The establishment politicians and commentators who make this claim expect you to conclude that the rich paid less income tax after the Bush tax tax rate reductions than before.   This chart, showing the most recent figures available from the IRS tells the truth.

As the chart shows, revenue from the top group was falling each year until the Bush tax cuts were enacted in 2003.  Then revenue increased every year until taxable small business profits were hit by the recession that began in 1988.

If government had collected less tax revenue from “the rich” – mostly small business owners – after the rate reductions they might deserve a share of the blame for deficits.  But in fact, the rich paid more – a lot more.

The establishment elite demonstrate their understanding of the disincentive effect of taxation when they call for taxes on choices and behaviors they dislike.  They advocate:

• Higher gasoline tax to “nudge” us out of cars and into mass transit;
• Taxes on sodas and sweets to keep us from getting fat and burdening their government dominated health care “system.”

But those same elites scoff at the obvious disincentives inherent in high income tax rates.   The income tax is a tax on risk-taking, saving, investment, and productive work – all the activities necessary for job creation.

Because higher rates on “the rich,” especially small business owners, discourage work, saving and investing, the people they are designed to target respond by curtailing business activities and thus earning less taxable income.   As a result, higher rates don’t necessarily generate more revenue.  Lower rates are less of a barrier to risk-taking, investment, business expansion and hiring, all the activities that generate more taxable profits.

In fact, as this chart shows, after the tax cuts of 2003 the deficit declined, as the rich paid more income tax.This is not the first time higher income folks paid more income tax after a rate reductions.  During the Reagan Administration there was a series of phased in rate reductions from 1981-83, and another rate reduction in 1986.  The results:

• In 1980 there were eight tax brackets and the highest was 70%.   People earning more than $200,000 reported a total of $36 Billion in income and paid $19 Billion in tax.
• In 1988 there were only two tax brackets, 15% and 28%.  The over-$200,000 group reported $353 Billion in income and paid $99.7 Billion in tax.

Over eight years taxable income reported by “the rich” rose 881% and income tax collected from them rose 425%!  But even though the government was the beneficiary of this huge windfall the political-media establishment still promotes the deception that the Reagan tax cuts caused deficits.

Last week House Speaker Nancy Pelosi was asked about the future of the Bush tax cuts of 2003.

Those tax cuts are scheduled to expire at the end of 2010.  If Congress doesn’t act tax rates will increase substantially in 2011.  Ms. Pelosi’s answer echoed the political-media establishment.  She wants to extend the tax cuts for lower income groups but not for “the rich.”

High end tax cuts have not created jobs, they have increased the deficit and they should be repealed.

In this series we’ll consider her assertion, starting with jobs.

Private sector jobs are not created by Presidents, Congress or government.  They are created when businesses risk their capital resources on expansion.  And small businesses create most new jobs.  

Any tax on a small business reduces the resources its owners can invest in expansion and job creation.  Government doesn’t create jobs but it can encourage more job creation with lower rather than higher taxes.  So-called “high end” taxpayers, those earning more than $200,000 that Obama and Pelosi have targeted for tax increases, are mostly small businesses.

At any given time the level of taxation is only one of several economic balls in the air.  Business expansion and job creation may also be affected by new technologies, demographics, prices, wars, interest rates, and a host of other factors.

But to prove her assertion that the Bush tax cuts did not help businesses create more jobs from 2003 to 2007, Ms. Pelosi will have to come up with some dazzling, counter-intuitive arguments.

As everyone is painfully aware, Job creation turned into job losses in 2008.  But there is no reasonable argument that the tax rate reductions of 2003 caused the banking and mortgage crises of 2008 that decimated the economy.  Nor, is there any coherent argument that the big tax increase on small businesses and investors, now scheduled for January, will somehow help them create more jobs in 2011.

They have suddenly pivoted from profligate spending to seeking ways to wrench more money out of the private sector into the government till.

The first group Democrats want to suffer tax punishment as a result of the Obama deficits is “the rich,” defined as earning over $200,000, who are now targeted for a tax increase.

