2011

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

John Fund of WSJ’s Political Diary breaks down Tuesday’s most interesting primary contests. Also, WSJ Columnist Mary Anastasia O’Grady translates the latest economic signals from Washington.

Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it’s also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, “high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994.”

Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn’t rocket surgery, as the Ivy League professor said.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush’s tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there’s always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.

[laffer]

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet. (Mr. Arthur Laffer is the chairman of Laffer Associates and co-author of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).)
And there’s the “reduction” in the Deficit from The Government takeover of health care and those associated taxes.

Then the proposals for Cap & Trade that will tax your energy.

Fifty three of the Senate’s 59 Democrats gave unelected, overpaid bureaucrats at the U.S. Environmental Protection Agency a green light yesterday to do pretty much whatever they choose in their quixotic crusade against global warming. All 41 Republicans and six brave Democrats voted for Alaska Sen. Lisa Murkowski’s resolution nullifying the EPA’s recent usurpation of authority under the Clean Air Act to regulate the U.S. economy to combat greenhouse gases. Thankfully, this craven surrender of congressional authority isn’t the last word on the issue, assuming that the November elections produce a Senate with enough backbone to reassert the legislature’s rightful power.

In the meantime, it’s vital to understand how bureaucracies function. Whatever else they may do, leading bureaucrats always do two things, regardless of which party controls the White House or Congress: They limit choices available to the rest of us by imposing regulations that increase government power and thus justify expanding their budgets and staffs; and they protect themselves and their turf by suppressing internal dissent, often at any costs.

As an example of the latter, consider career EPA scientist Alan Carlin. Last year, Carlin went through all the proper channels in submitting a study to the EPA’s top leadership in which he raised serious questions about the credibility of scientific reports used to justify the agency’s decision to regulate greenhouse gases. Carlin’s study became public thanks to the Competitive Enterprise Institute. Carlin’s reward was to be publicly pilloried by President Obama’s EPA administrator, Lisa Jackson. His work was suppressed within the agency, and he was threatened with additional retaliation if he continued voicing his views. Rather than endure this bureaucratic muzzling, Carlin retired.

Similarly, EPA lawyers Allan Zabel and Laurie Williams — a married couple living in San Francisco who between them have four decades of experience at the agency — became so concerned last year about the EPA’s support of cap-and-trade legislation that they created a YouTube video titled “The Huge Mistake” to explain their case. They made it clear that the video represented only their personal opinions, but the EPA still ordered them to change the video’s content or face severe punishment.

Sen. Lamar Alexander, R-Tenn., predicts that a suffocating new round of EPA regulations will soon descend upon the “one-fifth of our restaurants, one-fourth of our schools, two-thirds of our hospitals and doctor’s offices, 10 percent of our churches, thousands of farms and millions of small businesses” that emit greenhouse gases. Considering how the EPA grandees mistreat their underlings, we wonder how the agency will respond to the soon-to-be-swelling ranks of critics on the outside.(Washington Examiner)

Then there’s the bankruptcy of Social Security and Medicare.

But don’t worry, you can be safe and secure and get the warm fuzzies…

BECAUSE IT’S ALL GEORGE W. BUSH’s FAULT! 🙂

So have your Two Minute Hate (A hideous ecstasy of fear and vindictiveness, a desire to kill, to torture, to smash faces in with a sledge hammer, seemed to flow through the whole group of people like an electric current, turning one even against one’s will into a grimacing, screaming lunatic. And yet the rage that one felt was an abstract, undirected emotion which could be switched from one object to another like the flame of a blowlamp-George Orwell) and go out and work 3 jobs just to put food on the table and a roof over your head.

The Guardian reported on June 2 that the UN was supporting a switch to a radical anti-meat agenda. “A global shift towards a vegan diet is vital to save the world from hunger, fuel poverty and the worst impacts of climate change, a UN report said today,” wrote the paper.

Here’s how the group Vegan Action describes this extreme vegetarianism. “While vegetarians choose not to use flesh foods, vegans also avoid dairy and eggs, as well as fur, leather, wool, down, and cosmetics or chemical products tested on animals

The UN report is all about the environmental impact of “consumption and production,” or pretty much what humans do – eat and make stuff. It warns: “A substantial reduction of impacts would only be possible with a substantial worldwide diet change, away from animal products.”

So evil carnivores everywhere beware, the Politically Correct are gunning for you too!

Best rest assured, the government will be here to save you! 🙂

We see it as a entrepreneurial bill – a bill that says to someone, if you want to be creative and be a musician or whatever, you can leave your work, focus on your talent, your skill, your passion, your aspirations because you will have health care.”-Speaker Nancy Pelosi

Doesn’t that just make you feel so much better! 🙂

Feed the Pig

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best “the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day’s gasoline use.” Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

As the journalist Henry Hazlitt wrote in his classic, “Economics in One Lesson,” you can’t raise living standards by breaking windows so some people can get jobs repairing them”.

