expressed shock and outrage that anyone would imply that there was anything wrong with those fine institutions, particularly Fannie Mae under the direction of that outstanding leader Franklin Raines. That would be the Franklin Raines who ultimately took "early retirement" because the SEC was investigating accounting irregularities, which ultimately led to the filing of charges against him for cooking the books and overstating earnings by roughly $3 billion, helping him collect $20 million in compensation the last year he served as CEO. I'm still amazed that he and his two co-defendents aren't wearing orange jumpsuits.
But, be that as it may, the housing bubble burst, and the economy went off the cliff. That part certainly wasn't Obama's fault. But the cold truth is that pretty much nothing he has done since then has made things better. For the first two years of his Presidency, he could have done nearly anything. His party had a majority in the House, and a filibuster-proof "supermajority" in the Senate, rendering the Republicans completely powerless. But let us not forget the words of Rahm Emanuel: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." So we got a stimulus bill that was primarily a giveaway to the Democrats' union supporters - particularly public employees' unions - and large contributors (see "Solyndra") and that, as a result, didn't stimulate; and we got ObamaCare, which 2/3 of the country does not want, and which is suppressing job creation because employers don't know what the heck is coming at them next. We got more regulations, more government intrusion into our lives, and a virtual shutdown of the oil industry along the Gulf Coast. Yes, I know that the spinmeisters will point out that oil production is up these days, but that's because of increased production on private land, not public land. Production is up in spite of Obama's policies, not because of them, although he's still trying to take credit for it.
Unemployment is still above 8%, more than three years after the statistical "end" of the recession. And, if we had the same labor force participation rate today that we had when Obama took office, the unemployment rate would be over 11%. The only thing that's keeping it this low is the number of people who have given up looking for work and dropped out of the labor force (the labor force participation rate for men is now the lowest ever recorded). In August, the U6 unemployment rate, which includes people who would like to work but have given up looking, and those who are only working part time, but would like to work full time, was 14.7%. Median income has fallen during Obama's Presidency. Prices have soared. Businesses are afraid to invest. He will be, in all probability, the only President since the Great Depression to see fewer total Americans working at the end of his first term than were working when he took office.
Reagan arguably inherited a worse mess than Obama. Unemployment was higher when he took office, and inflation was running at over 10% per year. Yet by the third quarter of 1983, GDP was growing at an annualized rate of over 8%, and twice as many jobs were being created as are being created today - which had an even greater impact back then because the labor force was smaller. The average GDP growth during Reagan's 4th year in office was 7.75%. Where are we now? Oh, yeah, still struggling to break 2%.
The biggest problem is that Obama is an idealogue. He is philosophically incapable of changing course, which is why, in every speech he gives, he keeps trying to double down on the same policies that aren't working. Which, if I recall, is pretty close to Einstein's definition of insanity: continuing to do the same thing and expecting different results. If he somehow wins re-election, you can look forward to four more years of the same kind of economic stagnation, ballooning national debt, and growth in both the size of government and its intrusion in our lives as we've seen in the last four years. And I will get absolutely no pleasure out of saying I told you so.
My rant of the day is against those purveyors of revisionist history that are maintaining that four years simply aren't enough for poor President Obama to clean up the gigantic mess that George Bush left behind.
Please. That doesn't fly with those of us who lived through it and were paying attention. For the benefit of those of you who didn't, or perhaps did but weren't paying attention (maybe you were just too young), here are the facts.
The economy is cyclical. Recessions come around every now and then, regardless of which party holds the Oval Office, and nobody has figured out yet how to stop them from happening. But what government does in response to them certainly can effect their severity and how long it takes to recover from them.
The economy was already in decline when George Bush took office in January of 2001. Before the end of the year, he was dealing with the double-whammy of the dot-bomb bubble burst and the aftermath of 9/11. Instead of whining about the horrible situation he had inherited from the Clinton administration, he took decisive action: he cut taxes. In response, by the beginning of 2002, the economy was growing again, and continued to grow through most of the rest of his term. Between 2001 and 2005, annual GDP growth averaged 2.8%. The number of jobs grew by an average of 6.5%. Median income increased. Average salaries increased. According to a report released by the U.S. Congress Joint Economic Committee, the U.S. outperformed its "peer group of large developed economies" (Canada, the European Union, and Japan) over that period - it led in real GDP growth, investment, industrial production, employment, labor productivity, and price stability. All while we were fighting wars in Afghanistan and Iraq. The budget deficit peaked at $600 billion in 2004, and was on its way back down...until the Democrats took control of both Houses of Congress in the 2006 elections. They took office in 2007, passed the 2008 budget, and, for the first time in history (but, unfortunately, not the last) we ran a deficit in excess of $1 trillion. The fact is that most of Bush's years in the White House were pretty good years economically. When he left office, the average price for a gallon of regular gas was $1.79. I don't know about you, but I'd love to see that again.
