Lucid Links (071409, Morning)

Noteworthy Net-Worthies:

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The Wall Street Journal’s editorial howl about the House’s plans to radically increase taxes is fine to a point, but it really doesn’t go far enough.

Their quickie chart is on the right.

It cannot be emphasized enough (and it’s hardly emphasized at all) that, for example, a rate increase from 35% to 46%, as would occur if the House Democrats get their way, would be a 31.4% tax increase in marginal taxes paid, NOT 11%. Out of each additional $100 in taxable income above $280,000, the victims would have to pay $46 instead of $35. That’s 31% ($11 divided by $35) more dollars paid.

Another thing that can’t be emphasized enough (and it’s almost never brought up) is that the effect on what the “the (not really very) rich” can take home is way above the 11% tax-rate increase. If federal income tax was the only tax in existence (dream on), a person whose marginal rate has increased from 35% to 46% would be taking home $54 out of every additional $100 in taxable income instead of $65. That’s a 17% decrease ($11 divided by $65).

More elaboration, and more dramatic numbers, are on the way in the form of a Pajamas Media column in the works.

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What is remarkable about tax proposals like the one just noted is how relatively few people are expected to fund government programs, while everyone else gets a virtually free ride. It’s as if:

• “The (not really very) rich” have no other purpose in life but to do that.
• They won’t resent it even a little bit.
• They won’t react adversely in any way, and will cheerfully cough up the expected boodle.

(begin sarcasm)

I guess their assumption that people don’t change their behavior is right, because as shown yesterday, federal tax collections from economic activity in the second quarter of this year came in almost 31% below the first quarter of last year, even though the economy shrunk about 4% in the previous four quarters. That proves that people don’t react negatively to adverse real or promised government actions.

(/sarcasm)

The economy will have shrunk 4% or less in the past year if 2nd quarter GDP growth comes in at an annualized -3.5% or better. Near the end of this Bloomberg report, economists surveyed by the news service in June, before the latest employment report, predicted an annualized -2.0%.

My gut is telling me that very tepid growth will occur in the the third quarter IF (haha) Congress doesn’t ruin things further. If such a mini-recovery occurs, the American people will deserve all of the credit, because no discernible action by the Obama administration will have caused it.

That said, my guess (and I should emphasize that it’s a guess, because it’s almost impossible to factor in how deeply pervasive the negative psychology is among those who have the biggest effect on the economy), is that the second quarter will come in a bit worse than Bloomberg’s economists believed in June.

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You don’t say (HT Instapundit) — “President Barack Obama’s economic forecasts for long-term growth are too optimistic, many economists warn, a miscalculation that would mean budget deficits will be much higher than the administration is now acknowledging.”

Keep in mind that if receipts are down 31%, as noted earlier, it would take a 45% increase (100 divided by 69) to get back to even-steven. The Bush tax cuts increased federal receipts by 44% — and that took 4-1/2 years. That’s even before considering the out-of-control federal spending situation.

Obama’s out-year predictions are for 4% growth. While I’ll admit that it’s more likely — but only because it will be coming off of a shrunken base thanks to the POR (Pelosi-Obama-Reid) “Repression” — the fact remains that annual growth has only hit 4% or above eight times in the past 30 years (1983, 1984, 1985, 1988, 1994, 1997, 1998, and 1999). All of those performances were pre-Sarbanes/Oxley, and all but 1994 were the result of meaningful tax cuts (Reagan’s in the 1980s and the capital gains cut of 1997).