And boy does Obama and Company love to break those windows. Or is that “saved or created” those windows. 🙂

The unemployment rate rose to 9.8 percent in September, the highest since June 1983, as employers cut far more jobs than expected.

The report shows that the worst recession since the 1930s is still inflicting widespread pain and underscores one of the biggest threats to the nascent economic recovery: that consumers, worried about job losses and stagnant wages, will restrain spending. Consumer spending accounts for about 70 percent of the nation’s economy.

And some analysts expect that it will grow to 10.5%.

And gee, I thought the stimulus package was only supposed to make it go as high as 8%. And the Health Care bills will cost less than $900 billion… and save us all from ruin!

Trust us. 🙂

And, of course, the Media is entirely “fair” and unbiased….

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This does, however, provide an excuse to highlight an interesting new report by the Business and Media Institute, a free-market think tank. The institute’s Julia Seymour undertook what sounds like a tedious task: comparing TV network news coverage of unemployment during the Reagan recession and the Obama one:

The Business & Media Institute analyzed network unemployment stories on the evenings that data was released by the Bureau of Labor Statistics between March 2009 to September 2009 and March 1982 to September 1982. There were 66 stories in all–35 stories in 2009 and 31 stories in 1982.

The findings are similar to our anecdotal observations of the AP’s reporting prior to today. The networks “were 13 times more negative in their treatment of Reagan than Obama.” Twenty of 22 stories mentioning the Reagan administration portrayed it negatively, versus 1 out of 15 that mentioned the Obama administration. Most telling is the comparison of how the nets–and, in one case, the same newsman–treated identical unemployment rates during the two recessions:

But Charles Gibson illustrated how dramatically different the network coverage of Reagan and Obama really were.

Gibson, who was a Capitol Hill correspondent for ABC in 1982, told viewers May 7, 1982, “There really isn’t any good news in the statistics. All the numbers are bad.” He then quoted two Democratic attacks on Reagan including Rep. Henry S. Reuss, D-Wis., who charged that Reagan’s “policies aren’t just mistaken, they’re wicked.”

But as an ABC anchor in 2009, Gibson was full of hope. He introduced that night’s story saying “sometimes a bad jobs report can look good.”

“345,000 Americans lost their jobs in May, a big number to be sure. Traumatic if you are one of the 345,000. But the number was smaller than economists had predicted, and that’s good news,” Gibson said before admitting that the unemployment rate of 9.4 percent was “pretty bad.” Neither Gibson, nor reporter Betsy Stark mentioned President Obama at all that night.

On Aug. 7, 2009, Gibson suggested “the economy may be finally turning the corner.”

———————–

So what if the unemployment is rising, it’s not as bad as it was and it could have been worse. 🙂

But in 1982, the world was coming to an end as we know it.

And it was all George W Bush’s Fault.

Yep, that’s your Ministry of Truth for you.

As for the economy — mixing things up for members of Congress, with a little deception: “The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, a government watchdog states in a new report released today,” ABC’s Matthew Jaffe reports. “Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (SIGTARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country’s economy, federal officials knew otherwise.”

Reporting from Washington – The Treasury is unlikely to get back the full amount of money lent under the Troubled Asset Relief Program despite a recent spate of repayments from large banks, warned the program’s watchdog.

The program “played a significant role” in rescuing the financial system from a meltdown, Neil Barofsky, special inspector general for TARP, testified before the Senate Banking Committee on Thursday. But it was “extremely unlikely that the taxpayer will see a full return on its TARP investment,” according to his prepared testimony.

Losing some money was almost inevitable, said William Goetzmann, a finance professor at the Yale School of Management.

“The intent of TARP investment was not that it was a great investment for the U.S. taxpayer,” Goetzmann said. “The intent was to save the U.S. financial system, and that was going to cost some money.”

Juxtapose that with:

When President Obama announced on June 9 that some financial institutions would be allowed to repay Troubled Asset Relief Program dollars, he said the massively expensive TARP bailout had made money for the federal government.  “It is worth noting that in the first round of repayments from these [TARP recipients], the government has actually turned a profit,” the president said.

So if we have no hope of getting all the money back, how is that we turned a profit exactly??

Is that like, “we’re bankrupt” so lets spend trillions more? 🙂

No, the government was handed stocks in the banks they lent the money to. They became shareholders.

Last month, the General Accountability Office (GAO) reported that, through June 12, 2009, the government had received $6.2 billion in dividend payments.

But will then make for the losses. Unlikely. Since many of the banks who were supposed to pay those dividends, didn’t.

Indeed, in its June report, the GAO revealed that 17 troubled institutions have not paid their dividends, much less repaid the TARP money itself.  And last week, the Wall Street Journal reported that three other institutions were not paying dividends.

