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Tax Increases Could Kill the Recovery The cap-and trade levy would hit low-income earners especially hard.
The barrage of tax increases proposed in President Barack Obama's budget could, if enacted by Congress, kill any chance of an early and sustained recovery.


Martin Kozlowski
Historians and economists who've studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997.
The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.
Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.
The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. Official budget calculations disguise the resulting fiscal drag by treating Mr. Obama's proposal to cancel the 2011 income tax increases for taxpayers with incomes below $250,000 as if they are real tax cuts. The plan to modify the Alternative Minimum Tax to avoid increases for some taxpayers is also treated as a tax cut.
But those are false tax cuts in which no one's tax bill actually declines. In contrast, the proposed tax increases are very real. And despite the proposed tax increases, the government's new spending and transfer programs would cause the annual budget deficit in 2019 to exceed $1 trillion, or 5.7% of GDP.
Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices.
CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile. Since the amount of cap-and-trade tax rises with income, the cap-and-trade tax has the same kind of adverse work incentives as the income tax. And since the purpose of the cap-and-trade plan is to discourage the consumption of CO2-intensive products, energy or means of transportation by raising their cost to consumers, the consumer-price increases would be the same for a 15% reduction in C02 even if the government decides to give away some of the CO2 emissions permits.
But while the cap-and-trade tax rises with income, the relative burden is greatest for low-income households. According to the CBO, households in the lowest-income quintile spend more than 20% of their income on energy intensive items (primarily fuels and electricity), while those in the highest-income quintile spend less than 5% on those products.
The CBO warns that the estimate of an $80 billion-a-year tax increase could be significantly higher or lower, depending on how the program is designed. The Waxman-Markey bill currently before Congress calls for reducing greenhouse gasses 20% by 2020 and by an incredible 83% by 2050. As the government reduces the amount of CO2 that is allowed, the price of the CO2 permits would rise and the pass-through to consumer prices would also increase.
The next-largest tax increase -- with a projected rise in revenue of more than $300 billion between 2011 and 2019 -- comes from increasing the tax rates on the very small number of taxpayers with incomes over $250,000. Because this revenue estimate doesn't take into account the extent to which the higher marginal tax rates would cause those taxpayers to reduce their taxable incomes -- by changing the way they are compensated, increasing deductible expenditures, or simply earning less -- it overstates the resulting increase in revenue.
Since the projected revenue from this source is already designated to be used for Mr. Obama's health plan, some other tax increases will be needed. Moreover, Mr. Obama's budget characterizes the projected $634 billion outlay for health-care reform as just a down payment on the program. The budget notes that there would be "additional resources and new benefits to be determined with Congress." Those additional resources would no doubt be even higher taxes.
The third major tax increase is the plan to raise $220 billion over the next nine years by changing the taxation of foreign-source income. While some extra revenue could no doubt come from ending the tax avoidance gimmicks that use dummy corporations in the Caribbean, most of the projected revenue comes from disallowing corporations to pay lower tax rates on their earnings in countries like Germany, Britain and Ireland. The purpose of the tax change is not just to raise revenue but also to shift overseas production by American firms back to the U.S. by reducing the tax advantage of earning profits abroad.
The administration is likely to be disappointed about its ability to achieve both goals. Bringing production back to be taxed at the higher U.S. tax rate would raise the cost of capital and make the products less competitive in global markets. American corporations would therefore have an incentive to sell their overseas subsidiaries to foreign firms. That would leave future profits overseas, denying the Treasury Department any claim on the resulting tax revenue. And new foreign owners would be more likely to use overseas suppliers than to rely on inputs from the U.S. The net result would be less revenue to the Treasury and fewer jobs in America.
It's not too late for Mr. Obama to put these tax increases on hold. If he doesn't, Congress should protect the recovery and the longer-term health of the U.S. economy by voting down this enormous round of higher taxes.

Just What Is Cap-And-Trade?

 
       Essentially, "Cap-and-Trade" is being deceptively peddled as a system to encourage businesses to engage in "environmentally responsible activities."

     But in actuality, it has little to do with the environment and instead is a means to deprive you of your income, control your behavior and repress your liberties.

     Remember when President Obama said:

"We can't drive our SUVs, and eat whatever we want, and keep our homes at 72 [degrees] all the time, whether we live in the desert or the tundra, and keep consuming 25% of the world's resources with just 4% of the world's population... That's not going to happen."

     Little did we know that he was deadly serious when he made that radical statement on the campaign trail last year?

     Under "Cap-and-Trade," the government would issue "pollution credits." Once allocated (as the government sees fit) those who use less than their government-imposed allocation can sell them to those who have exceeded their government allocation.