The problem with a tax hike on  “the rich,” as more and more Republicans are finally saying out loud, is that it’s also a tax hike on the small business sector that creates most of the new jobs.

But Democrats and their cheer leaders in the media are not impressed by this argument.  In an article titled “GOP Fairy Tales” Mother Jones writer Kevin Drum echoes the claim being heard all over Washington:

…only 1.9% of small businesses are in the top two tax brackets that would be affected.

Mr Drum apparently thinks the reader will conclude that this means an insignificant effect on small business job creation.  But this is fallacious reasoning.  It’s true that a small minority of business owners are in the over $200K bracket, about 10% according to IRS statistics from 2007, the latest available.   But these are the very businesses that can create the most jobs, because they have the most after tax profit to reinvest.

The important statistic is not what fraction of small businesses earn a lot but what fraction of the group being targeted for a tax hike is small businesses.  It turns out that most high income tax payers receive part or all of their income from business ownership.

Millions of small businesses are part time and/or employ nobody but the owner.  Millions more are just a bit larger, employing the owner plus one or two people.  Only a tiny  fraction of  those “very small” businesses will emerge as growing enterprises that create any jobs.

The small businesses that create most of the new jobs in America are the very ones the Democrats have targeted for tax increases, the businesses with enough profits left over after supporting the owners to reinvest in expansion and job creation.

Creating Jobs by Reinvesting After-Tax Profits

The businesses that will be hit by the tax increase are the larger “small businesses” that DO create jobs, such as construction, or restaurant, or technology  firms.  These businesses create new jobs by  reinvesting profits. Every dollar of increased taxation, is one less dollar available to reinvest in expansion and job creation.

The Bottom Line

• More small business expansion is funded by reinvesting after-tax profits than by borrowing.  Since the banking crisis began in 2008 small businesses have suffered dramatically reduced access to credit.  Therefore, after-tax profits are even more critical if they are to expand and hire more people.

• Government has no system to identify and count the jobs that won’t be created because of tax hikes on “the rich.”

• Government will seize from the private sector some of the resources that empower free people to use their liberty to create prosperity.  These resources will be used to support expanded political power and reward special interest constituencies with political connections.

When we walked through the doors of the White House we not only faced the worst economic crisis since the great depression, we also faced a $1.3 Trillion deficit…

Thus, Obama once again tried to blame the previous Administration for titanic deficits he has deliberately created, in part with the failed $800 Billion “stimulus.”  He hopes we’ll all forget his stimulus hype back in the early days of his administration when he smugly mocked his adversaries for not understanding that massive government borrowing and spending would, somehow, “immediately jumpstart job creation.”

He hopes we’ll forget his famous speech to a meeting of Democratic Congressmen when he scorned those who warned against profligate borrowing and spending:

Then you get the argument that this is not a stimulus bill, this is a spending bill.  What do you think a stimulus is? [laughter]  That’s the whole point. [more laughter] no, seriously.  THAT’S THE POINT!

At the beginning of 2009 Obama enthusiastically urged Congress to borrow and spend with abandon.  When he was sworn in less than half of the $700 Billion TARP bailout fund had been loaned out to banks.  in the end almost all of it was repaid.  Obama could have used his authority to stop further TARP bailouts.  Instead he broke the law by expanding the TARP program to seize control of GM and Chrysler and GMAC.  He enacted the failed stimulus, Cash for Clunkers, expensive but failed foreclosure prevention programs, ridiculously extravagant subsidies for politically favored electric car, solar, wind and window companies.

But now Obama hopes to portray himself as the victim rather than the author of the deficit crisis. But if he had been serious about correcting the Bush deficits he campaigned against he certainly could have.

The charts above demonstrate one, easily implemented option: Obama could have cut the 2009 and 2010 deficits in half by simply putting Congress on an easily enforced budget.  Instead of driving massive increases in spending, he could have insisted that Congress cap all spending on all programs except Social Security at  the total that was spent in 2007.

Of course the politicians in Congress would have had to decide which of the scores of Unconstitutional, corrupt, wasteful programs to cut or eliminate in order to keep the total below the cap.  Those decisions are considered phenomenally difficult in Washington, but a committee of Main Street small business owners, who have no choice but to invoke budget discipline every day, could have instructed them.

