In several campaign speeches President Obama has asserted that voters face a choice between maintaining the current tax rates for high income Americans, most of whom are small business employers, or raising those tax rates in order to continue providing governmental benefits and services. 

The choice is false because as we showed here the current tax rates generated more, not less revenue than previous, higher rates.  And, as we showed here income tax revenue from millionaires nearly tripled within 5 years after the current (Bush) tax rates were enacted.

What about the relationship between middle class jobs and million dollar incomes?  Is the middle class deprived of jobs and prosperity when there are more rich people and their incomes are higher?

Any improvement in the human condition requires two economic inputs: human resources (given the old fashioned label “labor” in economics textbooks) and capital resources, including land, buildings, machinery, vehicles, computers, software, and cash.  Production, economic growth and job creation are not possible without capital resources.  Reinvestment of after tax profits has always the biggest source of capital resources for small businesses.  This source is even more important since new banking regulations have restricted bank lending to small businesses.

The business income of small business Partnerships, LLCs and Sub-Chapter S corporations are reported on the owners personal tax returns, and IRS data show that three quarters of taxpayers who report over $1 million are small business owners.  (The most recent IRS data is for tax year 2009, reported on tax returns filed in 2010.)

As the chart below shows, over the last decade there was consistent correlation between the number of jobs and the number of Americans with million dollar incomes.  [continued below the chart]

The number of millionaires grew rapidly after enactment of the current (Bush) tax rates in 2003, reaching a peak in 2007.  As the chart shows, the number of jobs grew with them.  However, the recession was particularly harsh on millionaires.

• In 2007  approximately 3 of every 1,000 taxpayers earned more than $1 million.
• By 2009 the number had fallen by 40% to fewer than 2 of every 1,000 taxpayers earning over $1 million.

The decline in business owners and investors with million dollar incomes to reinvest is not the only reason for the decline in jobs.  but obviously, with fewer millionaires, total capital resources to invest in small businesses, where most American jobs are created, declined as well.

Without ever explaining how, Obama seeks to promote the impression that the middle class would be better off if there were fewer Americans with million dollar incomes.  Given the data in the chart above he should be held accountable for an explanation.

Unreported by the media was the misery of the men and women whose individual lives make up the tragic statistic that lowered the unemployment rate.

Here is how the Labor Department computes the unemployment percentage:

Not everyone who is without a job should be classified as “unemployed.”  Some adults, such as stay-at-home parents and college students don’t want jobs.  Thus, to be counted as “unemployed” in the monthly government survey one must be actively looking for a job.

To be counted as part of the labor force one must either have a job or qualify as “unemployed” by actively seeking a job.

There are two possible routes to a lower unemployment rate:

Route 1.  Expand Job Opportunities: Business owners and investors take risks and generate start-ups, innovations and expansions, creating enough new jobs to keep up with the average 125,000 per month growth in the working age population and to replace some of the millions of jobs lost in the recession.   Government’s role is to enhance and protect economic liberty by removing bureaucratic, regulatory barriers and reducing taxes.

OR

Route 2.  Downsize the labor force by demoralizing  job seekers: People who have lost their jobs become so discouraged they quit looking for employment and are thus no longer classified as unemployed and are no longer included in the labor force.   Government’s role is always the same: In the name of benefits to the environment or to the poor or to the middle class or to implement a politicians vision of a “new energy economy” it erects regulatory barriers and tax disincentives that block or discourage investors and small business employers.

Guess which is the Obamanomics route.

These two charts track the unemployment rate and the size of the labor force.

The upper chart shows the first 26 months of the current recovery.  The unemployment rate has declined from 10.1% to 8.5%.  But the size of the labor force is virtually unchanged, even though the working age population has grown, because millions of unemployed people have become discouraged and quit looking for jobs.

The lower chart tracks the first 25 months of the Reagan recovery of the 1980s. President Reagan inherited a sick economy and a deep recession that by most measures was worse than what President Obama inherited.  Yet, as the chart shows, there was a steep drop in the unemployment rate even as the labor force grew by 4.3 million!  People did not give up looking for jobs during the Reagan boom because there was robust growth in the economy and employers were creating hundreds of thousands of jobs every month.

Since the beginning of 2008 the working age population has grown by 7.2 million people.  Yet the labor force which is normally about two-thirds of the working age population has shrunk over the same period by 49,000.

Thus, 4.8 million men and women who should be included in the unemployment rate calculation as both in the labor force and unemployed are not counted at all because they have become t0o discouraged to look for jobs.

If those men and women were included in the unemployment rate calculation the December rate would have been 11.3%, higher than any time since 1940.

