Making War On Prosperity

A lot of discussion of the impact of the president’s plan to punish anyone making over a quarter of a million bucks. What is particularly disgusting is all of his lies and rhetoric about the free market providing jobs, and the importance of small business and entrepreneurs. Watch what he does, not what he says.

[Update in the evening]

Carl Pham in comments suggests a variation on Martin Niemuller’s famous quote: “First they came for those making $250,000, and I said nothing, because I didn’t make that much…”

[Update a little while later]

If you work less to avoid taxes, are you a tax dodger?

I think it’s worse (or will be worse) than that. You’re an enemy of the state.

[Update a few minutes later]

Planned impoverishment?

It’s certainly a theory that fits the facts.

[Update at 7 PM Eastern]

Going John Galt.

34 thoughts on “Making War On Prosperity”

  1. As one blogger (IIRC, Ed Morrissey) pointed out a few weeks ago, all of Obama’s promises have an expiration date. My guess is that date was Jan 20, 2009.

  2. It’s quite common for enterprise computer programmers to make more than 125k, in fact every one of my friends do. The more successful ones pushed 160k last time I checked, and may be sniffing at 200k by now. Throw the two together into a family and voila, instant bloodbath. I don’t know if these numbers are abnormal for aerospace though.

  3. Well, given that record, why would anyone believe that the axe will only fall on those making over $250,000? C’mon, now. That’s got to be one of those promises that will be revisited as the — astonishing! — facts of the future require.

    I don’t understand why folks keep taking him at his word, and trying to defend to skeptical $50,000 a year families why bleeding the $250,000 a year families isn’t, ultimately, good for them.

    Why not take the bull by the horns? Listen up, folks. There isn’t enough money among “the rich” to pay for all this stuff the Democrats have legislated into place. There’s no way it can be paid for, not to mention the enormous entitlements and bailouts coming along, without every last one of you Struggling Middle Class Families(TM) ponying up a good hefty chunk.

    It’s inevitable. Mr. Class Warrior is just doing a little divide ‘n’ conquer here. First, he’ll bleed the $250,000 a year crowd, while you cheer. Then, it will be the turn of the $100,000 a year crowd, while you cheer. Then, they’ll come for you, and everyone else will cheer, including the previous victims, since misery loves company.

  4. There’s two problems with this “punish the rich” idea. (Yes, I read the linked-to article).

    1) At the end of the day, we’re still talking about a 3% change on the dollars over $250K. The guy from California is still going to get zapped from the state, etc. at the same rate. So if loosing an additional 3% means he stays home, well, so be it.

    2) If some of the existing small businessmen decide to scale back operations, their customers need to go somewhere. So, for example, if the consultant making $300K drops a client, the consultant making $200K has an opportunity to pick up the client.

  5. Except perhaps the $200K consultant isn’t as good, and doesn’t render as good a service, or even as good a value for the money. So the economy suffers because it doesn’t have the services of the best consultants, because they “make too much.”

  6. Except perhaps the $200K consultant isn’t as good.

    Maybe. Or maybe the $200K guy just isn’t getting enough billable hours. Or maybe the $300K guy, who (apparently) already has “enough” billable hours, jacked his rates up.

    Having been a consultant and hired consultants, I know that hourly rates are not a foolproof measure of quality.

  7. There’s (at least) two problems with Chris’ analysis above:

    (1) However you want to re-arrange the numbers to come up with a small percentage, so you can laugh its effect on motivation off, at the end of the day it doesn’t matter what you think — nor even what The One thinks. He can opine all day about how 3% at the margin on your last extra 10% of foo dollars shouldn’t change anything, just like he can suggest now is just the perfect time to buy stocks, yes, buy buy buy you fools!

    But it doesn’t matter, because people do what they want, not want the President or his social parasite friends want them to do, at least before we get to the police state where failing to do your utmost for the greater glory of the State is a crime. So the stock market continues to tank, and people who can earn some extra dough by working harder don’t, when faced with that extra tax hit. Sad fact o’ life, and nothing in history contradicts it.

    Indeed, in other contexts Team Obama relies on small influences at the margin. There’s that $400 tax rebate, supposed to really change things for people hit with $40,000 loss on their 401k’s, facing layoffs and catastrophic medical bills, upside down on their mortgage by $150,000 and so on. Why don’t we laugh off that trivial-sized Hope ‘n’ Change, eh, Chris? Because we know while a few hundred will do zip for most families, for some unknown fraction, it will in fact be the determining difference, the lifting of the straw that would otherwise break the camel’s back.

