We thought tax reform meant lowering rates and broadening the base by eliminating or cutting back on various deductions, credits, and loopholes. That’s what the Bowles-Simpson commission proposed. That’s what Paul Ryan and David Camp are working on. And that’s the pro-growth model.
But President Obama unveiled a much different tax-reform vision in his much-anticipated debt speech on Wednesday. He would raise tax rates on upper-income earners and small businesses. He also would eliminate deductions and credits, or so called “tax expenditures.” The president referred to these tax-expenditure reductions as “spending cuts.” In his context, they most certainly are not. They are more tax hikes.
Advertisement
Basically, the president is giving successful earners and small-business filers a double tax hike. That’s what it really is.
Of course, the president’s formula of estimating higher revenues to lower the deficit is completely wrong. The reality is that higher tax rates will slow the economy, inhibit new start-up companies, penalize investors, and may very well lose revenues and increase the deficit.
In the latter part of his speech the president did mention some kind of middle-class and corporate tax reform. But he gave no specifics.
He also touted $750 billion in discretionary spending cuts, but again without any details. Most of that amount probably comes from the recent continuing resolution to avoid a budget shutdown. Since Obama is extrapolating out twelve years, who knows how this is scored.
On the entitlement front, Obama rejected Paul Ryan’s consumer-choice and competition approach to Medicare reform. Instead, he invoked the Obamacare central-planning agency called the Independent Payment Advisory Board, which is supposed to make reductions in Medicare. Medicare itself would exercise more price controls on prescription drugs, rolling back the consumer choice and competition established under George W. Bush.
In total, President Obama is claiming $4 trillion in deficit reduction over twelve years. But we’ll never see it. Interest expense savings is supposed to make up $1 trillion of that amount, while the rest will somehow come from a concoction of fewer tax deductions, higher tax rates, and $400 billion in defense-spending cuts.
In effect, the president has moved to the left. He has embraced the Democrats’ so called progressive caucus in the House by slashing defense and jacking up taxes, all while offering no serious entitlement reform. (Hat tip to Jimmy Pethokoukis for nailing this earlier in the week.)
My final point is this: President Obama’s harsh-rhetoric rejection of the Ryan budget and his new (presidential) campaign to raise taxes on the rich sets up a huge confrontation with House Republicans on the eve of the hugely important debt-limit expiration.
Sometime in mid to late May, the debt ceiling to allow the government to borrow more money is going to run out. The Treasury can move money inside government accounts to forestall a debt breakdown for another couple of months. But the potential for a major political conflict on the eve of this process sets up the worst possible outcome: Failure of the U.S. to pay the interest on its own debt.
This is unnerving to financial markets. Instead of compromise, the president decided to seek confrontation.
Caveat emptor. Investors beware.
– Larry Kudlow, NRO’s Economics Editor, is host of CNBC’sThe Kudlow Report and author of the daily web blog, Kudlow’s Money Politic$.
There is absolutely, positively no reason whatsoever to think that a failure to raise the debt ceiling will result in a default on interest payments on the national debt. The U.S. government takes in over $2 trillion a year - more than enough to meet our debt obligations.
The government will be forced to make better choices - some hard - on prioritizing its spending. It just won't be physically able to spend all of the money in the CR that they just agreed to.
The phrase, "spending cuts in the tax code" is a new low in obfuscatory circumlocution. George Orwell would have edited it from 1984 as an over-the-top, suspension-of-disbelief-threatening absurdity.
I have to disagree with NJ Jim's appraisal that the 'government will be forced to make better choices ... on prioritizing its spending.'
Obama will try to force the Republicans to back down, knowing that as responsible parties, they would not cause a government shut down.
It's 'High Noon', folks. We need Gary Cooper, and tho Boehner looks like him, I fear the Speaker has been degraded by too many years in Washington and won't call Obama out.
Obama put the tax increase portion at $1 trillion dollars. Also Mr. Kudlow missed the most important thing in the entire speech, although I do not fault him as Obama masked it very well as to be misunderstood by 99.9% who heard it, but I got the message loud and clear.
He stated that if they missed their targets starting in 2014 automatic "TAX INCREASES" would kick in. He used another terminology for this, but that is exactly what he meant. He would usurp the power of Congress and install automatic tax hikes if his plan failed to meet it's targets each year starting in 2014.
Obama must GO, Democrats of every level of government must GO, they are literally attempting to crash our economy in order to reset and redesign the global economy to their Open Society values via George Soros template.