The upper, Obama chart represents despair as job growth fails to keep up with population growth and millions of working-age people drop out of the labor force.  The lower, Reagan chart is what a successful economic recovery looks like, with employers who are free to grow and expand, adding jobs at a much faster rate than the growth of the working age population.

The jobs data from the eighties confirms the success of the Reagan approach:

• Tax cuts
• Deregulation
• Allowing insolvent businesses to be liquidated in bankruptcy

The current jobs data reflects the failure of the Obama approach:

• Some tax increases have already begun and major increases that will hit small business are scheduled to begin in 12 months;
• New ObamaCare mandates and regulations that are still being written will distress employers over the next three years;
• New financial regulations are restrict bank lending to small business;
• Obama’s energy policies and environmental regulations are designed to restrict domestic production of oil, coal and natural gas, increasing the price of energy;
• Bailouts of insolvent banks and companies have benefited politically connected executives and unions at the expense of healthy businesses.

There is a potential downside that could blow up Obama’s propaganda campaign.  If the “good news” about the unemployment rate encourages several million people to come back into the labor force and seek  jobs, the number officially classified as “unemployed” will increase and the unemployment rate will tick back up as the November election approaches.

If you followed this week’s drama in Washington you know the House passed a bill that would extend the temporary payroll tax reduction for another year.  The Senate responded with a bill that would extend it for only two months.  Republicans finally rolled over and passed the Senate bill ensuring that we’ll endure another two months of controversy over the same issue.

Two months is better for Obama and the Democrats because the issue serves as a pretext for them to renew demands for  a permanent tax hike on “the rich,” mostly small business employers, to “pay for” the temporary payroll tax reduction.  Obama wants to divert blame for America’s continuing economic crisis from his massive deficits and bureaucratic interference in the private economy to “the rich.”

A year ago this month was the “Lame Duck Session” of Congress.  Outraged voters had just swept out the House Democrats’ 98 seat majority, replacing it with a new 43 seat Republican majority.   But last December Democrats were still in control until the new Congress began in January.  One of their final acts was a reduction in the Social Security payroll tax paid by employees from 6.2% to 4.2% temporarily, for one year.

A month ago Obama began howling that the expiration of the payroll tax discount – as required by the legislation he and the Democrats enacted when they still held commanding majorities – would be “a tax increase on hard working middle class Americans,” to be blamed on heartless Republicans. 

On Thursday Obama ramped up the theatrics and gave us a preview of his New Year strategy for diverting attention away from his manifest failures.  He stepped to the microphones to prove he identifies with the struggles of the helpless against those cruel Republican Scrooges (transcript).  His tone dripping with pious solicitude, he began:

We’ve been doing everything we can to make sure that 160 million working Americans aren’t hit with a Holiday tax increase on January First…If you’re a family making about $50,000 a year this is a tax cut that  amounts to about a thousand dollars a year.  That’s about forty bucks out of every paycheck.

So far the President’s math is correct, since most employees are paid either bi-weekly or semi-monthly.

It may be that there are some folks in the House who refuse to vote for this compromise because they don’t think forty bucks is a lot of money.  But anyone who knows what it’s like to stretch a budget knows that at the end of the week or the end of the month forty dollars can make all the difference in the world…

So on Tuesday we asked folks to tell us what it would be like to lose forty bucks every week.

Wait a minute! “Every week?”  He just changed it from $40 out of every paycheck to $40 every week! But the temporary tax cut is worth only $19 every week to his hypothetical $50,000 per year family.

You’d have to earn $104,000 a year for Obama’s Social Security tax markdown to be worth $40 every week.

Obama then quoted some of the emails from his “folks” about how they would deal with the loss of $40 per week.

Joseph from New Jersey would have to sacrifice the occasional pizza night with his daughters.  My 16 year old twins will be out of the house soon – I’ll miss this.

Richard from Rhode Island wrote to tell us that having an extra $40 in his check buys enough heating oil to keep his family warm for three nights. In his words, and I’m quoting, If someone doesn’t think that 12 gallons of heating oil is important invite them to spend three nights in an unheated home.

Pete from Wisconsin told us about driving more than 200 miles each week to keep his father in law company in a nursing home.  $40  out of his paycheck would mean that he could only make three trips instead of four.

Dinner out for  child who’s home for Christmas, a pair of shoes – these are the things that are at stake for millions of Americans.  They matter a lot.

Obviously these emails are absurd.  If you earn $104,000 and have to give up $40 per week, are you really going to have to deny your kids a pizza or a pair of shoes?  Will you shiver for three nights without heating oil?

Of course, there are some folks to whom $40 every week would be make a real difference:

• A hotel maid who works full time for $8.50 per hour
• A construction worker who has been cut back to half time work at $17 per hour
• A self employed business owner whose customers were hammered by the recession and now barely survives by depleting his savings.  He generated only $17,700 profit this year after paying his employees and the employer’s half of the payroll tax which was not reduced by the Obama payroll tax markdown.