Shocking, I know… 🙂

So yet another government program loses money.

But don’t worry, Health Care Reform will cut the deficit! 🙂

And won’t cost “not one dime”!!!

Oh, and Rep. Barney Frank wanted to spend this 6.2 billion right out of the shoot on more subsidies.

“We don’t know if TARP is going to be making any money, so taking the dividend payments going back to Treasury is pretty questionable,” says one House GOP aide.  But now, Frank is proposing that dividends be spent immediately.

So, don’t worry, they are fiscally responsible with your money.

That’s why they have so many taxes coming down your throat soon.

They need more to spend!! 🙂

Cashing in on the Short Term

Congress passed the Cash for Clunkers program in order to increase automobile employment and save jobs. As Michigan Sen. Debbie Stabenow – a key supporter of the law – put it, “This is a jobs program first.” Cash for Clunkers has done many things. It has given hundreds of thousands of Americans vouchers worth between $3,500 and $4,500. It has encouraged many Americans to trade in old cars now instead of waiting a few years. It has destroyed valuable used cars that dealers would have resold to low-income Americans. It has added $3 billion to the national debt. But the new jobs report shows that Cash for Clunkers has not done the one thing Congress intended it to do: create jobs.

The employment report shows that – despite the Cash for Clunkers craze, and the $2 billion Congress added to the program at the end of July – motor vehicles and parts manufactures shed 15,000 jobs in August. That erased half of the jobs gained in July and continued the yearlong downward trend. The Commerce Department separately reported that spending on automobiles increased between June and July when Cash for Clunkers kicked in. However, while spending on cars went up, spending on other goods and services fell. Handing out taxpayer dollars is popular, but that does not make it good – or effective – policy. (Heritage.org)

Also, the program that was slated to cost $1 billion, it cost $3 billion. It didn’t go over that mark because they cut it off early. But it was still $2 billion over the original proposal.

Doesn’t that just fill you with confidence about our current government spending plans. 🙂

And let’s see who benifited the most from this rebate program:

The government posted new data late Friday on the government’s Cash for Clunkers rebate program. Here’s a look at the top-selling new vehicles through the program when multiple engine options, flexible-fuel vehicles and hybrid versions are taken into account.

TOP SELLERS
1. Toyota Corolla 29,488
2. Honda Civic 28,456
3. Toyota Camry 27,137
4. Ford Focus 22,388
5. Ford Escape 21,894
6. Honda CR-V 20,106
7. Hyundai Elantra 19,797
8. Chevrolet Silverado 16,330
9. Nissan Versa 16,300
10. Ford F150 16,263
11. Honda Accord 15,922
12. Nissan Altima 15,426
13. Toyota RAV4 15,255
14. Toyota Prius 15,013
15. Ford Fusion 13,415
16. Chevrolet Cobalt 13,335
17. Honda Fit 12,361
18. Nissan Sentra 12,158
19. Chevrolet Aveo 11,557
20. Toyota Tacoma 10,692
Source: Department of Transportation, CARS.gov
LOAD-DATE: September 22, 2009

Toyota and Honda, foreign car makers. Sure they have plants in this country, but they aren’t American companies.

The American company that did the best, Ford, is the ONE  that DIDN’T TAKE ANY GOVERNMENT BAILOUT Money.

Hmm….

As a Matter of fact, the Only car on the list that is from a company that took bailout money is Chevrolet.

Interesting…

A new paper in The Economists’ Voice concludes that the costs of the “cash for clunkers” program exceed the benefits by approximately $2000 per vehicle. Meanwhile, September auto sales are plummeting, leading to estimates the monthly total will be the lowest in nearly three decades.

THE impact of “cash-for-clunkers” was very short-lived. The auto website Edmunds.com is predicting an annualised rate of car sales in September of just 8.8 million units. Not only is that a long way down from the 14 millions plus recorded in August, when the clunkers scheme was in full swing, it was well below the 12.5 million rate recorded in September last year, when the financial system was going to hell in a handcart. The industry got used to an annual sales rate of 16 million. (Economist blog)

“The best month of the year for car sales is being quickly followed by what could be the worst month of the year,” noted Edmunds.com CEO Jeremy Anwyl. “Cash for Clunkers was supposed to prime the pump, but that is a physics concept, and economics is quite different. Demand has dropped off significantly since the program ended.” (Edmunds.com)

But here’s an interesting bit I hadn’t considered (but I should have):

In early August, Edmunds.com analysts reported that Cash for Clunkers shoppers were paying higher prices for their cars, perhaps neglecting to negotiate distracted by the government rebate. And, limited supply and high demand drove prices up for everyone else as well. Now that the program is over and demand has slowed, consumer discounts are getting greater even as the average vehicle purchased is more expensive.