I think that most of us understand that the late-2008/early-2009 recession was largely the result of the bursting of the housing bubble - and specifically, the collapse of the sub-prime mortgage market, which took a lot of financial institutions down with it. Many will argue that this was Bush's fault, since it happened "on his watch." But I believe that the historians of the future will spread the blame more widely...and there is plenty to go around. Democrats had a very large role in fueling the growth of sub-prime mortgages by strong-arming lending institutions to make loans to low-income borrowers in the name of fairness and economic justice - low-income borrowers who, it turned out, were not capable of making their payments. The Congressional record is clear that the Republicans wanted more oversight of Fannie Mae and Freddie Mac. The hearings were filmed by C-SPAN, and are out there on YouTube for the world to see...as Democrat after Democrat expressed shock and outrage that anyone would imply that there was anything wrong with those fine institutions, particularly Fannie Mae under the direction of that outstanding leader Franklin Raines. That would be the Franklin Raines who ultimately took "early retirement" because the SEC was investigating accounting irregularities, which ultimately led to the filing of charges against him for cooking the books and overstating earnings by roughly $3 billion, helping him collect $20 million in compensation the last year he served as CEO. I'm still amazed that he and his two co-defendents aren't wearing orange jumpsuits.
But, be that as it may, the housing bubble burst, and the economy went off the cliff. That part certainly wasn't Obama's fault. But the cold truth is that pretty much nothing he has done since then has made things better. For the first two years of his Presidency, he could have done nearly anything. His party had a majority in the House, and a filibuster-proof "supermajority" in the Senate, rendering the Republicans completely powerless. But let us not forget the words of Rahm Emanuel: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." So we got a stimulus bill that was primarily a giveaway to the Democrats' union supporters - particularly public employees' unions - and large contributors (see "Solyndra") and that, as a result, didn't stimulate; and we got ObamaCare, which 2/3 of the country does not want, and which is suppressing job creation because employers don't know what the heck is coming at them next. We got more regulations, more government intrusion into our lives, and a virtual shutdown of the oil industry along the Gulf Coast. Yes, I know that the spinmeisters will point out that oil production is up these days, but that's because of increased production on private land, not public land. Production is up in spite of Obama's policies, not because of them, although he's still trying to take credit for it.
Unemployment is still above 8%, more than three years after the statistical "end" of the recession. And, if we had the same labor force participation rate today that we had when Obama took office, the unemployment rate would be over 11%. The only thing that's keeping it this low is the number of people who have given up looking for work and dropped out of the labor force (the labor force participation rate for men is now the lowest ever recorded). In August, the U6 unemployment rate, which includes people who would like to work but have given up looking, and those who are only working part time, but would like to work full time, was 14.7%. Median income has fallen during Obama's Presidency. Prices have soared. Businesses are afraid to invest. He will be, in all probability, the only President since the Great Depression to see fewer total Americans working at the end of his first term than were working when he took office.
Reagan arguably inherited a worse mess than Obama. Unemployment was higher when he took office, and inflation was running at over 10% per year. Yet by the third quarter of 1983, GDP was growing at an annualized rate of over 8%, and twice as many jobs were being created as are being created today - which had an even greater impact back then because the labor force was smaller. The average GDP growth during Reagan's 4th year in office was 7.75%. Where are we now? Oh, yeah, still struggling to break 2%.
The biggest problem is that Obama is an idealogue. He is philosophically incapable of changing course, which is why, in every speech he gives, he keeps trying to double down on the same policies that aren't working. Which, if I recall, is pretty close to Einstein's definition of insanity: continuing to do the same thing and expecting different results. If he somehow wins re-election, you can look forward to four more years of the same kind of economic stagnation, ballooning national debt, and growth in both the size of government and its intrusion in our lives as we've seen in the last four years. And I will get absolutely no pleasure out of saying I told you so.
Saturday, October 9, 2010
Here's Another Prediction I Hope Is Wrong
Greetings from the Left Coast!
Last week, I heard Arthur Laffer interviewed on a national radio program. Laffer is a pretty bright guy who, by the way, supported President Bill Clinton in 1992 and 1996 because of Clinton's conservative fiscal policies. He's the guy who reportedly drew the "Laffer Curve" on the back of a cocktail napkin during a 1974 meeting with Dick Cheney and Donald Rumsfeld. The Laffer Curve basically states that at a 0% tax rate, and at a 100% tax rate, tax revenues would be zero. Therefore, somewhere between those two extremes is a point where tax revenues are maximized. Therefore, raising tax rates beyond that point will actually reduce revenues, and if rates are beyond that point, lowering them will actually increase revenues.
This absolutely worked during the Reagan administration, despite what you may have been told. Every time in modern history that federal taxes have been reduced, federal tax revenue has actually increased. The problem is that Congress is congenitally unable to stop itself from spending more money than it has - so even though tax revenue went up, spending went up even more, and debt increased. But I digress.
Back in June, Laffer wrote a column in the Wall Street Journal predicting what would happen if the "Bush Tax Cuts" were allowed to expire. This is now almost certain to happen, for reasons I'll explain later. Here are the salient points of Laffer's column:
The Democrats already chose to kick the ball down the road, and recess for their last-ditch campaign efforts without passing a tax cut extension. It probably won't get any better when they reconvene after the election, either, and here's why.
