American Elephants


There’s No Mandate for a $1.6 Trillion Tax Increase! by The Elephant's Child

President Obama had a press conference today. He claimed a “mandate” from the people for raising taxes on the rich. Well, who would be surprised?  All politicians claim a mandate for whatever they want to do. He claimed that the majority of Americans agree with him on this issue and the people who didn’t vote for him also want taxes on the rich raised.

“If there was one thing that everybody understood was a big difference between myself and Mr. Romney, it was, when it comes to how we reduce our deficit, I argued for a balanced, responsible approach, and part of that included making sure that the wealthiest Americans pay a little bit more.  I think every voter out there understood that that was an important debate, and the majority of voters agreed with me, not — by the way, more voters agreed with me on this issue than voted for me.”

The only national exit poll that asked voters specifically about tax increases was one from Fox News. They reported that less than half, 47%, supported an increase only on income over $250,000. 13% wanted tax increases on everyone, and 35% didn’t want any tax increases at all.

This is one of those counterintuitive economic questions. Raising taxes doesn’t necessarily get you more revenue. People are rational. If they can arrange their affairs in a way to report less income, they will. The more wealthy one is, the easier it is for them to organize their income in a way that minimizes taxes.

The problem is not revenue, the problem is spending. Tax revenue was up by 6.4% for this year overall, and it is close to the historic high it reached in 2007, before the recession hit. That revenue increase is happening under and because of the Bush tax cuts that he so desperately wants to raise to get what he calls “a little more in taxes.” The healthy revenue increase came in spite of measly economic growth of just between 1% and 2%.

Spending, on the other hand remains at a new level of about $3.54 trillion. Most of the $830 billion stimulus has now become a new part of the federal budget baseline. The “emergency” spending of the stimulus has become permanent.

When Obama claims that he wants a “balanced” approach, what he really means  is raising taxes to finance the new higher level of spending.

If Obama got all the tax-rate increases he wants, the Joint Tax Committee estimates this would yield only $82 billion a year in extra revenue at best. But with mass layoffs because of taxes, businesses closing down because of taxes, there are going to be fewer businesses and fewer individuals to tax.

One of the big problems is that additional revenue from the tax increase may be used to fund more government spending rather than reduce the deficit.

Two studies released earlier this year predict that raising taxes on high-income families and small businesses will hurt the economy. The president has made it clear that he does not believe that “small business” reports their income as individuals. He sees “small business” as all the individual businesses and free-lancers, the little shops with only an employee or two — that sort of thing.

The study from Ernst and Young predicts that tax increases will slow investment, resulting in slower growth in employment and wages— or 710,000 fewer people holding jobs, and real wages would decrease. The CBO estimates that next year the economy would have 200,000 fewer jobs than under an extension of current tax rates. The two studies are not comparable, different timelines and different assumptions. They do agree that higher taxes will slow job growth.

Mr. Obama has shown no inclination to expand the energy landscape, nor to back off from support for “green” energy startups, no matter how many the bankruptcies.  The environmental community spends a lot of money on political campaigns.

Mr. Obama is now calling for a $1.6 trillion tax increase, far more than Republicans would go for, and double the $800 billion discussed in the summer of 2011. Mr. Obama believes in Big Government, and in big spending. That is what government does — spend and redistribute. But the influence of Chicago is just too strong. Too much of the spending just goes to rewarding his supporters. He has shown not the slightest inclination to cut back on White House travel or entertainment in recognition of the extent to which ordinary people are having hard times.

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