Here are some hard numbers:

• When Obama was sworn in, January, 2009 total federal debt was $10.6 Trillion.
• Today, 18 months later, the debt totaled $13.2 Trillion
• If Obama and Congress had adopted the easily implemented cap illustrated in the charts above the debt today would be $11.6 Trillion.
• The interest on the difference, $1.6 Trillion, at current rates will be about $55 Billion per year.   To put that in perspective the entire annual cost of  the Department of Homeland Security is $52 Billion.
  

The Silver Lining

We first published this paragraph here, a week before President Obama was inaugurated:

There is one bright spot in all this dreary news: before the 2010 election it should be obvious, to even the most naive voters, that politicians, including the magnificent Barack Obama, are simply not equipped to improve America by diverting a Trillion dollars from the private sector and hurling it at politically inspired projects and programs.  With his grand plan Obama may demonstrate the value of liberty and the clumsy incompetence of political authority more effectively than any politician since Ronald Reagan.

When the May Jobs report was released a month ago it showed 431,000 more jobs than in April, a huge number that would normally indicate strong economic growth ahead.  President Obama jumped in front of the cameras to proclaim that “our economy is getting stronger by the day.”

But the details contradicted the headline number.  It turned out that 91% of the new jobs logged in May were temporary, part-time, Census jobs.  The private sector added only 33,000 jobs.

The June jobs report, released Friday, shows the Census-driven boost has turned into a Census-driven decrease.  The total number of jobs declined by 125,000 due largely to the Census winding down and laying off temporary workers.  So, this month the President focused not on the total number of jobs, but on Private sector jobs.  Private employers did manage to add 83,000 jobs in June.  In a brief speech the President noted this increase and added:

Our economy has created about 600,000 private sector jobs this year.  Make no mistake, we are headed in the right direction…

The precise number is 593,000 or about 99 thousand per month over the past six months.  This is about 50,000 fewer jobs per month than the growth in the working age population.  Here are the stories behind the charts above that track private sector jobs:

Seventeen months ago President Obama inherited a deep recession.  His response has been to:

• Expand the bailout program begun under the Bush administration;
• Schedule massive income tax increases on small business and investors to begin in 2011
• Enshrine as explicit government policy the theory that some companies and financial institutions are deemed too-big-to-fail and will always be rescued from the consequences of their own negligence, especially if their workforce is unionized;
• Enact the so-called “stimulus” in February, 2009, nearly $800 Billion in extra borrowing and spending, hyped with the promise that it would, in Obama’s words “immediately jumpstart job creation;”
• Subsidize blue-sky energy schemes that are too expensive and unreliable to survive in the competitive marketplace;
• Enact a government take-over of health care and health insurance that will increase costs and, ultimately, ration care.
• Introduce legislation that would cause an artificial, government imposed energy shortage and add a new tax on all energy consumption by businesses and households.

Like President Obama, President Reagan inherited a deep recession as he took office in 1981. By some measures it was worse than the current downturn.  Reagan’s economic program, based on his commitment to liberty, was the opposite of Obama’s:

• Reduce regulation and government intervention in the private economy;
• Cut taxes to leave capital in the hands of those who had earned it and were best equipped to invest in job creating enterprises;
• Unshackle the creative and productive energies of The People from the burden of imperious  government.

The upper chart shows the job market began a faltering recovery.  There are still 2.6 million fewer private sector jobs than when the stimulus was enacted in 16 months ago.

The results in the lower chart speak for themselves.  Reagan’s policies turned the job market around after 17 months of losses. The Reagan economy created an average of 233,000 jobs per month, for 90 straight months.

This progress report will focus on some explicit promises made by President Obama and his economic team to sell us his massive stimulus scheme.

Lets not forget the origins of the stimulus, in Barack Obama’s hubris.  Back in the Presidential campaign he set lofty expectations for the Utopian potential of big government under his leadership:

America, this is our moment. This is our time. Our time to turn the page on the policies of the past…I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on earth.

