Almost Classical

English: A graph of the US GDP compared with Federal budget outlay. (Photo credit: Wikipedia ) The United States' federal budget spends a lot of money: between $3.5 and $4.0 trillion annually. How much do citizens of the United States earn each year? A little more than $6 trillion. In other words, the U.S. government is spending roughly two-thirds of the amount earned by all working  Americans. Two-thirds. The top 10% of income earners represent $1 trillion in earnings, certainly a lot, equal to the entire stock valuation of Apple (not the same as Apple's earnings, which are $9 billion per quarter, $36 billion annually). If every penny earned by the top 10% were confiscated  it would have no material effect on the federal budget. That's how out of sync spending is today. The total wealth  in the United States is nearly $70 trillion, meaning everything owned by every person or company, at current "fair value" is worth $70 trillion. Yet, if you were ...

Though I don't assume Sen. Bernie Sanders will be the Democratic Party nominee for president, I do assume the next president will respond to populist outrage against corporations (especially those in the financial sector). As a result of this populism on the left and right (Tea Party and Occupy having the same vitriol for Crony Capitalism), there is little hope for meaningful corporate tax reform. Ignorance (or feigned ignorance) on issues of economics seems to underpin the campaigns of all four leading candidates as we enter the "home stretch" of primaries. From Donald Trump swearing to raise taxes to 30 percent on companies that leave the United States to Bernie Sanders claiming that we must shift the tax burden (income taxes are already progressive, the "burden" tends to be sales and other local or state taxes that do penalize the poor, not income tax). The United States needs tax reform, of both the personal (household) income tax system and the corpor...

A September 2015 report from the Brookings Institute demonstrates that significant increases in top marginal tax rates would have minimal effects on both income inequality and the federal budget. This report was prepared by William G. Gale, Melissa S. Kearney, and Peter R. Orszag. It should be stressed that Orszag was Pres. Obama's director of the Office of Management and Budget and a former director of the Congressional Budget Office. Nobody can claim Orzsag is a conservative or libertarian — he is an excellent analyst. Read the report here: http://www.brookings.edu/~/media/research/files/papers/2015/09/28-taxes-inequality/would-top-income-tax-alter-income-inequality.pdf A larger hike in the top income tax rate to 50 percent would result, not surprisingly, in larger tax increases for the highest income households: an additional $6,464, on average, for households in the 95-99th percentiles of income and an additional $110,968, on average, for households in the top 1 perc...

Over at Reason , Nick Gillespie offers his usual common sense supported by statistics. What Austerity Looks Like in 2013: Taxes Up 14%, Spending Down 4% - Hit & Run : Reason.com :  As we've noted here before, there's good austerity and bad austerity. The good (read: effective at reducing debt-to-GDP ratios and not crashing an economy) focuses on cutting spending, liberalizing labor laws, reforming entitlements, and either keeping taxes flat or reducing their drag on economic activity. The bad (read: what has generally been tried in Europe over the past few years) involves raising taxes while increasing spending or barely trimming it. That one-two punch stretches out recovery by diverting money and decision-making out of the private sector where it's more likely to benefit more people. All austerity is not created equal and it's clear that austerity which relies on tax hikes more than spending cuts almost always comes a cropper. That's not to say that cutti...

I agree with this analysis, which was featured on CNBC. The stock market is in a bubble. Witness the differences between Apple and Amazon: Apple beats projections and the stock falls, Amazon misses earnings targets and by some strange logic of "improving margins" rises. We are witnessing institutional investors moving from bonds globally into equities (stocks). The casual investor ("retail investor") is also moving back into the market. Sounds a lot like 1999 and 2007. In the period from 1999 to 2003 or so, the Fed lowered rates and created liquidity. That masked some underlying issues -- not the least of which is governmental debts at the local, state, and federal level. Investors seek returns, and money in a low-interest economy moves to either bond price gaming or equities. Stocks and commodities rise as the dollar falls: inflationary, in Austrian/Chicago terms, not the same as consumer inflation (a point I've made several times, since Paul Krugman and othe...

Robert J. Samuelson: Romney’s chance to challenge the welfare state - The Washington Post I wish the Republicans had nominated someone with at least some rhetorical skills, and ideally someone with a genuine sense of the American Dream from hard-earned experience. Mitt Romney? He might be the worst thing to happen to the GOP's public image since George W. Bush. When Romney described 47 percent of Americans, he was ruining a discussion we must have a nation: There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax. — ...

Many in the chattering class, especially the economists and politicians on the left, keep telling us "Austerity has failed!" No, austerity hasn't been tried. I won't even bother with links to Paul Krugman's near-daily calls for stimulus — and inflation — in Europe, which would require a complete disregard for European experiences and German biases towards savings and low-inflation. Such economic arguments are beyond silly: convince Germans that an 11 percent savings rate is a bad idea? Really? Cause inflation in the hopes it will force Germans to spend money? Krugman and other economists can suggest these solutions because they know, they must know, that German citizens are not about to go on a spending binge and buy Greek, Spanish, or Italian goods. Yes, Germans really do save more than 11.4 percent of their income. And for ten years, Germany employed true austerity and labor reforms. They loosened labor restrictions (compared to the rest of Europe), slowed...

