There are two bills in Congress right now that will have a profound impact on virtually everyone in the United States. One is a tax on carbon emissions that Congress is trying to disguise as a bill to prevent global warming. The other is a healthcare reform bill that by the estimates of the Congressional Budget Office will actually increase the costs of health care and which Congress wants to pay for with tax increases on… well… on just about everyone. Separately, either one of these bills would be costly and each has a long list of special interest protections in them that would make the average person nauseous. Together, these bills represent an economic disaster in the making. They will cost the average American household thousands of dollars each year, export jobs to other countries and lead to a system of substandard rationed health services for a majority of people. And perhaps most ironically, the tax increases that both of these bills would create are likely to reduce overall revenues collected through taxes.
Congress is playing a very dangerous game with the tax policies that it is considering. At the same time, they are displaying their own ignorance of history. To pay for universal healthcare, Charlie Rangle (D-NY) has proposed increasing taxes on the “wealthy”. His definition of “wealthy” apparently starts at individuals who make more than $250,000 annually. Under his proposal, families making over $1 million annually would be hit with an increase in taxes of 5.4%.
Nancy Pelosi (D-CA) has proposed some changes to Rangle’s plan, but overall she too supports this type of tax increase.
While it may be tempting to raise taxes on those who have already made their fortunes… it certainly sounds like a great idea to many… history proves that it doesn’t work. No major tax increase on the wealthy has ever led to a significant increase in government revenues. In fact, they almost always lead to a decrease in revenues. But we’ll come back to that.
Because Obama and Congress are now planning to tax employer offered health insurance, the chances are almost 100% that all of the costs for so-called healthcare reform will be borne by the middle class.
The environmental tax bill known as cap and trade is also a wolf in sheep’s clothing. The administration and Congress claim that the bill is needed to save the planet from global warming. But the EPA apparently disagrees. Prior to a vote in the House of Representatives, the EPA suppressed a report of its own showing that global temperatures may actually be cooling. And there is a lot of data that has been collected by NASA that also supports this theory.
But cap and trade is popular in Congress and with the White House because it represents at $678 Billion tax increase on virtually everything you buy. It also allows the federal government to regulate the sale of real estate and a wide variety of other items.
Between these two bills, Americans would have to pay Trillions of dollars in new taxes. But as I said before, the irony of this is that it will lead to lower tax revenues. History bears this claim out. And in another irony, it was Democrat that pointed this out nearly 50 years ago when running for office.
Under the Eisenhower administration, the top marginal tax rate was 91%. Within the past week, members of Congress have been pointing this out and saying that the economy functioned just fine. But they are leaving out a few details. One in particular really stands out. At the time, there were only 280 millionaires in the United States. There are now more than 350,000. That means that Eisenhower’s high taxes had a much lower impact overall than Obama’s will.
John F. Kennedy used the tax policies of the Eisenhower administration as a part of his platform in the 1960 election. He wanted to lower taxes – which he did. In a speech given in 1962, Kennedy said, ''It is a paradoxical truth that tax rates are too high and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now.” He went on to say, “Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
After Kennedy’s tax decreases took effect, federal tax collections increase by a rate of 8.6%. When Ronald Reagan was elected to office, he too cut taxes. And again, tax revenues increased. Most surprisingly, Reagan cut the marginal tax rate for the wealthiest Americans by 20% and the revenues collected from this group increased.
I’m paraphrasing here but Reagan said that one definition of an economist was somebody who could actually watch something work in the real world and then wonder if it would work in theory. That is precisely what Congress and Obama are doing here. If they actually looked at history, they would have no trouble determining that what they are trying to do won’t work. They simply can’t pay for these programs, and increasing taxes is the worst possible idea they can propose. But somehow they’ve convinced themselves that actual data isn’t important and that their theories about how they will pay for these programs are correct. They are dead wrong.
As bad as these tax bills are, they are just the tip of the iceberg. Since October of last year, Congress has spent Trillions of dollars in “bailout money” to stimulate the economy. But only 6% of that money has actually been spent yet, and many banks are actually hoarding cash. Additionally, the FED has expanded the money supply almost three times. As government spending begins to enter the economy full force, and if banks also begin the lend money, then high inflation rates will almost certainly follow. The only way to fight this will be for the FED to increase interest rates. And since many credit card companies are now converting their credit card accounts from fixed to variable rates, millions of consumers will be hit with those higher rates. Higher interest rates could also threaten any economic recovery by holding business and consumer spending down.
If you are middle class, you are going to pay dearly for these mistakes. Your buying power will be diminished because the amount of money you will take home in your pay checks will be less. And what you do manage to take home will be worth less due to inflation. Your job may be sent overseas. You may not be able to get the medical treatment you need. You will find it harder to support your family and keep food on your table. I’m very confident of this because of historical data. All the data that Congress and the White House are choosing to ignore.
by Jim Malmberg
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