The Obama strategy on job creation is now largely focused on a one-year cut in the payroll tax funding Social Security. President Obama originally wanted to cut the tax by 3.1 percent for employees and then later added employers. The cut in the employers' share of the tax cut was later dropped because of the difficulty of paying for it with additional revenue. Presently, the focus has shifted to carrying over for two months the two percent cut, which would have expired on January 1, 2012. The issue will then become whether to extend the two percent cut throughout 2012 of maybe even try to get the 3.1 percent cut that Obama originally wanted.
Economists are generally agreed that the unemployment rate will likely not have changed very much in the next year. The quarterly improvement in the GDP is also not expected to be very robust in the next year. Near the end of 2012, when taxation decisions on a further extension of the payroll tax cuts and the Bush tax cuts will arise, President Obama and Democratic lawmakers will likely be in much the same situation as they are today: needing to claim that the tax burden can't be increased on 160 million Americans. Thus, not only will the Democratic leadership be pushed by logic to ask for another extension of the payroll tax cuts, but it will be hard to argue against an extension of the Bush tax cuts. It will take an act of political jujitsu to extend the Bush tax cuts for those earning under $250,000 and let them expire for the high earners.
Not only has President Obama and the Democratic legislative leadership fallen into a trap by focusing so intently on tax cuts as the best way to stimulate the economy and create jobs, tax cuts rank low in the job creation hierarchy. The National Priorities Project has charted the impact of spending $1 billion on potential job creation in select sectors. Spending the $1 billion on the military creates 11,600 jobs; $1 billion in tax cuts creates 14,800 jobs; with the same expenditure, 17,100 jobs are created in clean energy, 18,800 in healthcare and 29,100 in education.
When President Obama proposed a three-year freeze on spending in his 2010 State of the Union address, he exempted military spending from that proposed freeze. As indicated by the National Priorities Project's job creation by sectors charting, military spending is about the worst way to try to create jobs. Yet President Obama, in his 12-year plan, proposes to cut only $400 billion in military spending -- roughly a five percent cut -- and he has appointed a Secretary of Defense who is predicting gloom and doom if there are any further cuts in military spending.
The extent to which military spending predominates over nonmilitary discretionary domestic spending is illustrated in both the long- and the short-term by the National Priorities Project.
Total Cost Since 9/11 in Congress-Approved Discretionary Funds (FY 2012 dollars).
Combined budgets of Agriculture, Commerce, Interior, Labor, Transportation and the EPA - $80.3 billion.
Spending on: Nuclear Weapons - $230.3 billion; Homeland Security - $472.1 billion; Iraq and Afghanistan - $1.36 trillion; Pentagon Base Budget - $5.6 trillion. The total spending in these categories is $7.66 trillion.
The combined spending on six domestic categories equals about one and one-half percent on what gets labeled as national security spending -- I like to call it "fear" spending.
The National Priorities Project has broken down FY 2011 discretionary spending as follows: Environment, Energy ad Science - 6 percent; Transportation - 3 percent; Income Security and Labor - 2 percent; International Affairs - 4 percent; Health - 5 percent; Housing and Community - 6 percent; Government - 6 percent; Food - 1 percent; Education - 4 percent; Veterans' Benefits - 5 percent; and Military - 58 percent.
By freezing domestic spending, continuing to maintain a bloated Pentagon and focusing so much on tax cuts, President Barack Obama has embarked on just about the worst possible strategy for creating jobs.
Showing posts with label Bush tax cuts. Show all posts
Showing posts with label Bush tax cuts. Show all posts
Wednesday, December 28, 2011
Monday, December 12, 2011
The Payroll Tax Cut and Other Matters
As has become all-too-typical of the way that President Obama and the Democratic leadership in Congress respond to Republican intransigence, the payroll tax cut proposal has been modified once again. The 3.1 percent cut for employers has been stripped from the bill and the "pay for" provision has been modified to change the duration of the millionaires' surcharge to ten years, rather than it being permanent.
In a further move to appease the hard-to-please Republicans, the Democrats have purchased tickets to join the GOP in the theater of the absurd by agreeing to means test both food stamps and unemployment benefits, so that millionaires and billionaires can't successfully apply for them.
