Here is the fourth of my posts inspired by an editorial cartoon this week. Today’s was drawn by Lisa Benson.

Bush's tax cuts expiring

The tax cuts that President Bush pushed for are slated to expire January 1st, 2011. And for many Americans, it means a tax hike. You can calculate and see if that’s the case using this handy form from the Tax Foundation. I did a quick test and found out that I’ll be coughing up almost $2,500 more if the tax cuts go away. I don’t know about you, but $2,500 is a bunch of money!

But there is something else worth considering. Bush’s tax cuts have and will affect the overall economy. The tax cut law was signed by President Bush on May 28, 2003, and the effect was quickly seen. The GDP growth for the second quarter of 2003 was 1.10%, but in the third quarter, with the tax cuts in effect, the GDP growth was 2.25%. GDP growth more than doubled, thanks to cutting the top rates people had to pay. Also interesting is the growth of private investment before and after the tax cuts. The private investment rate two quarters before the tax cuts kicked in were 0.61% and 0.42% while the two quarters afterwards were 3.96% and 4.50%. When people realized they could keep more of their hard-earned money, they were willing to invest it in the economy. Since the tax cuts had been heavily debated for a while before their passage, it’s very possible that many businesses and investors held off purchases and big spending until after the tax cuts kicked in.

Let’s take a look at where we are now. We are almost a mirror opposite of 2003. Instead of anticipating tax cuts and postponing activities, businesses are anticipating tax increases and hurrying to do what they can to earn before the taxes go up. As I see it, the rush by businesses and investors to get while the getting is good is boosting this weak economy. Once President Bush’s tax cuts expire, there won’t be nearly as much effort to work for less. I see a deeper recession if the tax cuts expire, and I’m not the only one seeing it.

“In a worst-case scenario, allowing the Bush tax cuts to expire and failing to fix the AMT could result in (1.5 percent) of fiscal drag in 2011 on top of the 1 percent fiscal drag we expect to occur as the Obama fiscal stimulus package unwinds,” Deutsche said in a note to clients. “If the recovery remains soft/tentative through early next year, this additional drag could be enough to push the economy to a stalling point.”

The opinion runs counter to that of Treasury Secretary Timothy Geithner, who said earlier this week that allowing the cuts to expire would not cause the economy to re-enter recession. The administration has proposed letting most of the tax cuts stand, but eliminating the ones for the top-tier earners.

Deutsche compared the situation to Japan in the 1990s, when the government let tax cuts expire and cut stimulus, leading to another leg down in the recession and ensuring the nation’s “lost decade” of no economic growth.

Our Treasury Secretary Timothy Geithner says that letting the tax cuts expire wouldn’t cause the economy to re-enter a recession. And government said that the multi-billion dollar stimulus would hold unemployment at 8%, but we are sitting at 9.5%. The administration doesn’t have a good record when it comes to foreseeing the results of their actions. Heck, our Treasury Secretary has a hard enough time just paying his own taxes.

How could we get out of our current recession? I have a plan that would do so in just three easy steps. But Congress would never do it because it means reducing their power. And they can’t have that.

The AP news story starts off with the title of “Initial jobless claims increase unexpectedly.” My initial reaction was disbelief. How could the current unemployment be anything but expected?

The number of newly laid-off workers seeking unemployment benefits rose last week, a sign that jobs remain scarce even as the economy recovers.

The Labor Department said Thursday that first-time claims increased by 18,000 in the week ending April 3, to a seasonally adjusted 460,000. That’s worse than economists’ estimates of a drop to 435,000, according to a survey by Thomson Reuters.

“…a sign that jobs remain scarce even as the economy recovers.” What? How can the economy be said to be recovering when jobs continue to hemorrhage away? I also have to laugh at the way the economists are constantly surprised by the unemployment numbers. It’s not all that surprising to me.

Quite simply, the principal purpose of a business is to make money. A business that doesn’t make money soon stops being a business, and all its employees are then out of a job. The more uncertain the future, the more uncertain businesses become about hiring and expanding. And hiring people and expanding business is exactly what will get us out of our current recession. Why would a business hire people and purchase equipment if the likelihood of making a profit is dubious at best? And what is producing that uncertainty? Government, of course.

The massive health care overhaul has passed. What does that mean for additional taxes and fees to businesses? At this point, it’s too soon to tell. After all, the Senate version was passed, but the House is still fighting for its changes to be reconciled into the law. That is producing uncertainty.

People in the White House are talking about tax increases. What will those tax increases be? Will they be focused more on people or on businesses? And if businesses are targeted, will the increased taxes apply to all businesses or just businesses over a certain number of employees? If additional tax burdens apply to a business once it has 51 or more employees, what would a struggling business with 51 or 52 employees likely to do? If you say “fire enough people to drop below the new tax level,” you’re right, and obviously not a government economist. So the prospect of increasing taxes is producing uncertainty.

