We Don't Have Revenue Problem. We have a Spending Problem

Federal tax collections are near an all-time high. 

Surprise. People flee high tax , low growth states.

Mark Perry furnishes this handy chart comparing states with the highest inbound migration to those with the highest outbound migration. As anyone who has taken Econ 101 could tell you, people move away from places with low growth, high taxes and other costs to places with high growth and low taxes. Yet the government states like NY, Illinois and California double down on the things that are driving people away from their states. Apparently they missed Econ 101. 

The Rich Pay More

No matter how many times the fact-free Democrat party says it, The Rich are paying more of what they earn in taxes.

60% of Households Receive More in Government Transfers than they Pay in Taxes

According to a report released this year by the Congressional Budget Office, only the top two income quintiles in the United States pay more in taxes than they receive in government transfers.  Fair share?

High Earners Don't Pay Their Fair Share (Continued)

Envy and resentment are emotions not readily diminished by facts. Nonetheless  . . . . .

Why China Grows Faster Than The US

One continues to hear a lot of China bashing. They compete "unfairly". American companies are "shipping jobs" to China. What you seldom hear is a discussion of the comparative economic incentives in China versus the US. The fact is, government in China has created a much more friendly place to work and produce than in the US. The US heavily taxes economic success. China does not. Wonder why Chinese businessmen no longer come to the US to set up their businesses? Look at the table below.


                                                              China                                                      United States

Capital Gains Taxes                                  0                                                            20-45%

Property Taxes                                          0                                                         Substantial

State and Local Taxes                               0                                                             10-20%

Top Federal Income Tax Rate                 35%                                                           43%

Corporate Tax Rate                                 15%                                                           39%

Inheritance Tax                                         0                                                               55%




Also consider that this China is not the casino economy the US is where everyone is playing with borrowed money.


Min. Home Loan Down Payment            30%                                                             3%

% Vehicles Purchased on Credit               7%                                                           >50%

Now, you might still rather live in the US for non-economic reasons. China  has a one-party government that can punish people it doesn't like (of course, as we have seen, the IRS behaves that way in the US). But what China has done is create the sort of economic climate that used to exist in the US. One where people were strongly incented to produce. One where people could keep most of what they produced instead of handing it over to government. The result is clear:

GDP Growth Rate                                   10%                                                             2%

20% of Households Bear 100% of Net Tax Burden

We have already covered the fact that 20% of US households pay 94% of Federal income taxes. The Congressional Budget Office's latest report "The Distribution of Household Income and
Federal Taxes" provides new insight into how the burdens of taxation and the distribution of government payments fall. Mark Perry created this useful summary chart from that data. What it shows is that the entire net burden of the government taxation and redistribution machine falls on the 20% of households with the highest market income (roughly $80,000+ of Adjusted Gross Income) and that 60% of households are net recipients of government monies. But according to the President that top quintile of earners just isn't paying their "fair share".



Note: Transfer payments are payments and benefits from federal, state and local governments including Social Security, Medicare and unemployment insurance., Federal taxes paid by households include income, payroll, corporate, and excise taxes. 

Job Creation is All in Texas

The President has recently taken to touting his "job creation" performance by pointing out that in the last six years, the US economy has created over 300,000 new jobs. Not particularly good, but it allows the President to suggest that his policies have had a positive effect. But as it turns out, the job growth has all been in one state -- Texas.

US job growth                    +327,000
Texas job growth            +1,320, 255
US (other than Texas)       -  993,255

But for Texas, the US would have lost almost a million jobs! And why did Texas add so many jobs?

1. Fossil fuels extraction
2. Lower taxes
3. Less regulation
4. Right-to-work laws

All things that the President opposes.

Sort of casts a different light on the claim that the President policies can create any jobs in the future.

Tax Day: Where Your Income Tax is Spent

Today is a day to reflect on what all the tax you pay (at least for the half of us who pay income tax) goes for. Pay attention to the note at the bottom. As much as you might be paying today, you'd have to pay about 25% more to cover all of what the Federal government actually spends.

