Obama on Taxes

A few thoughts on Obama's press conference yesterday...

He continues to insist that the "rich" must have their taxes increased. By rich, he means those making over $250,000 per year, but he usually refers to "millionaires and billionaires" in an effort to stir up class warfare. It's much easier to get people riled up about Wall Street "fat cats" than small business owners who create most of the jobs in America. He doesn't seem to grasp that 1) the rich already pay the lion's share of taxes (while the lower 50% of earners pay almost nothing), 2) the rich are those who employ people, invest, and spend, all of which are necessary for a growing economy, and 3) the rich will alter their behavior in the face of higher taxes.

For anyone skeptical of the third claim, I offer as evidence the luxury tax that was enacted in 1990 on various toys of the wealthy, including yachts, airplanes and jewelry. The Joint Committee on Taxation estimated that revenues from the luxury tax in 1991 would be $31 million. It turned out to be about $16 million. Why? Wealthy folks changed their behavior in response to the new tax.

An excerpt from a George Will article in 1999: "According to a study done for the Joint Economic Committee, the tax destroyed 330 jobs in jewelry manufacturing, 1,470 in the aircraft industry and 7,600 in the boating industry. The job losses cost the government a total of $24.2 million in unemployment benefits and lost income tax revenues. So the net effect of the taxes was a loss of $7.6 million in fiscal 1991, which means the government projection was off by $38.6 million." In other words, the luxury tax was only a minor nuisance to the wealthy, but a lot of middle class people got hurt by the attempt to stick it to the rich.

Incredibly, government agencies still use the static analysis which led to such lousy predictions 20 years ago.

He repeated the canard that oil companies need to have their "subsidies" ended. But, there is no such thing as a subsidy for oil companies.  (See my post on May 6 below).  I cannot really blame Obama for continuing to repeat this lie. He is, after all, a politician trying to get reelected. The blame lies with the public, too many of whom can't be bothered to do their homework.

Obama laid the blame for our debt problems not only on Republicans, but Congress in general, saying that they "ran up this bill." Well, Congress deserves a lot of blame, but Obama essentially absolved himself of any responsibility. He basically said "Hey, don't blame me for this mess! Congress did it!" I've never taken a course in leadership, but I'm pretty sure that passing the buck is not one of the lessons.

Obama is, by all accounts, a very smart guy. Why then is virtually every economic policy he pursues precisely the opposite of what should be done? Is he actually not that smart? Or does ideology override his intellect?