“In truth, this program launched at the worst possible time of the year,” opined Edmunds.com CEO Jeremy Anwyl. “The annual summer sell-down typically creates a rush of activity for the industry, and this year that rush came right after automakers cut production in response to the floundering economy. It’s a simple case of supply and demand, bolstered by a reduced level of negotiation on the part of excited clunker traders. Add to this the automakers’ unseasonable reduction in incentives and the message is clear: if you buy a car this summer, you should expect to pay higher prices.”(edmonds.com)

Purchased Before Clunkers Program
Purchased During Clunkers Program
Average MSRP
Average Sales Price *
Discount*
Average MSRP
Average Sales Price *
Discount*
Ford Escape
$26,582
$24,982
5.7%
$26,548
$24,786
5.2%
Ford Focus
$18,692
$17,587
5.7%
$18,795
$17,721
5.4%
Jeep Patriot
$21,855
$20,074
9.1%
$21,996
$21,352
3.1%
Dodge Caliber
$19,671
$17,368
11.7%
$19,885
$19,181
3.8%
Ford F-150
$36,248
$32,877
8.7%
$35,249
$32,503
7.3%

*Does not include customer cash incentives.

The numbers are not drastically different before and after.

And now you have car dealers who are left with cars now that that people don’t want to buy because the rebate drug high has worn off.

As a person who used to work for  rebate processing unit I know the cardinal rule I came up with after 4 years of doing that job: “Buy the product in spite of the rebate, not because of the rebate” you’ll be a lot happier. Because rebated items are frequently marked up, but also in arena I worked in, Computers, the retail stores handing out rebates you didn’t qualify for or were expired was a rampant problem.

That’s not what happened here exactly, but since the car purchased was a targeted list and must be a new car 09/2010 model, which are more expensive than a used car it was relatively the same. Get people to buy something more expensive than they normally would by dangling money under their noses.

There’s that evil “capitalism” again.

And there are now around 700,000 people who now have higher auto insurance (because new cars cost more) and have monthly car payments that they didn’t before.

So I wonder how many re-po’s will occur or will there be a Bailout for Cash For Clunkers buyer’s remorse??

The first customer at Downtown Ford didn’t show until after lunch — just one sign that the Cash for Clunker boom is over, and auto showrooms are back to the solitude that has frustrated dealers for nearly all of the past year.
“We knew it would be slow,” dealership sales manager David Grubbs said last week — but not this slow.

“We are kind of skipping along the bottom. The consumer is concerned with the overall economy and their job and their income,” he said. A recovery, he predicted, remains “probably six to nine months away.”

A sale last week at the Clapp VW dealership illustrated how challenged new car customers are by tighter bank lending policies.Of 450 people who came to the event at Clapp Volkswagen, Brooks said he ran credit reports on 300 potential customers, but sold just 10 vehicles because many were turned down for financing. (Louisville KY Courier)

But wasn’t the Billions we, the taxpayers, gave to the banks supposed to free that up?

That was the promise. 🙂

THE CASH FOR CLUNKERS program helped push nearly 700,000 new cars out of showrooms this summer. But more people want to buy cheap transportation than want to turn it into scrap. Americans will purchase some 36 million used vehicles this year, compared with about 10.5 million new ones. (Barrons)

And now you have an incentive for new home buyers also.

So is the government trying to buy itself out of a recession with money it doesn’t have all funded by you and me??

Well, of course, they are.

Who’s going to stop them?

So, now we have the Sequel:

U.S. Department of Energy will launch a “Cash for Appliances” program this fall.

The program will provide nearly $300 million in stimulus funds from the American Recovery and Reinvestment Act to consumers who buy new, energy-efficient kitchen appliances.

(and it won’t go over budget, right?) 🙂

“These rebates will help families make the transition to more efficient appliances, making purchases that will directly stimulate the economy and create jobs,” Energy Secretary Steven Chu says.

This new rebate program is in addition to a number of U.S. tax credits on energy-efficient products for homes introduced earlier this year. This includes many gas, oil, electric and solar water heaters, which are reimbursed at 30 percent of their purchase price up to $1,500. Many energy-efficient windows, skylights, exterior doors, insulation and HVAC systems are also eligible for a 30 percent tax credit, up to $1,500 per home. (This $1,500 limit is the total for all credits applied to the home across all categories of eligible products).

Isn’t that what they said about Cash For Clunkers? And this is the same guy who called you “teenagers” right?

So will the sequel be the short burst drug hit that it’s now famous cousin was?

Too early to tell.

But what I want to know is where is the Cash for Health Care?

Oh, right, that’s Universal Health Care.

That won’t cost you “not one dime”.

Silly me.

The first cash for clunkers was $2 billion over it’s original budget.

I should just my government, they know how to manage money effectively.