Millions of voters bought it and fully expected miraculous results.

Before he was even sworn in Obama, with absolutely no relevant experience believed his own hype and arrogantly directed Congressional leaders to enact the $787 Billion borrow-and-spend stimulus or recovery act.  Congress passed the recovery act  in the third week of his administration with such urgency they couldn’t even wait for it to be printed in final form, much less take the time to read it.

Big government schemes to seize control over the economy and lives of citizens are always based on extravagant promises of great benefits, conjured up by those “experts” who are way smarter than us ordinary mortals.  Obama’s “experts” regaled us with a report, published for all to read, ten days before his inauguration.

The establishment media has shown little interest in reminding voters of the promises in this report so it is left to us to hold Obama and his experts accountable.  Below are just a few of the projections in the expert report compared with actual results.

Expert Projection:

“Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair.”

Actual results:

.

Expert Projection:

…jobs are likely to be created in all sectors of the economy…More than 90 percent of the jobs created (more than 3.3 million) are likely to be in the private sector.

Actual results:

Readers asked:

What would the unemployment rate have been if the government had not hired 415,000 Census workers in May.

It would have been 10.0% instead of 9.7%

What if federal government employment had not increased at all since December?  What would the unemployment rate be then?

It would have been 10.1% instead of 9.7%

Who counts as unemployed?  What is meant by “discouraged workers” and “the real unemployment rate?”

Unemployed is defined as actively seeking a job.  It’s often reported that only those who are eligible for and collecting unemployment benefits count as officially unemployed.  This is not correct.  Anyone who is actively seeking a job is counted as unemployed.

Discouraged workers are people who want a job but don’t count as “unemployed” because they are not actively looking for work.  They believe there are no jobs to be had so there is no reason to go out and look.

In May there were 5.7 million such discouraged workers.  If they and all the temporary census workers were added to the ranks of “unemployed” the rate would  would have been 13.3%.  Some commentators call this calculation the “real” unemployment rate.

It’s important to remember that these numbers are statistical samples.  Labor Dept. employees pick a random sample of homes, knock on doors, and ask how many people in the household are employed, unemployed, discouraged, etc.  This is called the Household Survey.

The number of jobs added or lost as reported by the media each month comes from a completely different process called the Establishment Survey.  Each month the Labor Department asks a sample of employers how many people are on their payrolls.

The media present each monthly jobs report as a stand-alone event.  But we put them in context as progress reports on the Obama “stimulus” or  recovery act, jammed through Congress in the third week of his Administration.

The explicit promise made by President Obama and Democrats in Congress to sell the stimulus was that borrowing and spending an extra $787 Billion plus interest would result in immediate job growth.  In Obama’s own words the stimulus would:

Immediately jumpstart job creation and long term growth.

The May Jobs report showed 431,000 more jobs than in April, a huge number that would normally indicate strong economic growth ahead.  Obama tried to work up some enthusiasm in a speech to truck drivers:

This report is a sign that our economy is getting stronger by the day.

But the details muted reaction from Wall Street and even the pro-Obama media.  It turns out that 96% of the new jobs logged in May were federal government jobs.  And almost all of those were temporary, part-time, Census jobs.

This chart shows the number of jobs in America each month since the stimulus was enacted.

Even though the instant job creation Obama promised did not materialize, it does appear that some job growth began in January, a year after the stimulus was enacted.  Obama and the Democrats have tried to retroactively revise their original promises and claim that this is the result they intended all along.  Today he said:

…what these numbers do mean is that we are moving in the right direction and the economic policies we put in place are working.

However, it turns out that even the year-late, five-month increase in jobs is less than meets the eye.  The next chart shows the numbers with federal jobs stripped out.

The government has hired about 550,000 part time census workers since December.  Virtually all these folks will be cut lose by September.  Thus, if private sector job creation over the next five months equals the last five months, there will be a net loss of 50,000 jobs.