To each of these people Obama’s temporary payroll tax cut is worth not $40 but $6.80 per week.

But much of the media have already begun to help Obama plant a false perception in the minds of uninformed voters that Republicans would deny everyone $40 per week.  (For example, see the headline here.)

Obama knows that informed voters will figure out the deception.  But he doesn’t care about informed voters.  They won’t vote for him anyway.

President Obama and the Democrats insist that the government’s continuous, yawning deficits can not be closed by spending cuts alone, that “revenue!” must be part of a so-called “balanced approach.”

But just published Treasury Department data show the Bush tax cuts did not cause the government’s fiscal problems, and that the 2011 deficit is slightly greater than the 2010 deficit even though revenues from income tax rose dramatically. (continued below chart)

The Treasury Department just published it’s final report for the government’s fiscal year 2011, that ended September 30.  The chart above focuses on one part of that report, revenues from the individual income tax.

Because the President and the Democrats so incessantly blame deficits on the Bush tax cuts and demand increases in income tax rates, many Americans believe income tax revenue went down after the Bush tax cuts.  But, as the chart above shows, tax revenue was declining before the Bush tax cuts of 2003 established the current tax bracket rates, and then spiked up 47% in four years.  In 2007 more income tax revenue was collected by the IRS than any previous year ever.

Revenue went down in from 2008 to 2010 because the rich, who pay most of the income tax, were hammered by the recession.  According to latest IRS statistics available, almost half of  “Millionaires and billionaires,” the group Obama targets for a tax hike in every speech, disappeared from 2007 to 2009.

But in 2011 income tax revenue bounced back, rising by $193 billion or 21% over 2010.

Yet the 2011 deficit, at $1.3 Trillion was slightly higher than in 2010.  Why?  Revenue from other taxes went down by about 48 billion, mostly because of a temporary, one-year discount in the payroll tax.  But the deficit would still have been reduced substantially were it not for irresponsible spending increases.  While the media whine about Republican budget cuts, it turns out that the President and the Democrats won the budget fights of 2011.  Total spending increased by $145 Billion over 2010.

The Bottom Line:

The media and Republican candidates should demand that the President answer the obvious question: If his “balanced approach” is the answer, how can Government can gobble up a 21% increase in income tax revenue and still run an even larger deficit?

Nobody wants to punish success in America…this is the land of opportunity. That’s great. All I’m saying is that those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible.

In other words, don’t accuse me of wanting to punish success even though I seek to increase the tax on success.  Obama’s effort to encourage us to resent the most successful and blame them for America’s lost prosperity may turn out to be good politics.  But it is also a negative, destructive prescription that will make our problems worse.

Everyone agrees that small business is the primary source of new jobs in America.  Most Americans would oppose tax increases on small business at the very moment when job creation is critical.

Yet Obama’s latest campaign theme, calling for “the rich” – meaning those who earn more than $200,000 – to pay their “fair share” – meaning “MORE!” – would directly target the larger of small businesses, those with the most employees and the potential to create the most new jobs.

Obama’s communication is designed to influence the great majority of voters who earn income in the form of salaries and wages and are not familiar with the way the tax code treats small businesses.

Most small businesses are organized as sole proprietorships, partnerships, Sub-chapter S corporations or LLCs.  All of these forms of ownership are required to report business sales, expenses and profits on the personal tax returns of the owners.  Thus, if a small business generates more than $200,000 in profits in a good year, the tax code enables Obama to include its owner in the category he calls “America’s most fortunate who aren’t paying their fair share,” even if the owner decides to reinvest half or more of his profits in expanding his business and hiring new employees.

The IRS publishes statistics that provide context for Obama’s “tax fairness” ideas.  As the first chart above shows, two-thirds of taxpayers earning over $200,000 – the group Obama has promised since 2008 to hit with a tax hike – are small business owners.

The second chart shows that 70% of all small business income is earned by people in the over-200,000 tax brackets.

Small businesses have always grown more by reinvesting profits than by borrowing from banks.  Thus it’s hard to conceive of a tax increase that could more directly diminish the ability of successful small businesses to expand and create jobs than Obama’s plan to target “the most fortunate” defined as anyone whose tax return shows more than $200,000 of income – even if it’s from small business profits, even if the owner plans to reinvest a large portion of those profits.

The notion that somehow “fairness” requires this group to be hit with tax hikes is absurd.  This tiny minority not only provide most of the new jobs in America each year they already pay half the income tax.