Even if the Republicans do see a sweeping victory on election day, they won't take office until next year. So the "lame duck" Congress that reconvenes after the election will be the same Congress that we have today. And here's what the math looks like. Nancy Pelosi already has in her hands a letter from 31 Democrats saying that the tax cuts should be extended for all Americans. So, although Pelosi is committed to extending the tax cuts only for the middle class, and allowing the "tax cuts for the rich" to expire, she may not have the votes to pass such a bill. So here is Laffer's prediction of what she'll do:
House rules allow her to bring a bill to the floor under "suspension" of debate, meaning that an immediate up or down vote must be held on the bill, without any debate taking place. However, such a bill requires a 2/3 majority for passage, which the Speaker does not have. So she will bring to the floor, under "suspension," a bill that extends the tax cuts only for the middle class, knowing she doesn't have the votes to pass it. Then, when it fails to pass, she will immediately blame the Republicans for voting against tax relief for the middle class. And if the economy does go off the rails next year, as Laffer predicts, she will blame the Republicans for that, too.
You see, for the Democrat leadership, it's all about their power. They were perfectly willing to see America lose the war in Iraq and come home in disgrace, as long as they could blame the Republicans for it. (Remember Harry Reid's "This war is lost?" And Obama's comment after he took office and saw that the surge was clearly working that, even knowing what he knew now, he would still have opposed it?) And they're perfectly willing to see the economy go off the rails, no matter how many Americans are hurt, as long as they can blame Republicans for it.
Thanks for listening.
Last week, I heard Arthur Laffer interviewed on a national radio program. Laffer is a pretty bright guy who, by the way, supported President Bill Clinton in 1992 and 1996 because of Clinton's conservative fiscal policies. He's the guy who reportedly drew the "Laffer Curve" on the back of a cocktail napkin during a 1974 meeting with Dick Cheney and Donald Rumsfeld. The Laffer Curve basically states that at a 0% tax rate, and at a 100% tax rate, tax revenues would be zero. Therefore, somewhere between those two extremes is a point where tax revenues are maximized. Therefore, raising tax rates beyond that point will actually reduce revenues, and if rates are beyond that point, lowering them will actually increase revenues.
This absolutely worked during the Reagan administration, despite what you may have been told. Every time in modern history that federal taxes have been reduced, federal tax revenue has actually increased. The problem is that Congress is congenitally unable to stop itself from spending more money than it has - so even though tax revenue went up, spending went up even more, and debt increased. But I digress.
Back in June, Laffer wrote a column in the Wall Street Journal predicting what would happen if the "Bush Tax Cuts" were allowed to expire. This is now almost certain to happen, for reasons I'll explain later. Here are the salient points of Laffer's column:
- If people believe that taxes are going to be higher next year, they will attempt to shift production and income into this year if possible. This was demonstrated in the early 1990s when "high income taxpayers" shifted income into 1992 to avoid the expected increase in the top tax rate in 1993, then again at the end of 1993 to avoid the increase in Medicare taxes that went into effect in 1994.
- It is entirely likely that at least part of the reason that the economy is looking as good as it is in 2010 is because that's already happening.
- "When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe 'double dip' recession."
The Democrats already chose to kick the ball down the road, and recess for their last-ditch campaign efforts without passing a tax cut extension. It probably won't get any better when they reconvene after the election, either, and here's why.
Even if the Republicans do see a sweeping victory on election day, they won't take office until next year. So the "lame duck" Congress that reconvenes after the election will be the same Congress that we have today. And here's what the math looks like. Nancy Pelosi already has in her hands a letter from 31 Democrats saying that the tax cuts should be extended for all Americans. So, although Pelosi is committed to extending the tax cuts only for the middle class, and allowing the "tax cuts for the rich" to expire, she may not have the votes to pass such a bill. So here is Laffer's prediction of what she'll do:
House rules allow her to bring a bill to the floor under "suspension" of debate, meaning that an immediate up or down vote must be held on the bill, without any debate taking place. However, such a bill requires a 2/3 majority for passage, which the Speaker does not have. So she will bring to the floor, under "suspension," a bill that extends the tax cuts only for the middle class, knowing she doesn't have the votes to pass it. Then, when it fails to pass, she will immediately blame the Republicans for voting against tax relief for the middle class. And if the economy does go off the rails next year, as Laffer predicts, she will blame the Republicans for that, too.
You see, for the Democrat leadership, it's all about their power. They were perfectly willing to see America lose the war in Iraq and come home in disgrace, as long as they could blame the Republicans for it. (Remember Harry Reid's "This war is lost?" And Obama's comment after he took office and saw that the surge was clearly working that, even knowing what he knew now, he would still have opposed it?) And they're perfectly willing to see the economy go off the rails, no matter how many Americans are hurt, as long as they can blame Republicans for it.
Thanks for listening.
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