Government’s continuous threats of tax increases, health care mandates, an artificial energy shortage under cap and trade, and coerced unionization discourage investment and hiring, driving down taxable profits and incomes and depressing the tax revenue needed to fund Obama’s breathtaking surge in spending.  The private sector is unable and/or unwilling to generate enough taxable income and profit to satisfy government’s mushrooming appetite.

The drop in tax revenue since 2008 is the steepest since the Great Depression of the 1930s.

Because revenues are running less than projected the 2010 deficit will be more than $1.8 Trillion, much higher than official projections from the Administration.  If spending also exceeds projections, as it certainly could, the 2010 deficit could exceed $2 Trillion.

President Obama Campaigned against deficit spending.  He warned that electing John McCain would bring on four more years of “soaring Bush deficits.”

Obama Deficits Chart

• This year the federal government has borrowed 49¢ of every dollar spent.

• After adjustment for inflation, the 2010 deficit will be greater than all World War II deficits combined, from 1942 through 1945.

• This year the federal government will borrow $1 Trillion more than it will collect in personal income tax revenue.
  

With less than six months left before the mid-term election, President Obama and the Democrats appear to have contrived a deception they hope will overcome two major negatives:

1. The gargantuan “stimulus,” jammed through Congress before it was even printed, let alone read by the Senators and Representatives who voted for it, will add a Trillion dollars to government debt. But it did not deliver the immediate job creation results that were promised.  Instead, job losses continued for eleven months and the unemployment rate has soared much higher than promised.
2. Massive tax increases, especially on small businesses, the engine of job creation, are set to begin next January.

The disinformation campaign targeting voters who don’t have the time or the inclination to pay close attention to political news or to dig out the truth behind the soundbites has begun.  Over the weekend we saw a preview as talking heads repeating a new soundbite, paraphrasing a claim first made last week in the National Journal:

There will be more job creation in 2010 than in the entire eight years of the Bush Presidency

The intended message is that tax cuts – Bush’s job creation initiative – didn’t work, while the borrow-and-spend stimulus did.  But the facts presented below contradict this deceptive message.  First, a quote from the source of the sound bite the National Journal article:

From February 2001, Bush’s first full month in office, through January 2009, his last, total U.S. nonfarm employment grew from 132.5 million to 133.5 million, according to the Bureau of Labor Statistics. That’s an increase, obviously, of just 1 million. From January through April of this year, the economy created 573,000 jobs. Over a full year, that projects to 1.72 million jobs.

Some, but not all the data that make this claim far less profound than it seems are mentioned later in the article.  Of course none of the details will ever be supplied by propagandists who will repeat the soundbite a thousand times between now and election day.

To present the whole story we begin with a review of the Bush Administration jobs record

• The dot-com bubble burst early in 2000, triggering an economic downturn.  The Nasdaq, home of most tech stocks fell 45% in ten months.  The predictable job losses began in January, 2001, the month Bush was inaugurated.
• A total of 1.8 million jobs were lost in 2001 as the recession continued and then the 9-11 terrorist attacks forced thousands of businesses to cut back or shut down completely.
• Bush responded by pressing Congress to enact the tax cuts he had promised during his campaign.  Congress finally agreed to a schedule of tiny incremental reductions in tax rates to be phased in over several years. This proved ineffective and job losses continued through 2002 and into 2003.
• In May of 2003 Bush persuaded Congress to abandon the incremental tax rate reduction schedule and enact large, comprehensive tax cuts all at once, retroactive to January, 2003.
• Job growth began in September and continued for 51 months for a total of 8.1 million new jobs.

Another recession and the financial crisis hit in 2008 and 4.4 million jobs were lost by January, 2009 when the Bush Administration ended.

So without trying to either promote or criticize President Bush, an objective summary of his eight years would be:

• 32 months of job loses, totaling 2.6 million, caused by the dot-com recession and the 9-11 terrorist attacks,
• 51 months of job growth following the 2003 tax cuts, totaling 8.1 million new jobs.
• 13 months of sharp job losses, totaling 4.4 million, due primarily to the financial crisis.

