2008 June 08 Sunday
Will Obama Get To Do Big Spending?
I expect Barack Obama to win this election because the incumbent party always loses in a recession, the US unemployment rate just jumped up by the largest amount since 1986, people are feeling poorer from the popping of the housing bubble, and the price of gasoline is about $4 per gallon. That's far too much bad news for the incumbent party to emerge victorious. Oh, and the war in Iraq is unpopular and Obama is more against it than John McCain. So McCain does not matter and Obama is the only candidate worth discussing. With all that in mind: Obama can not fund his spending program by increasing taxes only on the wealthy.
Yet limiting tax hikes to the $250,000-and-up set probably won't pump enough money into the U.S. Treasury to pay for new spending programs and deal with the ballooning deficit, even when combined with proposed corporate tax increases. Analyst Daniel Clifton of Strategas Research Partners has tallied some $350 billion in promised new annual spending by Obama. He has outlined plans to pay for new programs without increasing the deficit, but budget analysts are skeptical. "Targeting just a fraction of the population [for an increase] is not going to generate the revenues they need," says Roberton Williams, an ex-Congressional Budget Office staffer now with the independent Tax Policy Center. Adds Clifton: "They are going to have to find a way to get more from the middle class."
Well, if Obama manages to pull US troops out of Iraq then he'd free up $150+ billion per year from the deluded fantasy (turned nightmare) project to bring democracy to the Middle East. He could then use some of that money to waste on Obama's own deluded fantasy about how another big increase in educational funding could turn dumb students into higher performers. Yes, Obama embraces the big Blank Slate illusion that education is the answer to the problems of a large dumb dysfunctional lower class. Never mind all the evidence to the contrary. Why is it that Washington DC attracts people who seem to focus and amplify the nation's delusions?
Having gotten shafted by George W. Bush how are we going to get shafted by Barack Obama? I figure he'll push harder for racial preferences. His views on race and those of his wife make that a certainty. Plus, he'll push for lots of social welfare programs and higher taxes. But a lot of economic trends are going to limit how far he can go with his agenda. James Pethokoukis points out that even before considering Obama's spending proposals we have serious problems in funding entitlements.
Obama has shown no interest in trimming future Social Security benefit growth while at the same time pushing more government spending, which Mallaby approves of. Now here, courtesy of the Congressional Budget Office, is what would have to happen to tax rates to pay for rising entitlement spending, not including all of Obama's spending plans:
The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent. Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion. Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would probably not be economically feasible.
The entitlements problem is bad enough. But another big trend is going to hit hard during the Obama presidency: Peak Oil. Most worryingly, oil exports are in decline from major oil producers. Declining oil supplies will cause an economic crisis that will cut tax revenues and force yearly cutbacks in government spending for several years in a row.
Obama says that he will reduce taxes on the majority, and increase taxes on the upper class.
Although it is true that an extended depression would reduce income tax revenue, we cannot underestimate the possibility that not all taxes are derived from income. Some countries have wealth tax, which is extracted according to the net worth of the individual, not according to the income. Since the top 5 % will soon own 95 % of the world long before 2015, the governments of the world might be inclined to consider this kind of tax revenue.
Randall asked: "Why is it that Washington DC attracts people who seem to focus and amplify the nation's delusions?"
Because that's what the voters vote for? Why are the voters fools?
Obama may take a token stab at raising taxes on high earners, he might even think about a net worth tax. But neither one will pan out in the long term, because that is not what our elites want. The wealthy will figure out a way to hang on to their money, but taxes will rise on the middle class, especially the upper middle class. Why? Because for all their lip service to markets and competition and so on, the elites want none of that. What they want is a plutocracy, with wealth and power concentrated in as few hands as possible, and with merit playing only a minor role in determining who gets admitted to "the club." By imposing punitive taxes on the middle class, it will retard the formation of capital needed to start businesses, and keep them dependent, which is exactly what the government wants. People talk about government vs. business all the time, but big government and big business are actually very cozy with one another. It's the middle class and small business that the establishment hates.