    In the same way, cranking up your progressivism doesn’t make everyone it hits just go John Galt and quit working. But it unquestionably is the straw that breaks the back for some unknown fraction of them. Is that the kind of motivation at the margin you want to be providing during an economic slowdown? Hell no.

    Remember, your economic recovery relies on behaviour at the margin. It isn’t people already working full blast who are going to change things. They can’t, they’re already doing everything they can. The change can only occur when people who have the option to work more, or less, decide that more is the way to go. You need a businessman who says, well, I could take Fridays off, or I could continue to come in and hire a few more people, try to expand our operations a bit — and picks the latter choice. It’s all about what happens at the margin, really, so arguing that these changes won’t effect the bulk of workers totally misses the point. You might as well argue that making emergency room care cheaper or better wouldn’t change things, because b’gosh most people at any given moment aren’t in need of ER care at all.

    (2) The reason one consultant makes $300K and his competitor makes $200K is the first guy is better, more efficient. He gives better value for the money. That’s why he earns more — because his clients understand he’s worth it. So when the client is forced to go to the $200K guy, he gets worse value for his money. That is, net economic productivity declines. This is a secret to economic growth? Not!

    You’re making the same class of argument as saying that it doesn’t matter what the government spends money on, as long as it “creates jobs.” Say! Why don’t we just eliminate technology? That way we’d enormously increase the demand for labor. We’d all be working, 12 hours a day, 7 days a week, just to survive, like they did 4000 years ago.

    Further: a national economy is a fiendishly complex thing. Knowing a few facs and using your mother wit is totally insufficient to predicting its behaviour. You might as well try to do brain cancer surgery using your Swiss Army knife and what you remember from grade-school anatomy coloring books.

    No one is smart enough to know how to reach into the giant humming machine and push here and carefully avoid bumping this, so that we all start getting richer again. It’s never been done successfully, not in 2000 recorded years of trying. This is why wise people say the best approach is just stop screwing with it. At least let the patient alone to rest, let the business environment stabilize, let people suss out the nature of their local situation without worrying about whether some crazed Robin Hood is going to come over the horizon and randomly redistribute gold from here to there.

  8. Having been a consultant and hired consultants, I know that hourly rates are not a foolproof measure of quality.

    Foolproof? Hell, what in life is “foolproof?” Honestly, Chris, if you don’t grasp the difference between correlations that are true in general and correlations that are 100% perfect all the time, you certainly shouldn’t be allowed to have an opinion on economic matters. I’m not even sure you should be allowed to handle your own money.

    I mean, newsflash, Chris: if house A costs $50,000 more than B, it isn’t always better. If your son gets a B on his calculus test and his sister gets a C+, that doesn’t always mean your daughter is the one that needs tutoring. If you keep your weight under control, stop smoking, and hit the gym twice a week, while I blimp out on the couch, guzzling beer and pork rinds, it is not necessarily me that will have the heart attack first.

    Cruel, isn’t it, how Mother Nature injects enough noise into the system so that almost no correlations are foolproof?

  9. I know that hourly rates are not a foolproof measure of quality.

    Of course not. But the fact remains that discouraging some of the most productive and highest earners from working more isn’t good for the economy. I don’t understand why this is such a difficult concept to understand. I guess that Harvard education didn’t do that much for the president.

  10. If they raise the FICA limits its a 15% tax increase.
    In CA:

    now 15% fica to around 100K.
    9.3% to 1M
    35% Fed.

    Soon
    15 % fica to ???
    9.8% to 1M
    39 % fed.

    That’s about a 20% increase.

  11. Rand and Pham –

    1) yes, at the margins, some folks are going to look at the changes in the tax code and do things differently. Other folks are going to say the hell with the tax code, I want that bigger / better whatever, I’ll work the extra hours. My argument is, that since a 39.5% tax code did not kill the economy during Reagan, pretending it will now is not backed by the historical record.

    2) Consulting income is wildly variable, which, having been one, I think I understand. Factors which affect consulting income include but are not limited to:
    – Cientele. In technology, working for Fortune 500 clients (which I have) is more lucrative then small businesses (which I have also done, at the same time.)
    – Geographical region.
    – Perceived skill set.
    – Projects at hand. I’ve been a consultant with a lot of projects and made money, and not had any projects and been broke.

    Remember, the tax is on income, which is a function of rate and hours worked. So claiming that the consultants with the most income are the most productive is foolish.

    3) Not messing with the economy is a wonderful idea. So why did Bush mess with it by reducing taxes? Not messing with something is a good precription when times are good. If this economy looks good to you, I have a bridge for sale in Brooklyn.

