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The Fairy Tale on Spending Cuts
CATO Institute ^ | February 22, 2013 | Michael D. Tanner

Posted on 02/25/2013 12:01:36 PM PST by LucianOfSamasota

The sequester is coming, the sequester is coming,” cries Chicken Little, speaking of the across-the-board spending reductions set to kick in next Friday. As a result, much of the Washington establishment, politicians of both parties, and the media are bracing for the apocalypse.

Henny Penny worries about poisoned meat going uninspected, the air traffic control system shutting down, and schools being forced to close. Meanwhile Turkey Lurkey is afraid that national security is threatened because our military will be gutted. And Foxy Loxy is concerned there will be massive job losses and our economy will crash.

The reality, though, is that most of what we are being told about the sequester is just a fairy tale. Here’s why:

The sequester imposes savage spending cuts

Actually, the sequester doesn’t cut federal spending at all, or rather it cuts it only in the Washington sense of any reduction from projected baseline increases is a cut. In reality, even if the sequester goes through, the federal government will spend more every single year. In fact, in 2023 it will be spending $2.39 trillion more than it does today.

(Excerpt) Read more at cato.org ...


TOPICS: Business/Economy; Front Page News; Government
KEYWORDS: sequester
Nice CATO article illustrating the absurdity of Obama's newest manufactured crisis.
1 posted on 02/25/2013 12:01:42 PM PST by LucianOfSamasota
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To: LucianOfSamasota

The real fairy tale is that austerity in the current economic climate won’t result in the economy slowing down more and unemployment going up.


2 posted on 02/25/2013 12:06:12 PM PST by ksen
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To: ksen

The real fairy tale is that austerity is going to happen at all.

The best way to boost the economy is to cut taxes, regulations and the size and cost of government. Government is the biggest hindrance to economic growth ever.


3 posted on 02/25/2013 12:13:30 PM PST by GeronL (http://asspos.blogspot.com)
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To: GeronL

Taxes are at historic lows, even taking into account the latest adjustments. Where are the jobs we were promised if only the job creators were allowed to amass huge fortunes?


4 posted on 02/25/2013 12:20:35 PM PST by ksen
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To: GeronL
"The best way to boost the economy is to cut taxes, regulations and the size and cost of government. Government is the biggest hindrance to economic growth ever."

No, you can cut all taxes and regulations and you still can't compete with the communist Chinese labor rate of $2/day.

It's our trade policy that is the biggest hindrance to economic growth. We need to raise import tariffs and get American's back to work. With more employment comes more gov't tax revenues and fewer safety net outlays. That's the way to balance the budget.

5 posted on 02/25/2013 12:22:12 PM PST by DannyTN
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To: ksen

We have some of the highest corporate taxes on the planet, people would do well to be keeping half of their income after taxes. With all of the government mandates (which are also taxes) and massive government debt spending (which are hurting the economy), we no longer have any good places for companies to invest their money if they have any.


6 posted on 02/25/2013 12:27:41 PM PST by GeronL (http://asspos.blogspot.com)
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To: ksen

It would certainly be better if our leaders in Washington would decrease the rate of increase in Federal spending according to some well thought out plan, rather than grandstanding for political capital regardless of the damage thereby caused to the labor market. But employment has decreased steadily since Obama has been President in any event, which means the number of unemployed has been steadily going up, despite the dubious machinations of ‘unemployment’ reporting methods (see link below). And continued runaway spending with no restraint is certainly not going to lead to increased GDP. So somewhere, some how, the excessive burden of government spending must be lifted from the productive sector if ever we hope to see an increase in productivity and thereby employment.

http://data.bls.gov/timeseries/LNS11300000


7 posted on 02/25/2013 12:29:37 PM PST by LucianOfSamasota (Tanstaafl - its not just for breakfast anymore...)
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To: DannyTN

I don’t think we need higher tarriff’s, we should not allow important industries to be dominated by foreign countries that are hostile to us. Hostile countries should not have ‘free’ trade with us, and other countries who have barriers to our countries should face equal barriers in ours.

When it comes to dollar store crap and cheap toys, we will never make that stuff here again.

and yes, our taxes and mandates are far too high


8 posted on 02/25/2013 12:31:42 PM PST by GeronL (http://asspos.blogspot.com)
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To: LucianOfSamasota

There are NO spending cuts, only cuts in the rate of growth.


9 posted on 02/25/2013 12:36:19 PM PST by JimRed (Excise the cancer before it kills us; feed &water the Tree of Liberty! TERM LIMITS, NOW & FOREVER!)
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To: GeronL
"When it comes to dollar store crap and cheap toys, we will never make that stuff here again."

It's not just dollar store crap. It's everything at walmart. A third of what we buy from the chinese is heavy electrical equipment and electronics. It's also defense components and equipment. And the Chinese are trying hard to compete on cars and aircraft.