A wealth tax should be seriously considered for a country with a seriously high concentration of wealth. Such policy is counterproductive in countries that are already egalitarian such as Sweden, but it should be considered in the United States. Well, I only say this because I fear this scenario in NY Times today:
I also want more stringent immigration. That will help reduce inequality too.
Highly progressive taxation and stricter immigration is the path for a more egalitarian nation. Of course, the left advocates the former. Unfortunately, the right in the United States is not enthusiastic about the latter.
But if we were to have a more restrictive immigration policy, i.e. we stopped importing poverty, then wages would rise and we would have a smaller spread between the best-off and the worst-off. No need for a net worth tax under those circumstances, unless the whole point of such is social engineering.
In places like India, one can not redistribute away poverty as the magnitude of the problem is too large. Immigration eventually will render poverty too widespead to be amendable by redistribution.
I do think the right wing political parties should seriously consider more restrictive immigration. The conservatives should protect liberals such as me from ourselves - we cannot be trusted to maintain a sustainable welfare state given a huge influx of immigration. Instead of the conservatives doing the dirty work (advocating policies that would normally get a liberal such appellations as xenophobic or racist), they ONLY care about the interests of the well-off, and immigration and poverty is not a problem when they have the resources to protect themselves from it by building enclaves. (This is what The Bell Curve predicted more than a decade ago.) Normally, conservatism is associated with patriotism (or "nationalism" pejoratively) but from my perspective, the GOP is associated with avarice and plutocracy.
Well, I do not think the race is a lock for Obama yet. McCain still has a realistic chance. Despite any flaws in Obama’s political agenda, I do not see anything aspects in which McCain is superior. I do not see any policies that McCain advocates that are antithetical to a plutocracy.
mcain wants to go to mars. isn't that a good reason to vote for him?
Except that we haven't had a recession yet and may not get one. US GDP grew 0.9% in the first quarter of this year and 0.6% in the fourth quarter of last year. Not exactly stellar growth, but not a recession either. I don't care much for either McCain or Obama - of the two, I think Obama is the more distasteful - but the recession thing doesn't apply if there isn't going to be a recession. Working against Obama is the fact that, in the last eleven presidential elections, every time the Democrats have nominated a liberal Northerner, they've lost, sometimes in spectacular fashion (Humphrey, McGovern, Mondale, Dukakis and Kerry). When they've nominated Southerners, they've either won or come close to winning (LBJ, Carter, Clinton and Gore). In terms of what's best for the country, having the Democrats control one branch of the government and Republicans the other is probably it. The best period in recent memory was Clinton's second term. The Republicans who controlled Congress at the time wouldn't approve anything for him - as a result, government spending leveled off and the budget went into surplus. The economy boomed. Then the Republicans took the White House and everything went to hell. Since the Democrats are likely to bolster their control of Congress this year, that's probably reason enough to support McCain. Give the loony left full control in Washington for a couple of years and we will have a recession for sure.
"Except that we haven't had a recession yet"
that is a technical detail that is likely to elude the vast majority of voters.
Randall, I read Hamilton's paper and found it fairly persuasive. He could well be right. On the other hand, he could be wrong. Look at this:
So I am not really sure about which way the economy is heading. Are we on the edge of a precipice or in a very shallow bottom? Since recessions can be diagnosed with certainty only in retrospect, we'll just have to wait and see. The second quarter numbers are due out on July 31.
I think the James Pethokoukis comparison of world economies is more aimed at how the US stacks up against other nations. That we will have higher living standards than China for decades to come is besides my point. I'm saying that our economy is going to do worse than it has been for a few reasons:
1) Peak Oil.
2) Baby boomer retirements and entitlements costs.
3) The dumbing down caused by immigration and lower rates of fertility among the smarties.