  12. Honestly, the weirdest thing about the Obamanauts all excited about tax increases is that it seems strangely…disconnected from actually doing something with that money. It’s not like they’re saying geez, the country is a mess, all kinds of stuff that government used to do in 1992 has been neglected and in sore need of massive cash. Huge numbers of Federal employees have been laid off, and must be rehired to fix things.

    No, it’s not like that. (For one thing, the argument that government does far less now than it did in 1992 doesn’t pass the laugh test.) You get the feeling that they’re almost casting around, looking a bit frantically for something that government really ought to be doing, that requires huge amounts of cash. I know! Green energy! Uh…broadband for Africa! They’re even reduced to just redirecting most of it to huge swathes of random people, $400 here, $2500 credit there, more or less just flinging it on the ground, like coins for beggars to pick up.

    The real passionately-felt point seems to be taking it away from people who have it. There’s this moralizing, Puritan punishing feeling to it; that the important thing is to take this money away from the bastards who have been enjoying life too much. Doesn’t matter too much what we do with it, we just want to make sure they don’t enjoy it any more.

    Some kind of weird revenge? Our house values all went kablooie, the 401k is dying, that SOB Bush was right about Iraq and Kumbaya doesn’t, actually, work….Grrrr. Damn it, time to make somebody pay. Somebody….rich, Republican, a Bushie, one of those damn antigovernment types. I don’t care. Just tax the bastards, make them suffer.

    I’m reminded of the Civil War, when people who were deeply racist and despised black men fought and died for their freedom — because they wanted to just crush those smug aristocratic slaveowning planters.

  13. Remember, the tax is on income, which is a function of rate and hours worked. So claiming that the consultants with the most income are the most productive is foolish.

    I’m not claiming that the consultants with the most income are the most productive. I’m claiming that taking good consultants out of the economy to their maximum capacity is stupid.

    Not messing with the economy is a wonderful idea. So why did Bush mess with it by reducing taxes?

    Because the Clinton dot-com bubble had popped, and it need a real stimulus.

  14. There’s this moralizing, Puritan punishing feeling to it; that the important thing is to take this money away from the bastards who have been enjoying life too much. Doesn’t matter too much what we do with it, we just want to make sure they don’t enjoy it any more.

    So-called “liberals” are the new Puritans. That’s why they are so prevalent in New England. Read Fischer’s book, Albion’s Seed.

  15. You are assuming the professionals won’t increase their rates to compensate for loss of income from taxes Rand. I would venture to say… they will.

  16. Chris, there are way more differences between the tax code now and in the time of Reagan. Just a few off the top of the head are that there were many more brackets and deductions, so comparing a “top” bracket that encompasses 5% of taxpayers versus 15% is screwy. Another is the change in tax rates: going down, under Reagan, improved things, and now that they’ve gone down further, things have been even better. Believe it or not, you don’t actually want to go back to Reagan’s economy. It was wonderful compared to the 1970s, but compared to the 2000s, it would be a retreat.

    Your second point is mere blowing smoke. It can be boiled down to gee, there are all these complicated factors, so WHO KNOWS how to correlate wage rate with quality of work, in a narrow field. This from a guy who presumes to understand the entire damn economy, and be able to confidently predict how 150 million individual taxpayers will respond to a tax rate change! Dude, you need a consistency check. Either it’s perfectly possible to answer the microeconomic, narrow question of how to measure a consultant’s productivity, and correlated it with his hourly wage, or it’s utterly impossible to make any predictions at all about the far more complicated macroeconomic questions of taxes and economic growth. If you’re going to retreat into boy it’s too complicated to say on the small question, you’ve got zero credibility on the big questions.

    OK, lowering taxes is “messing” with the economy, over the short run. One would reasonably prefer to minimize tax rates changes in either direction. Set them low and keep them low. This is unfortunately impossible with a “progressive” tax system because of inflation and the resultant bracket creep; unless you regularly lower your tax rates, you end up ratcheting up the tax burden over time, e.g. someone earning $40,000 today is “wealthy” by 1969 standards, and had the rates not been changed, would be paying an obscene amount of taxes today. Google “AMT” to get another earful of the problem.

    But it’s ludicrous to suggest over the long term that lowering taxes is just as much “messing with” the economy as raising them, because government is by definition the most rigid, least flexible, least productive economic activity there is. Think about it: almost no transaction between citizen and government is voluntary, which means the number and type of such transactions has zero responsiveness to changing needs on either side. It’s as if Microsoft was the only place to buy computers, and they didn’t even bother to employ salesmen, so that upper management had no clue at all as to what computers people wanted, or how that changed over time, nor cared. A profoundly inefficient economic system. And to the extent a collection of competing companies, actively responding to market needs, is replaced by one lumbering deaf behemoth, economic productivity growth craps out. Wouldn’t you take that as obvious? Aren’t you against monopolies because of the damage to economic efficiency, and the harm to consumer interests?