Half the Country Doesn't Pay Income Tax-- Again

The Internal Revenue Service just released new 2011 data on individual income taxes. 

Once again, half the people in this country pay 97% of the income taxes, while the other half essentially pays nothing ( which Mitt Romney was pilloried for saying last year). Is it any wonder, then, that half the country thinks of government spending as a Free Lunch?

And just 5% of us pay over half the total tax bill. I can't recall . . . did the President bring that up in his rant about "income inequality"? 

Table 1. Summary of Federal Income Tax Data, 2011
	Number of Returns*	AGI ($ millions)	Income Taxes Paid ($ millions)	Group's Share of Total AGI (IRS)	Group's Share of Income Taxes	Income Split Point	Average Tax Rate
All Taxpayers	136,585,712	8,317,188	1,042,571	100%	100.0%
Top 1%	1,365,857	1,555,701	365,518	18.7%	35.1%	> $388,905	23.5%
1-5%	5,463,429	1,263,178	223,449	15.2%	21.4%		17.7%
Top 5%	6,829,286	2,818,879	588,967	33.9%	56.5%	> $167,728	20.9%
5-10%	6,829,285	956,099	122,696	11.5%	11.8%		12.8%
Top 10%	13,658,571	3,774,978	711,663	45.4%	68.3%	> $120,136	18.9%
10-25%	20,487,857	1,865,607	180,953	22.4%	17.4%		9.7%
Top 25%	34,146,428	5,640,585	892,616	67.8%	85.6%	> $70,492	15.8%
25-50%	34,146,428	1,716,042	119,844	20.6%	11.5%		7.0%
Top 50%	68,292,856	7,356,627	1,012,460	88.5%	97.1%	> $34,823	13.8%
Bottom 50%	68,292,856	960,561	30,109	11.55%	2.89%	< $34,823	3.13%
*Does not include dependent filers.

Obama's Deceit Extends to Income Equality

The Congressional Budget Office's new report is especially timely in light of the President's rant last week about "income inequality".  As you can see from the table below, if you're talking about market income -- that which you actually earn -- the distribution is highly unequal. The highest household quintile earns almost 30 times what the bottom  one does (household income  can be very mislead itself because the household composition is very different between the upper and lower quintiles). But after tax and government payments? That ratio drops to less then 6x.

What's even more remarkable is to examine the incentives for working. Those in the second quintile earn on average $46,700 more than those in the lowest quintile. Yet, after taxes and transfers those people are only $26,600 better off -- because they actually pay some tax, and they lose a lot of their government transfer payments. That's an effective marginal tax rate of 43% . Do you think the average middle class family really understands that the federal government is imposing a 43% tax on their work? I'd say about as well as they understood that they would be able to keep their health plan under Obamacare.

Detroit Refugees

Imagine you lived in a city with the highest income and property taxes in your state. Imagine taxes on business doubled in the last year. Imagine 40% of all revenue your city collected went to pay off people who no longer worked for the city. Imagine that the police didn't respond to emergency calls for almost an hour and 40% of the street lights didn't work. Imagine half of the students at your public schools never graduated high school. Imagine

What would you do? Wouldn't you move out if you could? Wouldn't you follow the 250,000 people who have left the city in the last decade?

The CBO is a Useful Idiot

The Federal Reserve Bank of St. Louis recently asked an interesting question. "Congress relies on projections supplied by the Congressional Budget Office to make decisions. How good are those projections?" It turns out the answer is, "Pretty poor". In fact the CBO's projections are consistently worse than those generated by a simple Random Walk model! So why would anyone keep citing anything the CBO said? It turns out that the CBO errors have a consistent bias toward underestimating deficits and overestimating surpluses. In other words, the CBO is a "useful idiot" if your objective is to justify government spending or tax increases.

Actual and CBO-Projected 5-Year Cumulative Budget Surplus/Deficit as a Percent of GDP

 

Projected

Figure 7

Cumulative 5-Year Random Walk and Actual Deficit as a Percent of GDP