Obviously, Bush made plenty of mistakes, and the final year of the his Administration was an economic nightmare with soaring unemployment.  The debate continues over the cause of the financial crisis, whether it was government malfeasance through the Federal Reserve, Fannie Mae and Freddie Mac, or the simplistic “greed on Wall Street” we hear from Obama.  But nobody can possibly make a case that the tax cuts of 2003 somehow caused the banking crisis and job losses of 2008.

The Bush tax cuts of 2003 demonstrated, for the third time, that reducing tax rates is an effective action the government can take to help the private sector generate more jobs and more prosperity.  The first time was under President Kennedy in the Sixties.   The second time was under President Reagan in the eighties.

But Obama and the Democrats are invested in raising, rather than lowering tax rates, and expanding the power of government through huge spending increases.  Their hope is to exploit the generally negative public attitude toward George W. Bush and prevent voters from examining the data or remembering that more than four years of continuous job growth followed the tax cuts of 2003.

Another point of dishonesty in the National Journal article is the apples to oranges comparison. The article judges the Bush jobs record from the beginning of his administration, when the economy was already in recession.  If Obama were judged on the same standard he would now be at minus 3.4 million jobs.  But the National Journal scores Obama at Plus 573,000 by starting the count in his 12th month, even though his policy response, the trillion dollar stimulus, was enacted in third week of his Presidency, on the promise that it would, in his words, “immediately jumpstart job creation.”

As the President and Congress continue to roll out the radical Obama agenda Liberty Works will continue to  hold them accountable for failing results.

The political-media establishment put on a happy face and proclaimed a “better than expected” jobs report Friday.  The welcomed good news was that private sector employers created 234,000 new jobs in April, the largest one month increase since March, 2006.  Government added 56,000 mostly temporary, census jobs bringing the total to 290,000 for the month.  On the negative side, the unemployment rate went up from 9.7% to 9.9%.

President Obama stepped in front of the cameras to take credit for the positive part of the report.

Yes, we’ve got a ways to go but we’ve also come a very long way and we can see the difficult and at times unpopular steps we’ve taken over the past year are making a difference.

To put the jobs report in perspective, these charts compare the two worst recessions since the 1930s, and the results of  two, directly opposite responses from Washington.

Predictably, the President is now trying to plant in the minds of the uninformed the notion that his “difficult and unpopular steps,” have been successful.

The stimulus, $787 Billion in extra borrowing and spending was Obama’s first monster-bill.  It was enacted during the third week of his presidency in an atmosphere of panicked urgency, by Senators and Congressmen who did not read it because it’s final draft had not yet been printed the day they voted.

Obama and House and Senate Democrats promised immediate results in the form of job creation .  They said urgent action was vital because more jobs would be lost each day enactment was delayed.

• They did not promise that the unemployment rate, then at 7.7% would be at 10.1% nine months later and 9.9% fifteen months later. In fact, they promised the unemployment rate would never exceed 8% if the stimulus were enacted.
• They did not promise that if the government borrowed and spent an extra $787 Billion dollars, 3.9 million more jobs would be lost over the next eleven months.

But now the President hopes you will be duped into believing that because employment is finally beginning to grow his stimulus is, in his words, “making a difference.”

The charts above show the different results from two very different government responses to a deep recession and massive job losses.

Thirteen months ago President Obama inherited a deep recession.  His response has been to:

• Expand the bailout program begun under the Bush administration;
• Enshrine as explicit government policy the theory that some companies and financial institutions are deemed too-big-to-fail and will always be rescued from the consequences of their own negligence, especially if their workforce is unionized;
• Enact the stimulus, now 15 months old and nearly $800 Billion in extra borrowing and spending, hyped with the promise that it would, in Obama’s words “immediately jumpstart job creation;”
• Subsidize blue-sky energy schemes that are too expensive and unreliable to survive in the competitive marketplace;
• Enact a 2,500 page government take-over of health care and health insurance that will increase costs and, ultimately, ration care.
• Introduce legislation that would cause an artificial, government imposed energy shortage and add a new tax on all energy consumption by businesses and households.
  
• Schedule massive tax income increases on small businesses and investors to begin in 2011.
• threaten to institute a value added tax.
  

