More Perspective..

During the comments discussion on one of our recent posts dealing with the effect of our current leaders on the economic and job situation in the US, the issue of what kind of impact the blatant hostility from the Obama administration towards business came up. Some people refused to accept that, in general, based on the laws and policies pushed over the last 3 years, this administration was exhibiting some serious and severe hostility towards business. Their absolute need to control the private sector, so they could use the power of big government to pick the winners and losers – under the guise of fairness or justice – was the biggest contributor to this hostility. And that hostility lead to massive lack of confidence which then drastically impacted the job market situation. When businesses feel they are under attack and they can not predict their costs and liabilities – to verify if they are financially viable and can turn a profit – they basically do not take risks.

Hiring new people these days is a huge risk. It’s also why no tax payer money spending plan the Keynesian-Marxist grieve mongering cabal comes up with, no matter how big the amount of money being flushed down the toilet may be, will ever make any kind of positive impact on hiring: they are not addressing the fundamental issues.

Today we find out that the jobless claims posted another “surprise” increase. I am more surprised that the usual suspects in the LSM still continue to be surprised that we have for months, even years, now seen the number of people filing after they lost their jobs stay steady, at scary levels, or go up, instead of realizing the trending is telling them something important.

NEW YORK (Reuters) – The number of Americans filing new claims for jobless benefits rose unexpectedly last week in a sign concerns about a weak economy were sapping an already beleaguered labor market, data showed on Thursday.

The inflation rate decelerated slightly in August as gasoline prices rose at a more modest pace and the cost of buying a new car held flat, the Labor Department said on Thursday.

And I am sure the bleak unemployment numbers do not account for the countless people that have dropped off the radar and are not even bothering to look anymore, are working part time when they would love to get a full time job, or simply can’t report because they are ineligible to receive any kind of benefits. The numbers are frightening, there seems to be no end in sight to this situation, with many are thinking will get a lot worse, and last for a very long time, before it improves – if ever – and thus, it’s no coincidence that unemployment is now the top concern for most Americans. It also explains why after three years of anything but caring for the economy and the employment situation, the WH and the donkeys are now scrambling to make it look like they do and have a plan. The problem is that it’s just a lot more of the same crap from the last 3 years that has been disastrous.

As the WSJ reports in this article the current plan basically is doomed to failure, because it tries to fool employers into stimulating economic growth with some very short term cuts, paid for with backloaded taxes that would not just wipe out any benefit that these short term cuts would create, but increase the burden on these not just these businesses, but a whole bunch of Americans Obama previously told us where exempt from his wealth redistribution schemes, to a level that it will create an economic situation that looks far worse than it is now.

President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

And there you have it. Obama’s big plan is not going to do anything to create jobs because the short term “tax cuts” are short term, but the tax increases that follow it, to pay for it, are not. I can’t say that I am surprised. After all, Obama and the left have told us they want more taxes because the beast needs the cash, and everything before this that has happened in the last 3 years has been about them trying to make it so. Basically they are trying to fool people into thinking they are improving the economic incentives for small businesses to hire, but unless these small business owners are total twerps, they will quickly realize they are being had with those back end taxes basically punishing them whether they hire anyone or not, and they will do nothing of the sort.

In fact, I expect them, if they do anything, to downsize, considering they will be slammed with new taxes in 2013 regardless. The WSJ breaks down the facts as follows:

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let’s call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.

• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama’s new jobs program. This would mean a tax hit of $240 billion on small business and workers. That’s the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create “millions of jobs” through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress’s Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare’s biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

It doesn’t look well for us tax payers, and it certainly looks like Obama’s jobs plan will not do anything. I could break all of this down and comment, but the article already did an awesome job of that. And the WSJ author puts it perfectly when they say:

The White House’s economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

Emphasis mine there. What again was the definition of insanity?

Comments are closed.

  1. Seattle Outcast

    When businesses feel they are under attack and they can not predict their costs and liabilities – to verify if they are financially viable and can turn a profit – they basically do not take risks.

    This applies to the individual as well – which is Keynesian plans have a 100% failure rate. Keynes expected people to make personal financial decisions based on the long-term, when in fact they are generally predicated on the short-term. In other words, if your job is in danger and you don’t trust your ability to pay your bills, you hunker down and limit your expenses so your money will last longer. People don’t blow money on non-essentials (generally) unless they feel secure about their financial future.

    Keynes: putting the cart before the horse, and then shooting the horse…

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  2. CM

    Slack demand is a key problem. If people aren’t buying widgets, why would you want to hire more people to make more widgets? It’s no different all over the Western world, irrespective of what the Govt does.
    As Hal keeps saying, you have to ride this out. All the government can do, and what most people want the Govt to do, is limit the worst of the damage.