In 2009, the most recent statistics reported by the IRS, only 2.8% of taxpayers earned over $200,000 but they paid 50.2% of all income tax revenue.

One last point: Some of the over-$200,000 taxpayers make their income by exploiting political connections.  Their political advantage should be abolished by making government much smaller and less powerful.  If appropriate they should be prosecuted.  A tax increase that also punishes the honest, the industrious, the innovative, the diligent and those without political advantages is just plain stupid.

Recently, in coordination with President Obama’s renewed calls for a tax hike, the political-media establishment revived one it’s more absurd scams, “millionaires” complaining that the tax system doesn’t take enough of their income.  It’s absurd because a millionaire, indeed any taxpayer, is perfectly free to pay more than the law requires.  Nobody will stop them!

But millionaires of the “progressive” persuasion aren’t satisfied with voluntary payments.  Progressive doctrine is always to use force applied by government to impose their “good ideas” on everyone.

Millionaire Leo Hindery is Managing Partner of Intermedia Partners, a private equity firm.  He’s also a long-time political operative and Democratic party insider. He appeared on Fox News representing something called Patriotic Millionaires, a group that is seeking maximum media attention for their mission, to promote higher tax rates on incomes over $1 million per year.

We’ll comment on Mr. Hindery’s remarks but first, some observations on the website of Patriotic Millionaires.

It lists the names of 138 individuals who “now or in the past earned an income of $1,000,000 per year or more” and who have “signed the letter” to Congress asking for tax hikes.  There is no way to tell how many are “in-the-past” and thus would not have to pay the increased tax.  There is a form allowing anyone to join up and “sign the letter” without income verification.

A surprising feature of this website that purports to represent millionaires who are asking permission to hurl more millions at Obama’s government, is a request for donations!

They don’t disclose how donated money would be used, but if you click on the donate button you are transported to another website called “The Agenda Project” where a page that’s set up look like part of Patriotic Millionaires will accept your credit card number.

The Agenda Project appears to belong to author and political activist Erica Payne.  In her list of accomplishments under “about the founder” Ms. Payne boasts of having produced “a major conference” that included George Soros and Obama Czar Elizabeth Warren.

Now, Some excerpts from the Fox News interview of Mr. Hindery:

Question: Why would you want to give the government more of your hard earned money?

Mr. Hindery:

It goes back to the Premise of tax system.  We built it on the premise of progressive taxation that  those who earn more pay more…Beginning in 1986 we specifically took action to enrich the wealthy on the false premise that a wealthy person would pass that extra money down into the system.  But now am one of those people. I have everything that I need.  I don’t spend for anything.  I have no appliances I need to buy, no automobiles, no housing.  But all the women and men behind us [employees in the Fox newsroom] have things that they need to do in this very stressed economy.  So how is it that 50% of the nation’s income is earned by 3% of the taxpayers.”

According to IRS statistics for 2009. the latest year available, about 13% of taxpayers earn 50% of the income.  But more importantly, Mr. Hindery is arguing against a straw man.  The argument against tax hikes isn’t that every year high income people spend all their millions on appliances and cars.  Half of high income taxpayers are small business owners and virtually all are investors of some sort.  Their money goes “into the system” not as consumer goods purchases, but as the investment capital that starts and expands businesses, creating jobs.

Mr. Hindery doesn’t explain how a tax increase on investors and small business owners will help middle class employees who “have things they need to do.”

Question: 80% of the people disapprove of the job Congress is doing. So why would give more of your money to folks that most Americans think are mishandling it?

Mr. Hindery’s answer:

That’s the same excuse we use for offshoring of jobs, that the American population isn’t sufficiently educated, that the government isn’t sufficiently well run.  The reality is we have 29.2 million men and women who in real terms are unemployed…we have a moral as well as an economic obligation to ressusicate  this economy.

This of course is nonsense and does not answer the question.  Overseas labor is cheaper, not better educated.  Yes unemployment is tragically high.  But Mr. Hindery didn’t explain how extracting more taxes from business owners and investors would cause those business owners and investors to create more jobs.

Question: Why not start another business and create jobs that way instead of giving it to the government?

Mr. Hindery’s answer:

There are 5 million out-of-school unemployed…who can’t find their first job.  So we have a moral and economic obligation to resuscitate this economy…the only thing that works in this economy is a vibrant middle class, which we don’t have today.

Again yes, everyone agrees there are way too many unemployed people.  So again, how will higher taxes cause them to become employed?  Still no answer.

Queston: So you think higher taxes on millionaires supports that?

Mr. Hindery’s answer:

Absolutely.  What we did in Congress is we decided we would cut…But we raised no revenues.  So, let’s say we have the perfect job creation initiative in mind.  We have no money. So you can’t foreclose revenues and cut only.

