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Archive for August 11th, 2011

Tomorrow, August 12, will be a wonderful day. Based on calculations from Americans for Tax Reform, we will have finally worked long enough to finance the total cost of government for 2011. This means the money we earn for the rest of the year will be for the benefit of our families – rather than for the clowns in Washington.

Of course, we actually pay for excessive government throughout the entire year, in the form of tax withholding, slower growth, diminished wages, and misallocated resources, but ATR’s “Cost of Government Day” is a helpful way of monitoring the total burden of taxes, spending, regulation, and intervention.

And the Cost of Government Day data also allows us to see whether the burden of government is rising or falling. Not surprisingly, the Bush-Obama years have been very bad news for the American people. As you can see in the chart, we now work an extra 40-plus days to support  the parasite class in DC.

I have not dug into the numbers and reviewed the methodology, so it’s possible that I might do things differently, but it certainly looks like ATR has been very honest and straightforward. As I mentioned in a previous post, any estimate that shows more freedom and/or less government during the Bush years must be flawed – perhaps deliberately.

But the ATR numbers correctly show a rising cost of government during the Bush years. And they show a falling burden of government during the Clinton years.

So kudos to ATR for a good and honest report.

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Allen Meltzer, an economist at Carnegie Mellon University, writes today in the Wall Street Journal about the Fed’s worrisome announcement that it will continue the easy-money policy of artificially low interest rates.

Professor Meltzer’s key point (at least to me) is that the economy is weak because of too much government intervention and too much federal spending, and you don’t solve those problems with a loose-money policy – especially since banks already are sitting on $1.6 trillion of excess reserves (why lend money when the economy is weak and you may not get repaid?).

Meltzer then outlines some of the reforms that would boost growth, all of which are desirable, albeit a bit tame for my tastes.

…the United States does not have the kind of problems that printing more money will cure. Banks currently hold more than $1.6 trillion of idle reserves at the Fed. Banks can use those idle reserves to create enormous amounts of money. Interest rates on federal funds remain near zero. Longer-term interest rates on Treasurys are at record lows. What reason can there be for adding more excess reserves? The main effect would be a further devaluation of the dollar against competing currencies and gold, followed by a rise in the price of oil and other imports. …Money growth (M2) reached 10% for the past six months, presaging more inflation ahead. …What we need most is confidence in our future. That calls for:

• Reducing corporate tax rates permanently to encourage investment (paid for by closing loopholes).

• Agreeing on long-term reductions in entitlement spending.

• A five-year moratorium on new regulations affecting energy, environment, health and finance.

• An explicit inflation target between zero and 2% to force the Fed to pay more attention to the medium term and to increase public confidence that we will not experience runaway inflation.

The president is wrong to pose the issue as more taxes for millionaires to pay for more redistribution now. That path leads to future crises because higher taxes support the low productivity growth of the welfare state, delay the transition to export-led growth, and do not reduce future budget liabilities enough.

Meltzer’s final point about the futility of class-warfare taxes is very important. He doesn’t use the term, but he’s making a Laffer Curve argument. Simply stated, if punitive tax rates cause investors, entrepreneurs, and small business owners to earn/declare less taxable income, then the government won’t collect as much money as predicted by the Joint Committee on Taxation’s simplistic models.

Of course, Obama said in 2008 than he wanted high tax rates for reasons of “fairness,” even if such policies didn’t lead to more tax revenue. That destructive mentality probably helps explain why not only banks, but also companies, are sitting on cash and afraid to make significant investments.

But if you really want to understand how Obama’s policies are causing “regime uncertainty,” this cartoon is spot on.

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