In the same Reuters report talking about increasing taxes, Paul Volker also floated the idea of a European-style value-added tax. If you think our current tax system is complex, the VAT adds yet another layer of complexity on top of it. And his comment doesn’t show any assurance that our current income tax would be replaced by a VAT, so I’m left to believe that we would have a VAT on top of our current income tax. Adding a VAT to business would produce uncertainty.

Even though much of the science behind human-caused global warming has been shown now to be fraudulent, eco-freaks and people in government are still pushing for a carbon tax. Since everything humans do, including simply breathing, produces CO2, a carbon tax would affect every business, and not in a nice way. Discussion of a carbon tax like Cap and Trade produces uncertainty.

The tax breaks signed into law by President Bush are scheduled to expire in 2010. Will Congress renew the tax breaks, or will it let them expire? The expiring tax breaks would mean a hike in the taxes paid by businesses, and increasing taxes on businesses just puts an additional burden on them in an already tough economy. Not knowing whether the current tax breaks will remain or vanish away produces uncertainty.

Every time government steps into a business and tells it what it may or may not do, it is creating uncertainty. Will this meddling change with the next administration? Will it change with the next big scandal or witch-hunt? Toyota is being pummeled by the government for a run-away acceleration problem which is most certainly mostly hype and partially driver error. But government, who controls Toyota’s competitors, is creating a hostile work environment and fining Toyota over this latest bugaboo. Not knowing if government will allow a business to actually do its job produces uncertainty.

Government isn’t able to create wealth; it can only take it from one person to give to another. And while it is transferring the wealth, some of it sticks in the bureaucracy, so this wealth transference isn’t efficient. Likewise, government cannot create jobs that will stimulate the economy. The most it may do is create government jobs that require taking more of the nation’s wealth to feed the bureaucrats. And that way does not lie prosperity, just more government bureaucracy.

To promote the common welfare, stimulate the economy, and foster the creation of real jobs, government needs to make it easier for businesses to do their business. Our government could easily do that by lowering taxes and reducing uncertainty. But as long as this administration, or any other one, continues to make the future scary and uncertain for businesses, we will be slow to exit this recession, and businesses will be reluctant to hire new people or even keep all of their employees on.

Next time you read that joblessness or recession numbers are unexpected, you may rest assured that you are dealing with someone who doesn’t understand business, even if they have a Ph.D. in economics. Why else would they be so surprised?

No matter how you slice it, we don’t have much by way of good economic news. The unemployment numbers for September 2009 came out, and the news isn’t good.

Job losses moderated in August, but the unemployment rate ticked up 0.1 percentage point to 9.8%, the highest level since June 1983.

But another more comprehensive gauge of unemployment ticked up even more. The government’s broader measure, known as the “U-6? for its data classification, hit 17% in September, 0.2 percentage points higher than August.

The comprehensive measure of labor underutilization accounts for people who have stopped looking for work or who can’t find full-time jobs. The U-6 figure is the highest since the Labor Department started this particular data series in 1994. But, similar to the headline unemployment rate, it likely isn’t as bad as it was in the 1980s. U-6 only goes back to 1994, but a discontinued measure has a longer history. That old U-6 measure peaked at 14.3% in 1982. Through some calculation, a comparable measure can be determined in the current report. Under the old U-6 methodology, the September rate would be 13.5%, the highest rate since 1983, but still below the peak.

Ow. But things could be worse! President Obama has praised the $787 billion economic stimulus plan he signed, claiming pie-in-the-sky numbers before his inauguration:

President-elect Barack Obama said on Saturday an analysis of his stimulus proposals showed that up to 4 million U.S. jobs could be saved or created by 2010, nearly 90 percent of them in the private sector.

Obama said previously his estimated $800 billion plan to lift the country out of a yearlong recession would create or save 3 million jobs, but the new analysis showed that number would range between 3 million and 4 million.

Good thing the stimulus package was passed. If we hadn’t passed it, the White House predicted we’d have unemployment as high as 8.8% instead of the 7.9% unemployment we have now, thanks to the stimulus package.

Wait, what?

Unemployment

That’s right — Obama predicted that without the stimulus package, unemployment would peak out at a nasty 9%, but thanks to his skillful leadership, it would not crest 8%. So, who are you going to believe, Obama, or the lying Bureau of Labor Statistics?

I’ve read that our economy has already turned the corner and the economy is improving, so why aren’t the jobs coming back? And why should they come back? When a business hires someone, the business is looking to the future and confident about what it holds.

But what is there to inspire confidence in business today? Is government going to pass a Cap and Trade bill that will greatly increase the cost of energy and doing business? Is government going to meddle with the banking industry again? Is government going to take over the health care industry? Is there anything government won’t mess with in the next few months, let alone the next few years? If I were an employer, I’d be scared spitless about what the future holds, and I’m not sure if I’d be willing to bet my company on what the government will or won’t do.

Uncertainty about the future, mainly at the hand of an increasingly meddling government, explains why the job market shows no sign of recovery. Here’s a graph that puts the current recession in perspective.

Unemployment trends

The economy would do much better if the government would get out of the way.