President Obama's main pitch for the payroll tax cut -- also known as the FICA tax -- is that without the cut, 160 Americans will experience a tax hike on January 1, 2012. When tax cuts expire there is usually a reason why they were made to have a limited duration. President Obama and the Democrats in Congress had agreed to a one-year payroll tax cut because it was believed that the economy needed a quick, temporary jolt. There was no attempt to make the initial cut permanent or even several years in length..
What will happen, then, if late in 2012 the unemployment rate is above eight percent and the GDP is growing under three percent per quarter? If current thinking prevails, there should be another attempt to extend the payroll tax cut once again. The Republicans will very likely say that if you don't extend the Bush tax cuts, many Americans will then experience a tax increase on January 1, 2013.
I am afraid that President Obama's attempts to gain short-term political advantage by portraying himself as much more likely to compromise than his recalcitrant Republican opponents, overlooks the longer-term ramifications of what he is doing. For instance, Obama initially called for "shared sacrifice" and balance between spending cuts and tax increases, but later agreed to additional cuts in spending without any matching tax increases. He further rhetorically shifted an imbalance of spending cuts over tax increase by calling on the wealthy to pay "a little bit more." He doesn't want a top marginal tax rate of over 39.6 percent, when, given how much wealth and income is concentrated in a small percentage of American households, there is a crying need for a graduated tax scale, with a top rate of 60 to 70 percent.
There is a regrettable practice among Obama supporters to focus all of their attention for his actions on his political opponents. Republicans are being properly castigated for their hypocrisy when they refuse to give Obama credit for his killing of terrorists but would praise such actions if they had been done by a conservative Republican president. This hypocrisy becomes more pronounced when some admirers of George W. Bush give him credit for what Obama has done.
There is another side to this coin, however, and that is why there is little or no critical analysis among Obama supporters of his actions. Is it a good thing that innocent civilians have been killed in U.S. air attacks on suspected terrorists? Was it a good idea to kill Osama bin Laden when accounts by Navy Seals indicate it would have been easy to capture him? Didn't we cause undue relationship problems with Pakistan by not involving its security forces in bin Laden's capture? Don't we profess to oppose uninvited military invasions of another country's sovereignty?
Even the killing of a U.S. citizen by presidential order hasn't seemed to have fazed many Obama supporters, who seemingly have bought into the argument that there are no limits on what can be done to someone who gets labeled as a terrorist? An instructor in constitutional law, such as Obama was, should know that it is a fundamental violation of the Constitution to take the life of a U.S. citizen without due process of law. And might it not be some type of criminal act when a U.S. citizen gets killed in a targeted attack on another U.S. citizen? This happened with the killing of the cleric, Anwar al-Awlaki, in Yemen.
Obama supporters found excuses for him when he pandered and caved-in time-after-time to Republican demands. Now these supporters are praising him for buying into the Republican obsession with tax cuts as the best solution to the nation's economic doldrums.
An Added Note or Two: I have always been made uneasy when President Obama refers to a proposal of his as having been initiated by a Republican. This has struck me as pandering, which didn't impress the Republican leadership, who saw it as such. Thus, when in my research I found that the actuarial firm, Towers Perrin, discovered in a study that malpractice tort cases make up only 1-1.5 percent of total medical costs, what struck my mind was that Obama had offered to include a malpractice tort cost component in the health care reform bill. It would have been better for Obama to have made the case that malpractice tort cases make up a minuscule part of total medical costs, instead of elevating the subject as a serious issue.
Gordon Lafer, a professor at the University of Oregon's Labor Education and Research Center. had the following to say about the Democrats when they controlled both houses of Congress: "they considered but declined to enact proposals to impose a tax on Wall Street transactions; to limit executive compensation; to favor a mass WPA-style jobs program; to allow bankruptcy judges to mark underwater mortgages to market; to make it easier for Americans to form unions and bargain for better wages; to eliminate tax benefits for companies that transfer our jobs overseas; and to forswear any more NAFTA-style trade treaties."
