May 28, 2009
NYC Letter: The Enchanted Presidency, Part IV
Day 128 of CHOPE
And in this budget, we have made the tough choices necessary to cut our deficit in half by the end of my first term – even under the most pessimistic estimates.
At the end of the day, the best way to bring our deficit down in the long run is not with a budget that continues the very same policies that have led to a narrow prosperity and massive debt. It’s with a budget that leads to broad economic growth by moving from an era of borrow and spend to one where we save and invest.
While we all wait on the era of "save and invest", it seems you cannot be pessimistic enough when forecasting Obamanomics.
May 26, 2009 (USA Today) - Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says. When the economy slumps, so does tax revenue, and this recession has been no different, says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been."
For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago. Mr. Lynch:These are staggering numbers.
"It's one of the drivers of the ongoing expansion of the federal budget deficit," says John Lonski, chief economist for Moody's Investors Service. The Congressional Budget Office projects a $1.7 trillion budget deficit for fiscal year 2009.
The other deficit driver is government spending, which, the AIER's report says, is the main culprit for the federal budget deficit.
April is the government's tax payday. It is highly improbable later months will make up April's shortfall. With fewer revenues coming in more money must be borrowed to cover government spending, which leads to an even greater deficit, which in turn compounds future deficits. [Pause.] The government can do one of two things:
- It can stop spending money it doesn't have, OR
- it can tax to ruination.
[Pause.] Yes. Well, good luck with A.
ONCE CONSIDERED UNTHINKABLE,
U.S. SALES TAX GETS FRESH LOOK
Levy Viewed As Way To Reduce Deficits,
Fund Health Reform
May 27, 2009 (WaPo) - With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. ... But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.
At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.
"Everybody who understands our long-term budget problems understands we're going to need a new source of revenue, and a VAT is an obvious candidate," said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. "It's common to the rest of the world, and we don't have it."
By all means, let us too be common. If Mr. Burman could but expand his horizon he would see that countries that have a VAT soon spend past its limits. What new tax will Mr. Burman suggest after his VAT -- at 25%, 50%, 75% -- is exhausted?
What would it cost? [Ezekiel] Emanuel argues in his book [scil., Healthcare, Guaranteed] that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments. In his 2008 book, "100 Million Unnecessary Returns," Yale law professor Michael J. Graetz estimates that a VAT of 10 to 14 percent would raise enough money to exempt families earning less than $100,000 -- about 90 percent of households -- from the income tax and would lower rates for everyone else.
And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation's debt would stabilize and everybody could see a doctor.
Contrary to the above article, the VAT is not popular. It is a universally detested tax by those who pay it. It is only popular with overspending governments. Once the VAT has been established the tax will never go away and the rate will only increase. Instituting a VAT in our current economic circumstances will simply kill off a recovery.
Don't forget, it is Democrats who are kicking this around.
This is what fiscal governance by a community organizer looks like.
Tax the rich. Tax the poor. Tax everything and everybody.Posted by Damian at May 28, 2009 03:45 PM