So what is this “perfect job creation initiative?”  Didn’t the President and the Democrats already spend Trillions to, in Obama’s own words, “jumpstart job creation”?   Apparently, Mr. Hindery has nothing specific in mind but trusts that by taxing away more of their resources Congress could cause high income business owners and investors to create 29 million jobs.

He should have been but wasn’t asked why, if he believes he’s under-taxed, he doesn’t just shut up and write the IRS a check.

By now virtually every American has heard President Obama, the Democrats and the media chorus chanting:

Revenues must be part of any deal to reduce the deficit!

They say “revenues” because they don’t want to say “tax increase,” a term their pollsters tell them a majority of us oppose. They want “revenues” from various tax hikes that mostly would target businesses and business owners, thus adding to the burden on job creators.

But revenues can increase without tax increases and we have fabulous news for the President and the political establishment: As the chart shows taxpayers have already delivered your revenues!

Fiscal 2011 revenue is running 10% ahead of 2010.  When the fiscal year ends in September total revenue will be up by about $233 Billion.

Obama and the Democrats have put a lot of energy into demands for tax increases on oil companies – that would result in higher gas prices – to generate, they claim, $5 billion in additional revenue over ten years. The President demands a change to the tax code’s depreciation schedule for corporate jets.  Democrats say that would generate $2 billion over ten years.

They should be thrilled with an additional $233 billion this year!

What about those Bush tax cuts that established the income tax bracket rates that are still in effect?

In 2007 the Bush tax rates generated more income tax revenue than ever before.   For the 2011 fiscal year Income tax revenue is running 28% above 2010 and is on track to break the 2007 record this year or next.

Corporate income tax revenue is up 5% from 2010.

Increases in individual income and corporate income tax revenues have more than offset a decrease from the Social Security payroll tax.  Last December when Democrats still had commanding majorities in both the House and Senate Congress enacted a one year, temporary, payroll tax discount, cutting the rate paid by employees from 6.2% to 4.2%.  The rate is scheduled to go back up in 2012 delivering even more revenues.

Considering the weak economy and high unemployment these revenue increases, already booked by the government, have been an unexpected windfall, and should have sparked joyous celebration among the ranks of big government progressives.  Yet the President and Democrats remain grim, and continue to act profoundly aggrieved.  One can only conclude that taxpayers could never produce enough revenue to satisfy them.

It’s a Washington tradition.  Release information the President doesn’t want anyone to notice on Friday evening, especially before  a three day weekend.

On Friday evening before the July 4 weekend the White House Council of economic Advisers published a report with the pompous and imperious title shown here.

We’ll comment on the report after a bit of background.

Part of the hype leading up to Congressional enactment of the stimulus in 2009 was a set of wildly optimistic predictions by the same Council of Economic Advisers [CEA] promising millions of new jobs and a maximum unemployment rate of 8% that would quickly fall back to a normal level.  Did they research each sector of the economy to determine how many jobs would be created by a given expenditure, such as a million dollars to widen a road or a billion dollars to retrofit government buildings with green stuff?  No.  That would have required real work and would have taken too long.

The political need was for an instant dose of perceived expertise to lull Congress and The People into acquiescence. Thus the CEA contrived a document based on economic assumptions and models, purporting to determine that $800 billion in extra borrowing and spending would raise GDP by a certain, predictable amount, and the increase in GDP would in turn cause employers to “create or save” a certain, predictable number of jobs.

The CEA bottom line promise was that by the end of 2010 there would be 3.7 million more jobs than there were at the beginning of 2009.

The grim reality of hindsight finds their predictions disastrously wrong.  As the chart above shows the actual number of jobs at the end of 2010, after two years of stimulus spending was even less than they had predicted without a stimulus.  As of May, 2011 we were still 6.6 million jobs short of the with-a-stimulus prediction for last December.

In its lastest report CEA claimed that with the stimulus the economy had lost between 2.4 and 3.6 million fewer jobs than would have been lost without it.  Did they reach this conclusion through meticulous research of each sector of the economy to discover how many jobs employers created as a result of each of the expenditures in the stimulus? No again.  CEA simply applied the same economic assumptions and models in reverse!  They concluded that by borrowing and spending the stimulus:

…raised the level of GDP as of the first quarter of 2011, relative to what it otherwise would have been, by between 2.3 and 3.2 percent.

Based on that theoretically higher GDP than “would have been” they concluded that:

…as of the first quarter of 2011, the [Stimulus] has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million [jobs.]

The report says these theoretical gains in GDP and jobs came at a cost so far of $666 billion.  But CEA avoided the final calculation begged by this data, dividing the cost by the number of jobs.  We did the math and found that based on CEA’s data each of these theoretical jobs, if indeed they exist, cost the taxpayers between $185,000 (for 3.6 million jobs) and $277,500 (for 2.4 million jobs).