    Well, that’s what happens when you siphon off a higher fraction of economic activity and run it through the government sector. When we all essentially work 25% of the time for the government, like we do now, that is a tremendous hit on our national productivity, and a huge slice of the economy becomes fossilized, unresponsive to our needs, a dinosaur we must feed lest it wreck the house in its clumsiness.

    This is leaving out the huge issue of motivation, of the exceedingly pernicious influence a “progressive” tax structure has on human motivation to inversely correlate reward with quality of effort. It’s like we design a system that gives athletes who come in dead last a gold medal, those who arrive in the pack a silver or bronze, and those who excell and cross first a kick in the head and a curse. You all on the left rely on some magic internal motivation that keeps people running their best even under those bizarre circumstances of negative public reward, but people don’t work that way.

  17. OK – one point I want to make about taxes:

    People always talk about how they want to “tax the rich” and how this is all about helping the poor. Think about this: there are two “forms” of rich people, the working rich and the idle rich. We tax only the working rich. Isn’t that odd? If someone works and builds wealth, we take it away. If someone’s ancestor worked, that wealth is sacrosanct, untouchable.

    This is not class warfare – this is the idle rich attacking the working rich. Because the idle rich are senators.

  18. The Bush tax cuts had a demonstrable, identifiable positive impact on federal revenues. In fact, what was forecast to happen actually did. There is no forecast with this stimulus. Nobody knows one way or the other. We DO know Keynesian economic policies have NEVER worked. Why on earth would we try them now? Remember, progressive tax rates are a social construct, not an economic one.

  19. David, I think a better case can be made that it’s the asset owners and poor labor against high-value labor. People say the Obama coalition is a “top-bottom” coalition, i.e. already rich and poor.

    But I think a better argument can be made that it’s a young-old coalition, the recently retired and about to retire asset holders combined with the idealistic, low (but growing) wage-earning young with few obligations. Retiring baby boomers and their recently college graduated offspring, roughly.

    The oldsters don’t give a foo about taxing the heck out of labor, because they’re either no longer earning wages or about to stop. They care about protecting the value of their assets, like their houses and 401k’s (oops! problem there!), or, if that’s not possible, protecting the wealth-transfer programs from government that will pay their cost of living and medical care in retirement.

    Young people care, of course, about idealistic crusades, and about a bit of wealth transfer to people involved in such crusades (such as themselves), or on their behalf to industries to whom they owe money (education). They don’t mind high taxes on high wages, because they’re not earning them yet. They know they won’t until they’re middle aged, and that’s pretty much a million years away.

    Basically it’s an amalgam of those who think they’re going to live forever and those who know their time is short. Those who realistically hope to build wealth over the medium term, a decade or so, to go from middle class to comfortable, are out in the cold. I think they have to wait until the boomers die off. Now that stocks and real estate have tanked, and Obama inflation is going to strip the middle class of every saved penny it might have used to build them back up, the boomers are going to cling to government entitlements, pensions, and government health care like grim death.

  20. There might be mentioned the differences between various ways of earning those (to me) astronomical incomes. Might I submit that there is a lot of difference between those who earn high salaries making something (example: aerospace engineers) and those who get their salaries by shuffling paper from pile A to pile B (examples: lawyers and mortgage brokers)?

    Personally, I think the marginal rate of tax over $250K for the latter ought to be 100%. You’re in such a job and want to leave the country because of the change? Don’t slam the door on your way out.

  21. Hmmm… my earlier comment did not appear. Wonder why?

    As to the war on prosperity, it is really just Obama’s plan for fighting global warming. Obama’s new science advisor John Holdren calls it “de-development”.

  22. 1) yes, at the margins, some folks are going to look at the changes in the tax code and do things differently. Other folks are going to say the hell with the tax code, I want that bigger / better whatever, I’ll work the extra hours.

    Years ago a Democrat in the California Legislature laughed off concerns about what was at the time the largest state tax hike in American history, claiming there was no way California could possibly drive businesses out of state by hiking taxes, because California was an “economic paradise.”

    People do change their behavior as a result of changes in how they are taxed. If that were not the case, there would be no taxes on booze and cigarettes. The conventional explanation for why the First Great Depression got so bad was that taxes went up as the economy went down. Sound familiar?

    Yet somehow when the target of the tax hike is that segment of the economy that produces more wealth than any other, we are expected to believe that these are the people who will never change their behavior due to being overtaxed. You can just keep draining more and more blood from that donor and he will never bleed out.

    “On the margins,” Chris? Really?