Obama and the Democrats tell us the so-called 'rich' should pay more since they have benefited more from the US economy, tax rates, etc.. These people didn't work hard and take risks, mind you, to achieve some measure of wealth, they just happened to be here.
By that logic, healthy people should be charged more for health insurance. I mean, forget that they may watch what they eat, take their medications and exercise regularly...no...the reason they are healthy is because they've benefited from our health care system, so they should shoulder a heavier load.
Democrats will say anything to feed their addiction to spending others peoples money.
There is one small ray of hope for me. Until recently liberals would shut me up if I tried to say one word about politics.
In this past week, I have been able to talk to three different liberals and they have listened and wanted to hear my arguments. They want to remain liberal, but at least they are accepting the fact that I may nor be evil or insane or corrupt or selfish or racist. Next step, they listen so they can have the right to think in an alternative way.
This reminds me of just before the 1980 Carter/Reagan debates. My friends hated Carter and feared Reagan. When they heard and saw Reagan, they were able to vote for him.
Obama is scaring even some of those liberals I know who adored him when they voted for him.
I feeled somewhat relieved - the President has finally made his position clear, which in theory should allow the Repubs to call him on spending. Can/will the Repubs do it? It seems that's always the question.
I disagree cab, I think your arguing about the budget not about the debt. This isn't about a government shutdown - which actually doesn't save any money at all and only occurs when the legal authority to spend appropriated funds runs out. Just because a budget or CR or whatever is passed and the government has legal authority to spend the money doesn't mean they have to.
This is about what to do when interest on soverign debt is due to be paid and you can't borrow to do it. Obama & Co. will have some funds in the bank and a revenue stream coming in, but that will not cover all of the spending they WISH to do (and are authorized to do). They can choose to pay for cowboy poetry festivals and Big Bird subsidies or pay their interest tab.
There will be a lot of media spin and screaming that Republicans are forcing a default, etc., but the truth is they need to put the debt first and a simple statement by Timmy over at Treasury that that will be U.S. policy and the crisis goes away.
Sure there will be new shouting about starving grandma, and throwing kids (autistic kids! - is that disgusting or what?) under the bus. And no doubt the Dems will try to make whatever spending choices they make as painful to the public as they can so as to blame Republicans for their failure to give them more room on the credit cards, but in the end, they will not default on the debt.
Nothing really surprising in Obama's speech. He is a statist through and through. He always wants to see more government power and spending because in his mind, that's the way to solve problems. The more heavily politicized the nation becomes, the better because to him politics means progress. And he reviles anyone who disagrees with him and argues that we would be better off if politics were taken out of medical care, education, and so on. Worst of all, Obama is completely blind to the damage he's doing to not only the economy, but also our social fabric.
With that speech, Obama vaults to the lead in the Worst President Ever sweepstakes.
I don't think Obama wants politics taken out of anything, because that would require prying government out of it. He simply wants dissenting politics removed, so he can have a nice polite dictatorship. I am surprised that the 12-year People's budget wasn't a 5-year plan called the "Democratic Free People's Budget". Perhaps that gives too much away.
I have never understood the rationale for taxing the financially successful progressively more. I have heard that "they can afford it" and that "they need to be taxed more". Seriously, what need of the rich is served by increasing their taxes? Does all that money just take up so much space in their mansions that they barely have a pathway to walk? As far as being able to afford it, I can afford a better/newer, more fuel-efficient vehicle, but the government (so far) has no authority to force me to buy one.
Progressive taxing is unfair and punitive. Every dollar spent or invested by the rich goes directly or indirectly to support jobs. Even if they are throwing wild parties, like at the White House, the waitstaff and chefs are being paid wages. If they buy stock in an IPO or put money in a passbook savings account, there is more money made available to loan by banks, which at least keeps the bank employees earning wages. The only thing progressive taxes do is give the rich more incentive to keep their money in tax shelters or overseas, where the government cannot get it and use it to show preference to certain segments of society.
If the liberal rich people think more money should be given to help the poor, let them donate. They could also send money to help pay down the debt. They could also admit that they replenish their money by raising the prices on what they sell to the middle class, so their discretionary income never really changes, and thus raising their taxes isn't particularly effective with getting their money, but it does drain it from those without tax lawyers and access to tax shelters.
Poor people don't have the money to spend of anything but essentials. People who do, are not poor. People in the middle class tend to hold back on spending a little to cope with emergencies like car repairs. Only the really wealthy spend whatever they want, whenever they want, and taxing them more inhibits that spending.
Why would we trust government to spend money more wisely or responsibly than private individuals? It cannot even balance its own budget!!!
Follow