Let’s split the difference and call it $222,000 per job.  If these jobs paid the current average wage of about $50,000 per year this would seem to be less than an optimum return on what the President insists on calling “investments.”

The government could have simply reimbursed employers for the salaries of 3.6 million employees at $50,000 each, for two years and saved $306 billion!

In what has become his campaign stump speech he makes a series of assertions that upon scrutiny prove to be baseless and to contradict publicly available data from his own Office of Management and Budget (OMB).  He claims that during the Bush years:

…we made the [deficit] problem worse with trillions of dollars in unpaid-for tax cuts – tax cuts that went to every millionaire and billionaire in the country; tax cuts that will force us to borrow an average of $500 billion every year over the next decade.

We’ll deal with “unpaid-for tax cuts.”  But first, Obama simply ignores the elephant in the room, the enormous spending increases of the past decade.

No serious attempt to assess the cause of government’s catastrophic debt could simply ignore such breathtaking spending increases.

Obama and his supporters often talk about “paying for” tax cuts.  But they never explain how that would work.  When taxation is the source of government’s money how could it “pay for” a tax cut?  It makes even less sense when applied to the current situation because as the next chart shows, after the 2003 tax rate reductions that established the rates that are still in effect today tax revenue increased.

From 2003 to 2007 income tax revenue rose a whopping 47%!

In 2007 the current tax rates generated more revenue for the government than in any previous year since the income tax began in 1918, after adjusting for inflation.

The severe recession drove down taxable income and tax revenue for two years but it was still above the 2003 low, even after adjusting for inflation.  This year, as the economy begins to recover from recession income tax revenue is increasing and 2011 is on track to be the third highest revenue year ever – without the increases in tax rates Obama and much of the media demand.

But what about those millionaires and billionaires?From 2003 to 2007 revenue from the super rich increased 134% before declining due to the recession.  The IRS hasn’t published a breakdown by income group for 2009 or 2010 yet, but based on the totals that have been reported, it’s safe to assume that revenue from the rich remained substantially higher than it was in 2002, before the current tax rates were enacted.

One more excerpt from Obama’s speech:

To give you an idea of how much damage this caused to our national checkbook, consider this:  in the last decade, if we had simply found a way to pay for the tax cuts and the prescription drug benefit, our deficit would currently be at low historical levels in the coming years.

Not only is it impossible to “pay for” a tax cut, as the chart above shows the current tax rates, enacted in 2003, generated more, not less revenue – record breaking revenue.

The chart to the right shows that the Medicare prescription drug benefit is a tiny fraction of total spending – 1.7% in 2010.

Obama’s “economic analysis” is about as serious as a campaign slogan on a bumper sticker and has the same purpose, to stir the emotions of people who don’t have the time to do the research and verify the claims of politicians.

He contradicts mathematical reality with the absurd claim that the whole debt crisis was caused by the current tax rates and the Medicare prescription drug benefit only because they were both initiatives of the President Obama’s leftist base loves to hate, George W. Bush.

In his speech on government debt last week President Obama sought to exploit the complexity of the tax system to deceive The People.  Our previous post debunks his implication that President Bush caused the current debt crisis.  Further into his speech he implied that “millionaires and billionaires” were to blame:

In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans.  But we cannot afford a trillion worth of tax cuts for every millionaire and billionaire in our society.  And I refuse to renew them again.

He hopes to plant the perception in the minds of people who are too busy to research the facts that  “millionaires and billionaires” are under-taxed, and are to blame for the massive debt he has accumulated since his administration began.

Here are some facts:

• The tax rates currently in effect were enacted eight years ago.
• The only thing that happened in December was an agreement to continue those same rates for two more years.  There were no new “tax breaks for millionaires.”
  
• While Obama wants to plant in the mind of the public the perception that millionaires and billionaires are under-taxed the numbers, displayed in the pie charts tell a different story.  There aren’t very many millionaires and billionaires and they already pay an enormous share of the total tax bill.
  
• Based on the latest IRS statistics 320,000 taxpayers who earn more than $1 million, will pay about $260 Billion in income tax this year at current tax rates.  Obama’s plan to raise the top two tax brackets to the pre-Bush rates would increase tax revenue from millionaires and billionaires by about $50 billion, or 3% of his yawning deficit of $1.65 trillion.

Class-envy tax hikes impose costs on everyone, not just the high income folks who directly pay the tax bill. High income people are the business owners and investors who risk the capital necessary to expand businesses and create jobs.

As the chart shows most millionaires and billionaires are small business owners.