For his Saturday address to the nation on March 31, the day before April Fools, Pres. Obama once again called of passage of the "Buffet Rule" guaranteeing a "minimum tax" of 30 percent on millionaires. The problem with this? It's political theatrics and genuine foolishness if the administration hasn't considered what the Buffet Rule would actually do to the tax system. Believe it or not, if the Buffet Rule were to replace the Alternative Minimum Tax (AMT), the federal government could collect less revenue, not more! So, either this is a joke, foolishness, or blatant deception. Whichever of the three it is, the call for the Buffet Rule reveals how poorly Americans (and the media) understand our complicated and often stupid tax code. Let us start by looking back a few months. Buffett Rule's impact? W.H. won't say By: Josh Boak January 26, 2012 07:42 PM EST From Politico: http://www.politico.com/news/stories/0112/72056.html President Barack O...

Some of my friends and colleagues in the "orthodox economics" camps have tried to make the case that debt is necessary at times for growth, or at least stability. While there is merit to this line of reasoning, it is also a risky simplification of economic realities. To argue their point, these traditionalists point to household spending. One friend, a left-leaning political scientist with solid economics knowledge, described it thusly: All of us assume debt to improve our lives, and government is no different. We take out loans on homes, cars, our educations, and to finance our businesses. Government has to do the same. You've taken on debt, I've taken on debt, and we did it for better futures. Arguments for a larger stimulus and more investment in some projects would have made sense ten years ago, but today those arguments ignore the experiences of Japan and southern Europe, where "investments" by the government did not revive flagging economies. I do...

History is constantly rewritten and reinterpreted. Democrats and Republicans are both gifted at such rewrites. However, this isn't my rhetoric blog, this is an economics site. Let's take a look at the historical realities of claims by Democrats that the "Clinton Tax Rates" were responsible for boom times and a reduced annual deficit. A quick note: We did not have a surplus under Pres. Clinton. We had a projected surplus over a decade, but no actual surplus. Budget gimmickry likely overstated the ten year total, too, since that assumes no disasters, wars, or recessions. Good luck living in that fantasy land. For actual Clinton debt numbers, consider the following: Yes, the deficit was almost eliminated in FY2000 (ending in September 2000 with a deficit of "only" $17.9 billion), but it never reached zero--let alone a positive surplus number. And Clinton's last budget proposal for FY2001, which ended in September 2001, generated a $133.29 billion de...

I support spending, wisely, to both maintain and upgrade the infrastructure of the United States. There is little room for debate that our infrastructure is dated, crumbling, and often inadequate for the current century. Yet we should be skeptical of politicians suggesting "public works" to rebuild our transportation, power, and facilities will somehow reduce unemployment and lead to a nearly immediate economic boom. The reality is improving our infrastructure would, at best, keep us even with other nations and would merely prevent further economic decline. Any improvement to our economy would be slight, if quantifiable at all. The reason for this is simple: The American Society of Civil Engineers estimates that as of 2011, deferred maintenance of U.S. infrastructure would cost at least $2.2 trillion to perform. In other words, for $2.2 trillion we would only maintain current service levels. A few extra cars or trucks might be able to use a road or bridge, but overall the eff...

This is a bad idea on just too many levels: Office of Management and Budget Employees to Push to Unionize - Political Punch Asked for comment, Kenneth Baer, OMB communications director, told ABC News that the Obama administration “is a strong supporter of the right of workers to organize. It is up to the people working at any bargaining unit to decide if they want to join a union or not. Whatever the decision of these employees may be, we are committed to working together to serve the President and the American people.” Public sector unions are unlike unions in private industry. Union employees would be analyzing federal expenditures, which often involve unionized employees. The potential conflicts are numerous. Federal unions donate to political campaigns, electing the very men and women the unions then "bargain" with -- not a good system. At the turn of the last century, New York state had to limit the power of New York City politicians because union bosses and politician...

Everyone should see the video below. It is similar to my post: November 2010: Taxing the Rich! Sure, we could do without some of the nonsense at the beginning, as my friend D.C. suggested, but it is a good video on what "Taxing the Rich" will accomplish: ruining America. Enjoy this interesting presentation:

Is President Obama worse than Wisconsin's Gov. Walker? Far from seeking to strengthen the hand of federal-employee unions, Barack Obama has sought to impose a two-year wage freeze on federal workers through the budget process. If the federal government had a bargaining law like the one Wisconsin has today, he would be unable to do that. Also consider this fact: [D]espite the howls coming from the left, Wisconsin’s new policies on public-employee relations will not be especially unusual. Only 26 states have laws that grant collective-bargaining privileges to substantially all public employees. For more, read: What’s Next in Wisconsin - By Josh Barro - The Corner - National Review Online Economic reality doesn't seem to apply to government or public sector employees right now. Government (and government jobs) only exists with businesses, especially their owners and their employees. Without tax revenues from businesses, there are no government jobs. None. It's time for govern...

[NOTE Augusut 8, 2017:  The marginal and effective U.S. Tax rates mentioned in this 2011 post have been supported by research conducted by Thomas Piketty (Paris School of Economics), Emmanuel Saez (UC Berkeley and NBER), and Gabriel Zucman (UC Berkeley and NBER). These economic researchers are well-respected by progressives. Data are data, though we differ on interpretations. "Income" vs. "Wealth" presents much of the challenge, as wealth accumulates but is not taxed in the United States. Distributional National Accounts:  Methods and Estimates for the United States published July 6, 2017, includes the following table: As the table shows, the effective tax rate for the top 1 percent peaked at 45 percent of income in 1944-45. Unfortunately, the overall revenue intake of the United States kept growing and the burden has been falling most on the bottom 50 percent. Tax increases on the middle and lower classes reduce potential economic growth since...