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  3. AlexInCT *

    Slack demand is a key problem. If people aren’t buying widgets, why would you want to hire more people to make more widgets?

    The problem with this CM is that for a while now they have been telling us that US companies are all making record profits. Here is a NYT article saying just that in 2010. Now profits are down this year, but companies where not hiring in 2010 either. Could the profits be coming simply from increased margins, even on reduced sales, instead of from simply robust sales? Sure could, but then I suspect we wouldn’t have all this talk about jobless economic recovery that’s been going around.

    People ARE buying widgets, even though I will grant you that it very likely is at a somewhat reduced rate with confidence so low. But even at a reduced rate of purchase, a lot of companies are making money. And they made real serious money last year, but did not hire anyway.

    It’s no different all over the Western world, irrespective of what the Govt does.

    If even you can grasp this CM, is there hope for our new aristocracy – the Keynesians – to pick that up? Governments do not create jobs. At best they do not take much from the private sector and things can then actually move along. Expansion means more jobs. What governments can however do is take too much, and that for sure causes the private sector to contract and lose jobs. So far, with Obama proposing another killer half a trillion dollar bill followed by massive tax increases, I think what we are seeing is more of the later and none of the former, which is what we need.

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  4. CM

    I believe consumers are something like 70% of the economy. But they can’t borrow against homes that are worth a third less than they were five years ago, and many consumers are bad credit risks anyway because they’re losing jobs and wages are dropping.

    If companies are making record profits under Obama, how does that support your theory that Obama is anti-business? Why aren’t his anti-business efforts killing off profits? Why are they heading in the other direction, and in the middle of a huge economic crisis?

    Your jobless economic recovery link seems to lend weight to the theory that Obama can’t do much but try and stem the bleeding. Which is what he has been doing (what would unemployment numbers be at if nothing had been done, and what would the results look like for generations – the damage to society would surely be catastrophic). Which is the govt stems the bleeding and tries to boost the economy every time the economy falls into recession over the last eight downturns (if you include the massive spending on WW2 that lifted the US out of the Great Recession, it’s nine).

    What Obama has done is nothing new, nothing revolunationary, and nothing controversial in terms of economic theory. Very very few reputable economists would advocate anything different.

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  5. Mississippi Yankee

    As simplistic as it may sounds just go read Atlas Shrugged.

    Don’t forget to look up from the pages every so often tho…
    The similarities will amaze you.

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  6. AlexInCT *

    I believe consumers are something like 70% of the economy. But they can’t borrow against homes that are worth a third less than they were five years ago, and many consumers are bad credit risks anyway because they’re losing jobs and wages are dropping.

    Never disputed this at all CM. In fact, I believe that most consumers are not only spending less, but that with the drastic inflation the policies of the last 3 years have caused, that their purchase power has also been drastically diminished. However, the fact still stands that companies are making more money despite either of these.

    If companies are making record profits under Obama, how does that support your theory that Obama is anti-business?

    You can still make money in an anti-business environment just like you can make oodles of money in the stock market even as it is dropping like a brick. It depends what you are in.

    I also should point out that it looks to me like the companies that have seen the big profits all tend to be the big corporations – like GE – many of which have shed tons of jobs, are in bed with big governments like that run by Obama, and are now operating in a regulatory climate that leaves them able to make big profits because of lack of competition. Small businesses, with a very few exceptions, all are suffering big time right now. No loans and low sales. Those that can are hunkering down and hoping this will pass. Many are just closing their doors. And they are the ones that do most of the hiring even though the actual number of employees they have individually isn’t as impressive as the mega corps do. But even the few small businesses that might be thriving are simply not expanding, preferring to keep making money at the current level, simply because they can not predict the cost to them of any such move.

    Why aren’t his anti-business efforts killing off profits?

    These practices are not just killing off profits: they are killing off small businesses, themselves. The mega corporations, in bed with these kind of big government “we will pick the winners & losers” administrations, however seem to be doing awesome. But I need to point out that they too have shed a large part of their work force, and they too are also not hiring anyone, despite those profits.

    Why are they heading in the other direction, and in the middle of a huge economic crisis?

    I can tell you that profit or not, if I remained uncertain of the viability of my business model – and have no doubt that everyone, even these mega corporations in bed with government – is in that boat right now, that I wouldn’t hire anyone at this time. The list of uncertainties caused by the crazy regulatory climate, Obamacare, the democrats avarice and belief government MUST confiscate more money, not less, and the outright hostility towards anyone that dares to say they feel they already are paying enough – to the point they are publically demonized – is long and distinguished, almost never ending.

    Any way you paint it, this comes back to the fact that the private sector right now has no confidence in the public sector, and it well justified.

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  7. FPrefect89

    One of the things that reminds me of the book so often is how Obama passes on leading and asks what should I do? Sort of like Mr. Thompson after they catch Galt.

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