These are the larger “small businesses” that traditionally create the most jobs.  They create new jobs by  reinvesting after-tax 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, as these businesses recover from the recession their 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.”

• If Obama’s tax increases become reality government will seize from the private sector some of the resources that empower free people to use their liberty to create prosperity.   Politicians will use these resources to support expanded political power and reward special interest constituencies with political connections.

He began by praising big government for all its varied taxpayer funded functions.  He then fixed blame for recent massive deficits and the looming debt crisis:

…after Democrats and Republicans committed to fiscal discipline during the 1990s, we lost our way in the decade that followed.  We increased spending dramatically for two wars and an expensive prescription drug program – but we didn’t pay for any of this new spending.

This is pure, deceptive, campaign rhetoric. “The decade that followed” was, of course, the Bush decade.  The President hopes you’ll conclude that the debt crisis was caused by Iraq, Afghanistan and the Medicare Prescription Drug program that began paying benefits in 2005.   Why?  Because the wars were President Bush’s decision and the prescription drug program was his initiative.  Obama hopes to shield himself and his party from accountability while at the same time energizing his Leftist base by reviving the frenzied Bush hatred that fueled his 2008 campaign.

As is often the case in the tax and spending debates the President is attempting to plant a false perception in the mind of the public.  The Chart shows the truth.

Obama’s base voters hate any military operation.  So, it plays into their biases to blame the debt crisis on the wars they opposed.  They also hate George W. Bush.  So even though they strongly support government provided health care of all types to every American they pretend to be offended by Bush’s expansion of Medicare to cover part of the cost of prescription drugs.

Since the House of Representatives passed a bill that would reduce 2011 spending by about 3% we’ve heard dire job loss predictions from politically motivated “economists,”  including high profile Moody’s analyst Mark Zandi who said that the spending cuts would cost 700,000 jobs.

If you thought these “economists” have been immersed in scholarly analysis of the programs that would be cut to identify any jobs associated with each one, you’d be wrong.  That would be too much trouble when the real goal is political, to plant a vague perception in the mind of the public that something bad will happen if the year-over-year growth in government spending is “only” 8.8%, Vs the 10.5% demanded by Obama and the Democrats.

The prediction of job losses is based on the Keynesian economic theory that if government borrows and spends more the private sector creates jobs, and if government borrows and spends less private sector jobs will be lost.

The same theory was the basis of a report issued by the Obama economic team two years ago to sell the $800 billion stimulus.  Mr. Zandi endorsed that report and agreed with it’s predictions.

As the table shows, the largest Keynesian stimulus ever attempted was a spectacular failure and decisively discredited the theory that government can drive job creation and prosperity by borrowing and spending.  Yet the same economists now predict an economic slowdown and job losses based on reverse application of the same theory.

In fact, historical data demonstrate an inverse correlation between government spending and job growth.  The chart below tracks the rate of job creation during  the largest spending cut in US history.

Because of the war, government spending had exploded from  $9 billion to $91 billion in four years.  Millions of civilians were employed manufacturing guns, tanks, ships, aircraft, uniforms, boots, etc. When the war was over in 1945 the government immediately ceased buying war material and quickly discharged millions from military service.

If today’s political-media “economists” had been there in 1945 they would have warned that any spending cuts would spell disaster for the economy, that unemployment would skyrocket.  They would have been wrong.

Federal spending dropped 68% in three years.  The number of jobs increased by 21% over the same three years.   Never before or since have workers enjoyed such a sudden increase in demand for their services.

Progressives like President Obama and the Democrats in Congress love Keynesian economic theory because it helps them justify what they would do anyway, expand government.  But our actual experience doesn’t validate Keynes’ notion that government, by gobbling up an ever larger share of GDP, and wielding ever more control over the private sector, can create jobs and prosperity.

When the President delivered his 2012 budget to Congress the media shouted “$1.1 trillion in cuts!”  Did this mean the government would spend $1.1 Trillion less?  Nope.  As the chart at the bottom of this article shows, Obama’s own budget calls for ten years of continuous spending increases.

Decoding the “information” in the media starts with understanding two key words in government budgeting:

• “baseline” and,

• “assumptions.”

The baseline is projected spending over the next ten years.  The baseline numbers result from a set of assumptions, starting with the assumption that almost every government department, agency and program will receive an automatic budget increase every year.  The size of those increases is based on additional assumptions.

Often, when a President or Senator speaks of “deficit reduction,” he does not mean the total, bottom line deficit will be less in the future than it is today.  His precise meaning is that the 2 or 5 or 10 year deficit prediction on the latest piece of paper from the White House is less than on the previous piece of paper.  Or, he means the amount a particular department or program will contribute to the deficit is predicted to be less on the new piece of paper.