     Peter Ferrara, the director of budget and entitlement policy at the Institute for Policy Innovation, writing for The American Spectator explains "Cap-and-Trade" this way:

"Under this policy, every business involving CO2 emissions will have to buy permits from the government for the amount of such emissions, which will be sold in open auctions, where the permit price will be bid up. But the government will limit the number of these permits, and consequently the maximum amount of CO2 emissions allowed. Indeed, over time the government will clamp down on the amount of CO2 emissions allowed by the permits, with the emissions to be reduced by 80 percent by 2050."

     And how will "Cap-and-Trade" policies change your standard of living for the worse:

     Ferrara explains:

"These increased costs are effectively a new tax on the American people, even though Obama promised in his campaign that there would be no tax increase for the bottom 95 percent of income earners."

     Of course, in the strictest sense, "Cap-and-Trade" is not solely a "tax." It's something much worse.

     When the government taxes you, it openly confiscates your income and that income goes directly into government coffers to fund some actual or perceived need.

     Under "Cap-and-Trade," no one in the government reaches directly into your pocket... nothing new is withheld from your paycheck... no new lines appear on your 1040 Form that you send to the IRS.

     Instead, the government, which is already taking de facto control of the banking and automotive industry, will have yet another tool in its arsenal to effectively take control of every other company or sector of industry that produces CO2... and that's just about everybody.

     And when you complain that your standard of living has gone down, you can be certain that President Obama, Nancy Pelosi and liberals in Congress will simply point the finger at "greedy industry" when they know full well that they were the ones that gave this monster life.

     In short, "Cap-and-Trade" has nothing to do with the environment, it is nothing more than a mechanism that the government can now use to force others to pick your pocket, and diminish your standard of living in this already queasy economy.

IDIOTS FOR OBAMA

IDIOT- 1. an utterly foolish or senseless person. 2. a fool, half-wit; imbecile; dolt, dunce, numskull.

The High Cost of Cap and Trade: Why the EPA and CBO Are Wrong

 
The EPA Is Wrong
•False Assumptions: Proponents of cap and trade point to the low cost estimates by the EPA and CBO as a reason to pass Waxman-Markey. The EPA underestimates that the bill would cost households an additional $140 a year.
•Based on Consumption: The EPA’s numbers are based on consumption changes, which are typically less than income changes, as families respond to income losses by saving less.
•Uses Discounting: Discounting is a reasonable approach for comparing costs and benefits that occur at widely different times. However, costs of climate change rarely use a discounted rate this high. Without discounting, the impact per household is $1,288 in 2050. Adjusting household size to reflect a family of four raises this cost to over $1,900.
•Assumes Rebates: The EPA assumes all the allowance proceeds will be rebated directly to consumers. This clearly isn’t the case, since most of the allowances have been promised to industry.
•No New Taxes?The loss that the EPA calculates doesn’t include the cost of the energy tax to consumers, since the EPA assumes that all of the money is rebated. The cost of the energy tax is actually $4,600 per family of four in 2035.
The CBO Is Wrong
•False Assumptions: CBO underestimates that the bill would cost households $175 in 2020. They assume that the carbon tax isn’t a tax if the government spends the money. When have Americans ever seen all of a tax returned to them? It’s like suggesting your tax rebate will be as large as the amount taken from your paycheck every year.
•Numbers Don’t Add Up: The CBO’s allowance cost numbers don’t add up. They say the allowance price will be $28. Since there are 5.056 billion tons of CO2 equivalent in the cap that year, that implies a $141 billion gross cost. They list $91.4 billion.
•Hard to Believe: In the CBO’s June 5 analysis, they projected allowance revenues of $119.7 billion, $129.7 billion, $136 billion, $145.6 billion and $152.9 billion for the years 2015-2019. It’s hard to believe that the next number in that series would be $91.4 billion.
•Ignores Economic Damage: The CBO doesn’t include the decrease in GDP as a result of the bill. The GDP hit in 2020 would be $161 billion (in 2009 dollars) according to our analysis. For a family of four, that is $1,870 that they ignore.
Cap and Trade Is Wrong
•It’s a Massive Energy Tax
•It Will Not Make a Substantive Impact on the Environment
•It Will Kill Jobs
•It Will Cause Electricity Bills and Gas Prices to Sharply Increase
•It Will Outsource Manufacturing Jobs and Hurt Free Trade
•It Will Make You Choose among Energy, Groceries, Clothing and Haircuts
•It Will Be Highly Susceptible to Fraud and Corruption
•It Will Hurt Senior Citizens, the Poor, and the Unemployed the Worst
•It Will Cost American Families Nearly $3,000 a Year
•President Obama Admitted “Electricity Rates Would Necessarily Skyrocket” Under His Cap-and-Trade Program (January 2008)