Since the first day of his Administration President Obama has fully exploited a recirculating funding and campaign support system with public employee unions that has no equivalent on the Republican side.

The system is simple:  Democrats pass legislation to fund or subsidize states and municipalities that then hire more employees, who then pay more union dues, a portion of which is contributed to Democrats.  Today we see this system in action.

Congress is in recess for the entire  month of August.  But Speaker Pelosi called the House of Representatives back to Washington for two days to pass an “emergency” bill that will provide Billions to shore up employment in state and local governments whose tax revenue has declined in the recession.  President Obama signed it into law immediately.

In a press release Gerry McEntee, president of the Association of Federal, State, County and Municipal Employees (AFSCME) previewed his union’s plans to reciprocate:

We are set to launch a robust field plan across the country during the month of August, including advertising and grassroots events.  We intend to highlight the clear choice Americans will make in November between Democrats who are working to protect jobs and move the economy forward and Republicans who are willing to wreck the economy for political gain.

Mr McEntee apparently believes the only jobs that matter are public sector jobs.  As we demonstrated here the Democrats have utterly failed to prevent the loss of millions of private sector jobs since they took control of Congress in 2007 and the White House in 2009.

President Obama and the Democrats claim today’s emergency vote in the House of Representatives is vital to prevent layoffs.  But all across the country public employee unions have refused to negotiate concessions that would reduce costs and thus prevent layoffs.  The Milwaukee school district is in financial crisis with no options left other than layoffs.  Yet the teachers union has gone to court seeking to force the insolvent district to provide free Viagra to its members.

It seems that public employee unions believe they are owed unlimited bailouts from Congressional Democrats and do not have to agree to less generous benefit packages in order to save the jobs of their own members.  And, it seems the President and his party agree.

Another disappointing Jobs report was released by the Department of Labor on Friday.  America lost 131,000 jobs in July, the second month in a row of declining employment.   President Obama reacted during a speech at a sign factory in Washington:

We know from studying the lessons of past recessions that climbing out of any recession, especially one as deep as this one takes some time. the road to recovery doesn’t follow a straight line

But the President and the Democratic Congress have implemented a series of measures that defy  the lessons of past recessions, especially 1981 that was, by some measures, worse than this one.

Ninteen months ago President Obama inherited a deep recession.  The center-piece of his response was the so-called Stimulus, $887 Billion in extra borrowing and spending, over and above the government’s already bloated budget.  Obama promoted the stimulus aggressively, promising that it would, in his words “immediately jumpstart job creation.”  Additional responses to the recession were to

• Expand the bailout program begun under the Bush administration;
• Enshrine as explicit government policy the theory that some companies, such as GM and Chrysler are deemed too-big-to-fail and will always be rescued from the consequences of their own mistakes, especially if their workforce is unionized;
• Offer The “cash for clunkers” subsidy to new car purchasers
• Subsidize blue-sky energy schemes that are too expensive and unreliable to survive in the competitive marketplace;
• Schedule tax increases on small businesses and investors to begin in 2011;
• Continuously threaten employers with hyper-regulation, new health care mandates, and an artificial energy shortage imposed by government.

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;
• Enact sweeping tax cuts that were phased in over three years.  Each of the 16 income tax bracket rates were reduced by at least 25%.  The top bracket rate was cut from 70% to 50%.  Tax cuts left 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 recovery is faltering at best, after 31 months of Bush/Obama policies.  There are 8 million fewer Americans now employed than in December, 2007.

The results, in the lower chart, speak for themselves.  Reagan’s policies turned the job market around after 16 months of losses. The Reagan economy grew continuously for 90 months, creating a total of 21 million new jobs, or a 24% increase in the number of Americans who were employed.

Myth #3: Since the Bush tax cuts of 2003 “the rich” have not paid their fair share of federal income tax.

President Obama and Democrat leaders in Congress have decided that income tax rates for “the rich,” those earning more than $200,000, must be increased.

One of their justifications is the claim that at current rates these taxpayers are paying “less than their fair share.” But they always assert “the wealthy” aren’t paying their fair share.  When asked how much the wealthy should pay their answer is always the same:

More!

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Obviously, “fair” has no definition. But we thought it would be interesting to see just what portion of the total those being targeted for a tax hike actually do pay.

The above-$200,000 group includes only 3.1% of all taxpayers.  In 2007 they paid 54.6% of all income tax revenue collected by the government, the highest in history.  The 2007 percentage was almost ten points higher than the highest of the Clinton years.

As we reported here most of the taxpayers in the over-$200,000 bracket are small business, the employers who usually create most of the new jobs that lead America out of  recessions.  Obama and the Democrats should have to explain how they think a tax increase on these businesses would help create more jobs.

Myth: Reduced tax rates on those earning over $200,000 caused deficits.

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.

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.

After deliberately, adding more than $2 Trillion to the federal debt in his first 18 months in office the President and the Democrats are beginning to feel a sense of foreboding.

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.”

• Through tax increases 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.  Politicians will use these resources to support expanded political power and reward special interest constituencies with political connections.

This parody of The Talking Heads’ “Once in a Lifetime” deserves an Oscar for wit and clever animation.  If you’re an Obama-hype skeptic invest 3.5 minutes.  You won’t regret it!  (via Ann Althouse)

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“These are gigantic packages…and a lot of the people really involved don’t even know what’s inside the packages.”

Thirty Second Video

Vice President Biden blames lack of public approval on lack of public comprehension due to the size and complexity of Obama legislative packages.

As is his wont the Vice President makes an inadvertent admission.  “The people really involved” are the Senators and Congressmen who voted to enact these “gigantic packages.”  We, The People will have to suffer the consequences over many years as we, The President, The Vice President and the Senators and Congressmen who enacted “gigantic packages” learn by living through them what the consequences will be.

Most Americans know that most of the Senators and Congressmen who voted to enact thousand of pages of new law and changes to existing law in the ObamaCare bill, the energy bill, the recently enacted financial regulation bill and the $800 Billion Recovery Act (AKA “stimulus”) did not read them, and could not comprehend them if they did.

These bills are so “gigantic” and complex that it’s simply not possible to even consider all the consequences, even if one read every page.  Consider this one paragraph example from the Stimulus/Recovery Act about Transit Assistance.

To figure out what this means one would have to:

• read section 5302 of title 49, US Code to learn what kinds of grants are authorized, and
• Read section 5307 of Title 49, US Code to learn what types of grants 80% of the money is to be spent on, and
• Read subsections i, l,  and j to see what kinds of grants are prohibited, and
• Read section 5340 to learn how 10% of the funds are to be spent, and
• Read section 5311 to learn how the last 10% of funds are to be spent.

To be careful and thorough a Congressman should look into the historical performance of each of these grant programs to determine if they have been efficient and cost effective in the past.  Conscientious due diligence on just this one-half of one page could take a Senator and his staff a week to complete.

Each of Biden’s “gigantic packages” includes thousands of amendments to other laws and programs.

• Nobody in the Administration or Congress could possibly imagine all the potential consequences, intended, or unintended that could result.
• Nobody could possibly imagine all the ways changes in different, disparate programs could combine with changes in other programs to produce unanticipated consequences in the broader economy.
  

The Bottom Line

The best word to characterize enacting these “gigantic packages” without any way to understand the consequences is:

Negligence.

Liberty Works investigative reporter Nicki snapped this photo of the free market at work, liquidating surplus inventory of out-of-fashion products, at a rural gas station along Interstate 5 in Central California.

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