A perfect example of this deception can be found in Obama’s budget numbers for “overseas contingency operations,” code for Iraq and Afghanistan.

• The most expensive year for Iraq and Afghanistan combined was $185 billion in 2008.
• In 2010 the cost was $167 billion.
• The Administration has budgeted $165 billion for 2011 and $127 billion for 2012.

The Iraq operation is scheduled to end, with all US troops leaving this year, 2011. The Afghanistan operation has never been as large or expensive as Iraq and reductions in troop strength and cost are now scheduled to begin in 2014.  If all goes according to plan there will be virtually no US troops left in Afghanistan after 2016.

Yet, as the table to the right shows the Obama budget, under Overseas Contingency Operations, projects more than a trillion in “deficit reduction” for years 2012 – 2021.  This is because they first asserted a baseline assumption that the cost of Iraq and Afghanistan would increase every year from now through 2021, even though they knew it would not.  Then, they subtracted what they believe will be real, declining cost each year, probably reaching near zero by 2016.

Thus, they can now magically report “deficit reduction” of $136 billion in 2021, ten years after the last American soldier will have left Iraq and five years after the end of the Afghanistan operation.

Through repetition in the zombie media they can plant in the mind of the public a perception that there will be some sort of “cut” in spending.

As the chart below shows, the Obama budget document shows continuous annual increases in total government spending at the same time war spending winds down.

Obama’s budget projects declining deficits in 2012 through 2015 only by also projecting enormous tax increases.

The record breaking increase in tax revenue is fantasy.

At his press conference Tuesday President Obama hoped to plant the perception in the mind of the public that his 2012 budget was an exercise in frugality.  Here’s one of his responses to budget questions:

…this is my third budget. The first two budgets were in the midst of the worst recession since the Great Depression, so we had a different set of priorities. And I said it at the time — in each of those budgets, what I said was, the deficit’s going up and we are compiling some additional debt, but the reason is because it is so important for us to avoid going into a depression or having a longer recession than is necessary…

This third budget reflects a change in focus. The economy is now growing again. People are more hopeful. And we’ve created more than a million jobs over the last year. Employers are starting to hire again, and businesses are starting to invest again.

Are we to believe this budget is “a change in focus” to cuts in spending and deficits?  Indeed the projected 2012 deficit of $1.1 trillion, while still alarmingly high would be a third less than the deficit now projected for 2011.  So how was this deficit reduction achieved?  Spending Flimflam coupled tax revenue fantasy!

First, there are token, insignificant spending cuts of $90 billion, or 2.4% less spending than projected for the current year, 2011.  But, as the chart shows 2012 spending would still be 25% more than 2008 and a whopping 36% more than 2007!

Second, the budget projects astounding increases in tax revenue, adding up to $454 Billion or 21% greater than the current year, 2011.  Individual income tax revenue is projected to increase by most in 4 decades. President Obama bases all his budget comments and promises on something he knows isn’t going to happen.

During the press conference he held to defend his 2012 budget President Obama claimed:

As a start, [my budget] freezes domestic discretionary spending over the next five years, which would cut the deficit by more than $400 billion over the next decade, and bring annual domestic spending to its lowest share of the economy since [President] Dwight Eisenhower.

As with so much of Obama Administration communication, the Eisenhower reference was contrived to deceive people who are too busy to do the research and and pry out the truth.  Obama hopes to plant the vague perception that in some way he’s more frugal than Eisenhower was back in the 50s.  He isn’t.

The Administration’s budget office does predict that if the economy grows as much as they optimistically predict over the next five years, selected budget line items they call “non-security discretionary funding,” that are, in someone’s opinion, not “critical for growth and job creation” will be a lower percentage of GDP than a similar list was at some point during the Eisenhower era.

It’s not possible to verify or refute this claim because the budget document doesn’t disclose enough information.   But the comparison of a small portion of the budget is irrelevant because as the chart shows total government spending is now and will continue to be a much larger percentage of GDP.

Unemployment is twice as high now as it was in the 50s largely because Government recklessly consumes so much more of the economy’s resources.

What about military spending and the wars in Iraq and Afghanistan? We anticipate the usual, kneejerk response from The Left that current spending is high because of “Bush’s wars.”  Without the growth in military expenses, they’ll assert, total spending would not be a larger percentage of GDP

We have two part answer:

• Part One: 1953, the first year of the Eisenhower Administration was also the last year of the Korean War, which is why spending was a little higher than in subsequent years.

• Part Two: The chart below tracks military spending as a fraction of GDP.  Today, it’s less than half what it was during the Eisenhower era.  This means the real cause of higher total spending is the Left’s constellation of social programs and alphabet agencies, most of which did not exist during the 1950s.

a;sldf