And while I single out the Chinese. The fact is that any country that has as large a wage differential as the Chinese do with us, should have trade limits. We can tie those limits to our own unemployment rate. And we should be protective of high tech industries where innovation and knowledge are critical assets.

10 posted on 02/25/2013 12:43:12 PM PST by DannyTN
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To: GeronL

As long as Americans are unemployed, we shouldn’t rule out producing anything here, except perhaps things that generate large amounts of toxic waste.


11 posted on 02/25/2013 12:44:47 PM PST by DannyTN
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To: GeronL

“people would do well to be keeping half of their income after taxes”

Nobody pays a 50%+ income tax rate. Heck, currently the highest earners pay an effective rate lower than the middle-lower class earners.


12 posted on 02/25/2013 12:54:45 PM PST by ksen
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To: LucianOfSamasota

When politicians talk about the specific drivers to ‘spending’ there may be hope.

The most specific driver is Medicare, accelerated by AHCA.

At least in 2017 the current Federal Budget can be explained in single digits.

$1 T - Social Security (mostly off budget and not really an impact at this time to the problem).
$1.2 T - HHS Department (driven by Medicare/ACHA)
$1 T - Treasury department (Driven by interest on debt)
$0.6 T - DoD (relatively flat)
$0.7 T - Everything else (this represents a forecast or true reduced spending by almost every other function)

Thats it! That is the 2017 forcasted budget. Forcasted by the WH.

http://www.whitehouse.gov/omb/budget/Historicals/

Medicare and ACHA are simply not funded. These are the on-budget, unfunded elements of the budget. And the debt interest as well.

Its not ‘spending’ that is the problem. It is Medicare and now ACHA as well, along with the debt that are THE problem.

But no politician will address it. They are all cowards.


13 posted on 02/25/2013 12:57:14 PM PST by bluecat6 ("All non-denial denials. They doubt our ancestry, but they don't say the story isn't accurate. ")
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To: LucianOfSamasota

“But employment has decreased steadily since Obama has been President in any event, which means the number of unemployed has been steadily going up, despite the dubious machinations of ‘unemployment’ reporting methods (see link below).”

I don’t know why you stopped at Obama. If you change the timeframe of the chart you linked to to also encompass years prior to Obama you’ll see that labor force participation has been steadily declining since the year 2000 and really took a nosedive during the Great Recession.


14 posted on 02/25/2013 1:02:18 PM PST by ksen
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To: ksen

lol.

I’m not just talking about income tax, I am talking about all taxes and mandates and costs added by government regulations and yes, all the corporate taxes built into everything we buy


15 posted on 02/25/2013 1:21:56 PM PST by GeronL (http://asspos.blogspot.com)
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To: GeronL

“I’m not just talking about income tax, I am talking about all taxes and mandates and costs added by government regulations and yes, all the corporate taxes built into everything we buy”

With tax revenues being around 27% of GDP how is anyone paying half of their income in taxes?


16 posted on 02/25/2013 1:28:03 PM PST by ksen
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To: ksen

take government spending out of the GDP


17 posted on 02/25/2013 1:29:26 PM PST by GeronL (http://asspos.blogspot.com)
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To: GeronL

lol, are you trying to suggest that it’s actually 54%?

I’d like to see your math and how you came up with people having trouble keeping half of their income.


18 posted on 02/25/2013 1:37:36 PM PST by ksen
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To: ksen

Here’s one recent published example

“If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate is at 62 to 63 percent”

- California taxes drive him to far over half.

http://www.bloomberg.com/news/2013-01-22/golfer-mickelson-apologizes-for-comments-on-high-income-taxes.html


19 posted on 02/25/2013 1:59:44 PM PST by sgtyork (The secret of happiness is freedom, and the secret of freedom, courage. Thucydides)
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To: sgtyork

Mickelson is full of crap.

Just to take two of his examples: unemployment and social security the tax rates on those are capped at certain levels of income. CA state unemployment is only paid on the first $7,000 of wages, federally the first $8,000 of wages. Social security currently has an income ceiling of $113,700.

Also according to IRS Publication 17 (2012) Chap 22 people can deduct the state income taxes they pay from their federal income taxes.

I just looked up the CA disability tax rate and it is 1% on the first $95,585 of wages so that has an income ceiling as well.

If Mickelson is actually paying over half of his income in taxes I will eat his spikes and help him find a competent CPA.


20 posted on 02/25/2013 2:25:23 PM PST by ksen
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To: ksen

Tax revenue as a percent of GDP is historically been in the 19-21% range regardless of how high the marginal federal tax rates have been. This has been the case from 1950 to the present (see Hauser’s Law). Of course the enlightened ones in Washington spend 25% of GDP, hence the deficit.