Like President Obama, President Reagan inherited a deep recession as he took office in 1981. By some measures it was worse than the current downturn.  Reagan’s economic program, based on his commitment to liberty, was the opposite of Obama’s:

• Reduce regulation and government intervention in the economy;
  
• Cut taxes to leave capital in the hands of those who had earned it and were best equipped to invest in job creating enterprises;
• Release the creative and productive energies of The People from the yoke of imperial government.
  

The upper chart shows the job market has just begun a tentative recovery after 29 months of Bush/Obama policies.  There are still 2.7 million fewer Americans now employed than when the stimulus was enacted in 15 months ago.

The results in the lower chart speak for themselves.  Reagan’s policies turned the job market around after 17 months of losses. The Reagan economy grew continuously for 90 months, creating a total of 21 million new jobs, for a 24% increase in the number of Americans who were employed.

Updates in response to comments:

The charts are called “incredibly misleading” and “a profoundly dishonest comparison.”   But they both start at the moment of record high employment, and then track the decline and eventual increase in jobs.    They simply present data from public record.

Bush took two actions against recession and the economic crisis: He persuaded Congress to enact “stimulus” consisting of small tax rebates and he began the T.A.R.P. bailout program.  Obama persuaded Congress to enact another, four times larger “stimulus.”  He put more than twice as much into T.A.R.P. bailouts as Bush did, and expanded the scope of T.A.R.P.  The Bush and Obama policies were more similar than different. In hindsight, Bush’s program turns out to have been “Obama light.”  The implication that Obama embarked on some radically different strategy is simply wrong.

As Drew pointed out, the Reagan administration began in the midst of economic crisis.  Inflation was at it’s highest rate ever.  Interest rates were at an 80 year high.  The Federal Reserve, under Chairman Volker had embarked on monetary tightening.  The economy was being choked and job loss was inevitable. But even if one rejects the idea that Reagan inherited a recession, one still must acknowledge that Reagan’s recession-fighting strategies, tax cuts and deregulation, were directly opposite the Obama strategies.

Victor says job growth was somehow better in recent months than in 1983.  But, in the first four months of the recovery that began in January, 1983, 21% of the lost jobs were replaced.  In the first four months of the recovery that began in January of this year 12% of the lost jobs were replaced, and a quarter of those are temporary, mostly part time census jobs that will disappear later this year.

In 1983 all the lost jobs were replaced within ten months.  At the recent rate of growth it will take 34 months to replace the jobs lost in this recession.

Their justification for these initiatives is based not on the timeless principles of liberty and individual autonomy, but promised benefits based on economic projections by “experts.”  The President often cites the opinion of, in his words, “independent experts” as the only justification for new laws, policies and regulations.

Obama’s first projection based blowout was the “stimulus,” $787 Billion in new borrowing and spending.  It was enacted with great urgency in the 3rd week of his Presidency, before it was printed in final form, by Congressmen who did not read it, because his “experts” promised immediate recovery from job losses, and immediate job growth.

Fifteen months later the stimulus is a manifest failure.  There are 3.8 million fewer jobs now than there were the month before the stimulus was enacted.

In their quarterly stimulus progress report, published April 15, the Administration’s Council of Economic Advisers (CEA), the same “experts” who promised immediate job growth, tried to rewind history and retroactively change their projection.   In the report They lay out a series of economic assumptions and complex calculations to project future employment.  Then, they assert had they used this methodology back at the beginning of 2009 they would have projected a loss of 5.9 million jobs without the stimulus.

CEA now claims the stimulus is a success because the massive job losses we’ve suffered since its enactment are still fewer job losses than they would have projected had they used the methodology they just developed this month!

The chart above is the Liberty Works progress report, showing that we’re way behind the promises made in CEA’s original projections.  To meet CEA’s original promise of 4 million additional, new jobs by the end of 2010, employers would have to create 861,000 jobs per month, every month from now through December.

To put this number in perspective, the most rapid employment expansion in history was during the eighties when 21 million new jobs were created in 90 months, for an average of 233,000 per month.  The best one-month job increase ever was 509,000.

Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance.

In the context of the subdued language Federal Reserve Chairmen always use, a statement like this should be taken as a stern warning.  This is as close as a Fed Chairman will ever come to ringing an alarm bell.

As the chart shows the current situation is indeed alarming.

The government has borrowed four of every ten dollars spent so far this fiscal year.

The standard excuse from Congressional leaders is that “the rich,” defined by President Obama as earning more than $200,000 per year, aren’t paying enough in taxes.  But based on IRS statistics,

• “The rich” are 2% of all taxpayers, approximately 4 million.
• “The rich” already pay 55% of all income tax dollars.
  
• To make up this deficit their federal income tax rate would have to be 86%.  A family earning $200,000 would have to pay $172,000 in federal income tax, plus state income tax, plus payroll or self-employment tax.  In other words, “the rich” would have to pay more than they earn in taxes.
  

In reality, this budget gap cannot be closed by jacking up taxes on “the rich” who are also owners of the small businesses that employ most Americans.  They create jobs by investing their after tax profits back into their businesses.  Increasing their taxes will prevent job creation.  Increasing their taxes a lot will kill jobs.

The Bottom Line

Congress must make deep spending cuts, beginning almost immediately.

Government intervention in business and industry is driving down the tax revenue government needs to fund its own breathtaking surge in spending.  The private sector is unable and/or unwilling to generate enough taxable income and profit to satisfy government’s mushrooming appetite.

The drop in individual income tax revenue in fiscal 2009 was the steepest since 1939.  As the chart shows revenue continues to plummet in fiscal 2010.

This dramatic drop in individual income tax revenue signals two alarming economic developments:

• declining small business profits.  This means declining resources available to invest in businesses and create jobs.
  
• much larger deficits than predicted by “experts” in the Obama Administration and Congress.
  

Almost all income tax is paid by the upper half of the population by income.   So, this plunging tax revenue is an indication of how the upper half is doing.  Half the taxpayers earning over $200,000, the group targeted by President Obama for punitive tax increases,  are small business owners, who directly invest their own after-tax profits in business expansion. Investment of after tax profits is especially critical in 2010 as bank credit is still unavailable to most small businesses.

Not only is current tax revenue down, but without current investment, future small business profits, employment and tax revenue will decline even more.

Corporate income tax is a direct tax on corporate profits.  President Obama and the Democrats make no secret of their contempt for profits.  But it is those profits that fund job creation and provide tax revenue to fund government.

The drop in corporate income tax revenue in fiscal 2009 was the steepest since 1932, the depths of the Great Depression.  As the chart shows, revenue continues to decline in fiscal 2010, even though White House economists predicted a strong recovery in taxable corporate profits.

The Bottom Line

The path to prosperity is liberty, not larger, more powerful, more authoritarian government. Greater liberty, lower taxes and much less government intervention will release companies, investors and entrepreneurs to create wealth, produce profits and provide jobs.

Ironically, greater liberty also generates more tax revenue!

Astoundingly, CAF objects to what they call “fanning the flames of deficit hysteria.” The email reminds the progressive faithful that they “voted for an active government to invest in our future,” and calls on Obama supporters to complain to CNN about devoting airtime to “deficit crazies.”

CAF wants CNN to give equal time to so-called economists,

who are urging our government to use deficits today to invest in long-term prosperity.”

But today’s deficits are not buying anything that will contribute to “long term prosperity.”  Today’s deficits fund today’s entitlement payments to individuals, today’s bailouts of companies and financial institutions to save them from the consequences of their own bad investments, and thousands of petty little subsidies to projects owned by the politically connected.

In the future, the same entitlement programs will still require funding, along with the massive new health care entitlement Congress just created.  And, since Obama and the Democrats have now made “too-big-to-fail” explicit national policy, another round of bailouts every few years is virtually guaranteed.

The Obama Administration plans at least another decade of oceanic annual deficits, each one larger than all seven Bush deficits combined.  If critics if this catastrophic policy are to be labeled “deficit crazies” then Liberty Works proudly wears that label as a badge of honor.