In a further move to appease the hard-to-please Republicans, the Democrats have purchased tickets to join the GOP in the theater of the absurd by agreeing to means test both food stamps and unemployment benefits, so that millionaires and billionaires can't successfully apply for them.
President Obama's main pitch for the payroll tax cut -- also known as the FICA tax -- is that without the cut, 160 Americans will experience a tax hike on January 1, 2012. When tax cuts expire there is usually a reason why they were made to have a limited duration. President Obama and the Democrats in Congress had agreed to a one-year payroll tax cut because it was believed that the economy needed a quick, temporary jolt. There was no attempt to make the initial cut permanent or even several years in length..
What will happen, then, if late in 2012 the unemployment rate is above eight percent and the GDP is growing under three percent per quarter? If current thinking prevails, there should be another attempt to extend the payroll tax cut once again. The Republicans will very likely say that if you don't extend the Bush tax cuts, many Americans will then experience a tax increase on January 1, 2013.
I am afraid that President Obama's attempts to gain short-term political advantage by portraying himself as much more likely to compromise than his recalcitrant Republican opponents, overlooks the longer-term ramifications of what he is doing. For instance, Obama initially called for "shared sacrifice" and balance between spending cuts and tax increases, but later agreed to additional cuts in spending without any matching tax increases. He further rhetorically shifted an imbalance of spending cuts over tax increase by calling on the wealthy to pay "a little bit more." He doesn't want a top marginal tax rate of over 39.6 percent, when, given how much wealth and income is concentrated in a small percentage of American households, there is a crying need for a graduated tax scale, with a top rate of 60 to 70 percent.
There is a regrettable practice among Obama supporters to focus all of their attention for his actions on his political opponents. Republicans are being properly castigated for their hypocrisy when they refuse to give Obama credit for his killing of terrorists but would praise such actions if they had been done by a conservative Republican president. This hypocrisy becomes more pronounced when some admirers of George W. Bush give him credit for what Obama has done.
There is another side to this coin, however, and that is why there is little or no critical analysis among Obama supporters of his actions. Is it a good thing that innocent civilians have been killed in U.S. air attacks on suspected terrorists? Was it a good idea to kill Osama bin Laden when accounts by Navy Seals indicate it would have been easy to capture him? Didn't we cause undue relationship problems with Pakistan by not involving its security forces in bin Laden's capture? Don't we profess to oppose uninvited military invasions of another country's sovereignty?
Even the killing of a U.S. citizen by presidential order hasn't seemed to have fazed many Obama supporters, who seemingly have bought into the argument that there are no limits on what can be done to someone who gets labeled as a terrorist? An instructor in constitutional law, such as Obama was, should know that it is a fundamental violation of the Constitution to take the life of a U.S. citizen without due process of law. And might it not be some type of criminal act when a U.S. citizen gets killed in a targeted attack on another U.S. citizen? This happened with the killing of the cleric, Anwar al-Awlaki, in Yemen.
Obama supporters found excuses for him when he pandered and caved-in time-after-time to Republican demands. Now these supporters are praising him for buying into the Republican obsession with tax cuts as the best solution to the nation's economic doldrums.
An Added Note or Two: I have always been made uneasy when President Obama refers to a proposal of his as having been initiated by a Republican. This has struck me as pandering, which didn't impress the Republican leadership, who saw it as such. Thus, when in my research I found that the actuarial firm, Towers Perrin, discovered in a study that malpractice tort cases make up only 1-1.5 percent of total medical costs, what struck my mind was that Obama had offered to include a malpractice tort cost component in the health care reform bill. It would have been better for Obama to have made the case that malpractice tort cases make up a minuscule part of total medical costs, instead of elevating the subject as a serious issue.
Gordon Lafer, a professor at the University of Oregon's Labor Education and Research Center. had the following to say about the Democrats when they controlled both houses of Congress: "they considered but declined to enact proposals to impose a tax on Wall Street transactions; to limit executive compensation; to favor a mass WPA-style jobs program; to allow bankruptcy judges to mark underwater mortgages to market; to make it easier for Americans to form unions and bargain for better wages; to eliminate tax benefits for companies that transfer our jobs overseas; and to forswear any more NAFTA-style trade treaties."
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