  23. Fools who think a 3% increase in taxes is not a big deal also think that 7.6% unemployment explains the >50% drop in the stock market since 2007, when unemployment was 4.6%.

  24. Bill Maron – the only impact I can see from the Bush tax cuts was we went from a federal surplus to a deficit.

    McGehee – it would help if you stopped getting your history out of comic books. Keynsian economics is why we’ve had fewer and less severe recessions in the 20th century then in the 19th. At any point where the tax code rate changes, some folks will change their behavior. Not all, some. The only way to avoid that is a flat tax, which has its own problems.

  25. the only impact I can see from the Bush tax cuts was we went from a federal surplus to a deficit.

    Why would you infer that the tax rate cuts were the cause of the deficit (other than a foolish ideological preference)?

    How do you know that not cutting tax rates wouldn’t have resulted in an even larger deficit (because we would have had slower economic growth coming out of the tech bubble pop and 911)? Why don’t you indict the out-of-control spending? After all, it’s not like federal revenues declined as a result of the tax rate cuts.

  26. > At the end of the day, we’re still talking about a 3% change on the dollars over $250K.

    If it’s so little money, then surely Gerrib won’t mind paying it for them….

    Note that the tax rate change doesn’t include the deduction phase outs. More folks will see >60% marginal rates.

  27. > Personally, I think the marginal rate of tax over $250K for the latter ought to be 100%. You’re in such a job and want to leave the country because of the change? Don’t slam the door on your way out.

    I thought that FC was a Brit.

    Me, I want folks who are worth >$250k working for me. I want them working all year.

    I don’t get any benefit from them taking time off.

    What does FC hope to get if the more productive work less?

  28. the only impact I can see from the Bush tax cuts was we went from a federal surplus to a deficit.

    And you accuse me of getting my history out of comic books.

  29. McGehee – so Bush’s budgets did not take the federal government from surplus to deficit? What part of that statement is incorrect?

    This thread reminds me of the old saw about lawyers. “If you have facts, pound the facts. If you have law, pound the law. If you have neither, pound the table.”

    There’s a lot of table-pounding going on from Rand and his supporters. Undoubtedly y’all think I’m doing the same thing, so we’ll have to agree to disagree.

  30. McGehee – so Bush’s budgets did not take the federal government from surplus to deficit? What part of that statement is incorrect?

    We weren’t talking about the Bush budgets. We were talking about the tax rate cuts. I can understand why you would want to change the subject, though.

  31. The last Bush budget effectively ended in 2008. We should still be under a Bush budget, by the Democratic Congress which writes the budget decided no to send one to President Bush. The market was still over 10,000 pts on October 1st, 2008. The last President Bush/Republican Congress budget ended October 1st, 2007 with the market over 14,000 pts.

    As for deficit spending, the last Bush/Republican Congress budget ran a $342bln deficit. That was up from by a $100 bln from the $434bln deficit of the year before. The 1st Bush/Democratic Congress budget was $638bln. There of course really wasn’t a second one, but the next one is looking to be about $1,300bln. You are welcome to check my comic book source. And it is a comic book source, since they estimate GDP will go up $1,000bln (or 6%) by 2011 with an assumed unemployment rate of 9% in 2010.

    And Rand is right about revenue growth. With the exception of 2002, tax revenue increased for every year of the Bush Administration until the very last budget. Again, that budget was written by the Democratic Congress. In fact, from Bush’s first year to last, revenue increased $530bln/year, or 30% increase over 2001 numbers. That includes the $45bln/yr drop with the first Democratic Congressional budget for FY 2008. Also throw in Geithner, Daschel, Richardson, Solis, Killefer, Craig, and Rangel not paying their taxes in full.

  32. Andy, in the second case (to remind you, it’s people who “earn” their money by shuffling paper) the more productive they are the less productive everyone else is – because what the shufflers produce is red tape.

    High-priced lawyers who managed to get “no-win, no-fee” cases made legal (they weren’t in Britain 15 years ago) are one of the chief reasons why insurance rates for absolutely everyone have skyrocketed, and also why quite a lot of our eccentric little rituals (such as cheese-rolling, which funnily enough hasn’t suffered that fate yet) have disappeared due to prohibitive insurance rates for such events.

    So everyone loses except the lawyers. Just the way they want it.

    Sure, such people might pay a lot of tax. How much time and money do they cause to be wasted in the process?

    Reminds me of the old joke. “What do you call a line of 5,000 lawyers lying head to feet in a line at the bottom of the sea?” “I don’t know, what do you call them?” “A good start.” One might, and I do, say the same about accountants and government bureaucrats. And most especially bankers.

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