As for your quoted rate of 27% of GDP and how is anyone paying over half in income taxes, did you just ignore the 47-50% who pay NO income taxes at all? Further, the point made about taxes was not just federal income taxes but all taxes. Just add up all the far ranging taxes paid. Some examples include SS, Medicare, property, state/local, gas, and sales taxes. At least everyone has to pay some of these as well but high income productive types certainly pay more in dollar amounts and yes it does approach 50%+.

So, if you accept that tax revenue is going to be around 20% of GDP the way to increase revenue is to increase GDP with economic growth.


21 posted on 02/25/2013 2:30:40 PM PST by mart7789 (Cygnus)
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To: mart7789

The 27% number I found was inclusive of all levels of taxation.

No one has to struggle to pay less than 50% of their income in taxes. It’s just a demagogic talking point with no basis in reality.


22 posted on 02/25/2013 2:36:49 PM PST by ksen
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To: ksen

Not really.

The graph peaks in 1999 or so, stays steady until 2001, then drops for three years or so until 2004.

Again, the graph levels out until the end of 2008, then nosedives at twice the previous rate, dropping 2 1/2 percentage points in three years as opposed to the 1% observed form 2001 - 2004.

In fact, if you run the chart all the way back to the beginning (1948), this is the most remarkable, startling and precipitous drop in employment since records have been kept.

To restate: There has never been a drop like this in our lifetime, certainly not since WWII.

And THAT is a pretty good reason to stop at Obama.


23 posted on 02/25/2013 2:54:05 PM PST by LucianOfSamasota (Tanstaafl - its not just for breakfast anymore...)
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To: ksen

Here’s the math behind that depressing calculation. Today’s top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.

But payroll taxes, which are income taxes on wages and salaries, must also be included in the equation. So we have to add about 2.5 percentage points for the payroll tax .... employers are responsible for collecting this tax, it is ultimately borne by the employee. That brings the tax rate to 47%

http://online.wsj.com/article/SB10001424052702304066504576343611464445594.html


24 posted on 02/25/2013 5:50:03 PM PST by sgtyork (The secret of happiness is freedom, and the secret of freedom, courage. Thucydides)
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To: LucianOfSamasota

Flashback: “Obama pledges to veto effort to undo automatic spending cuts”

“Already some in Congress are trying to undo these automatic spending cuts. My message to them is simple: No,” Mr. Obama said from the White House briefing room Monday evening. “I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending.” November 21, 2011

http://www.cbsnews.com/8301-503544_162-57329146-503544/obama-pledges-to-veto-effort-to-undo-automatic-spending-cuts/

“The President will urge Congress to come together and act to ensure these devastating cuts to defense and job-creating programs don’t take effect.” - White House statement, February 5, 2013


25 posted on 02/26/2013 5:42:12 AM PST by TurboZamboni (Looting the future to bribe the present)
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To: sgtyork
Here’s the math behind that depressing calculation. Today’s top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.

Do you understand the concept of marginal tax rates? I'm not trying to be snarky this is a real question because from your statement above it appears you don't.

But payroll taxes, which are income taxes on wages and salaries, must also be included in the equation. So we have to add about 2.5 percentage points for the payroll tax .... employers are responsible for collecting this tax, it is ultimately borne by the employee. That brings the tax rate to 47%

By payroll taxes I'm assuming you mean social security and medicare? The 6.2% for social security only applies to the first $113,700, or so, of wages. The 1.45% for medicare doesn't have a wage base limit so this one would apply to all wage income.

This still brings us nowhere near someone having to pay over 50% of their income, as originally argued upthread, in taxes.

Then you have to take into consideration the capital gains tax which is well below the top marginal rate. The top earners also earn much of their income from capital gains so you have take this into account and that would also put downward pressure on the amount of yearly income having to be paid out in taxes.

All this goes to show is that while "I have to struggle to keep half my income!!!!11!1 :doom:" makes a good soundbite it's nowhere close to being true.

I will donate $10 to Free Republic if you can show me one person that pays more than 50% of his income in taxes. Real evidence mind you not just some anecdotal comments.

Your WSJ article is pretty outdated and the tax increase he used to make his calculations haven't materialized.

26 posted on 02/26/2013 6:38:58 AM PST by ksen
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To: ksen

“how is anyone paying half of their income in taxes?” ........ property tax, gasoline tax, liquor tax, tobacco tax, sales tax, capitol gains tax, etc., etc., etc., ad nauseum, ad infinitum.


27 posted on 02/26/2013 10:42:54 AM PST by shooter223 (the government should fear the citizens......not the other way around)
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To: LucianOfSamasota


28 posted on 02/26/2013 11:46:57 AM PST by TurboZamboni (Looting the future to bribe the present)
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