Some random thoughts that have been rattling through my head for the last few weeks:


If you are uncertain how the current administration will react to some situation, just identify the action most likely to increase the government’s size and power, and you will know exactly how the government will act.


Posters have appeared at my work telling us when and how to wash our hands. Since I work at a company that hires people for their smarts, this seems to be a bad sign.


The call to shoot the Somali pirates was the right call to make, and kudos to Pres. Obama for making that decision. But why is the President making such a tactical decision?

And speaking of the President making a tactical decision, the military once had Osama bin Laden in its sights, but because President Clinton stalled and didn’t make the decision, that golden opportunity was lost. Read Dereliction of Duty for how that happened.


<joke>
Pres. Obama didn’t actually order the attack on the Somali pirates. What he called for was “a tax” on the pirates.
</joke>


Why does Hollywood think it is a good idea to take a wonderful story and change it into a terrible movie? The Dark is Rising is a great book by Susan Cooper, but “The Seeker: The Dark Is Rising” is a trés crappy movie.


If the President asks a mix of Democrats and Republicans for their opinion, and their response comes along party lines, then the issue is a political one, and the President may respond politically. But if the response comes back unanimously, then it isn’t a political issue and shouldn’t be handled politically.

The current CIA director and five of the past directors, appointed by Republican and Democrat Presidents, responded unanimously to Pres. Obama that releasing the memos outlining the enhanced interrogation techniques would be a bad idea. Obama ignored their united advice and released the information anyway. Dumb. Dumb. Dumb.


I’ve noticed some people are saying that the recession is showing signs of bottoming out, and we may come out of it this year. If that’s the case, can we please repeal all the “stimulus” sections of the budget that haven’t even kicked in yet? There’s no need to saddle future generations with debt over a stimulus package that is no longer needed.


The more I read about President Obama and what he says, the more I realize that this nation has elected a n00b.


People claim that President Obama is a skilled orator. I wouldn’t know because I don’t listen to him. In matters political I have long preferred to read, rather than hear, the things people say. After all, I’m much more interested in content than in form.


I delete any email I get that ends with a call to forward it on to everyone I know. I see that plea to forward it on as an acknowledgement that the content isn’t worth forwarding on its own.


In other news, even though the depression in the yard has been filled in and no longer becomes a pond after a hard rain, the ducks returned once this week. And again the female duck was hogging most of the bread.

Hungry ducks

The title of the MSNBC article by Senior Producer John W. Schoen is “Can government turn the economy around?” The answer is a loud yes. Government, by its action and inaction, can turn a healthy economy sick just as it can turn a sick economy healthy. But it really depends on what the government plans are. In a nutshell, if the government butts out of the economy and allows people to engage in commerce without restrictive and repressive rules and regulations, the economy can soar. When the government plays the role of buttinski, their actions can cause the economy to sour. Here is the second paragraph from the article:

Theres no shortage of ideas in an election year. But it remains to be seen just how much the government can do to halt the continued slide in an economy battered by falling housing prices, rising energy costs and a lending slowdown caused by worries about how many more loans will go bad.

Let’s take a quick look at the three woes in Schoen’s article. Housing prices are falling because they have risen in a speculative market driven by house flippers and low interest rates. Rising energy costs can be blamed on an increase in demand for oil as nations like India and China want to get out of the 20th Century and join the 21st. But some of the blame for the increase can be laid at the feet of government and government regulation. We haven’t built a new nuclear power plant in the U.S. for over 30 years, and environmental nutjobs have succeeded in preventing the U.S. from tapping into much of our own available oil fields. And the loan crisis was caused by the government forcing companies to give loans to high-risk people, or they would be labeled as discriminating racists and prosecuted by government thugs. Now that — surprise, surprise — these high-risk people are defaulting on their loans, government thugs like Senator Clinton are bashing those same loan companies as being “predatory.” Politicians get to look good twice: first when they cause a problem, and later when they try to “fix” the same problem they created.

European and Asian markets are struggling today because of their worry over a U.S. recession. So, what can the government do that could stimulate the economy? Quite simply, the government could just get out of the way. The more government butts into our jobs and tells us what we can and can’t do, the harder it is for us to do our jobs. And possibly the easiest way for the government to leave us alone is by lowering the tax rates. As I have written before, you get more of that which you reward, and less of that which you punish, and taxes certainly are punitive on people working and doing business.

But it appears we may instead get a tax rebate. According to this news report, Pres. Bush is considering up to an $800 tax rebate, similar to the $300 tax rebate that was given in 2001. But whether it is a tax rebate or a tax rate cut, it will have to pass the Democrats in Congress. And knowing that, I have to wonder whether Democrats are really willing to help.

Here’s their dilemma — if Democrats do nothing or block any attempt by the White House to improve the economy, they could use a weak economy to push themselves forward. But doing so politically would mean hurting the little people the Democrats say they support. Time will tell whether the Democrats in Congress will put their own political fortunes ahead of the national interest.