December 3, 2012
Recessions and Tax HikesBy Warren Beatty
In August 2009 President Barack Hussein Obama said, "You Don't Raise Taxes In A Recession." He actually said that. At the 42 second mark of this video, Obama says that he has not proposed tax hikes during a recession. This source, however, says:
President Obama has put forward several tax proposals in his 2010 budget for Congress to consider. These proposals are explained in the Greenbook released by the Treasury Department's Office of Tax Policy on May 11, 2009.
The recession (that Obama says he inherited) "officially" ended (according to the Business Cycle Dating Committee, National Bureau of Economic Research) in June 2009. Let's see. My calendar indicates that May comes before June. Plus, the tax proposals did not just "suddenly come into being," they took time to develop. So, during the video interview, did Obama lie? Or was he equivocating? Or did he just forget?
What we are currently in, according to Democrat/liberal/progressives (DLPs), is an "economic slump" or "economic slowdown" rather than a recession. But here is another interpretation by Richard "Red" Lawhern. Red has 42 years of experience in acquisition management and systems engineering for military systems, so his opinion has been formed based upon experience, and he is not just some loudmouth spouting off. Although this source is geared toward investing, it's still a good read. Lawhern says the 2008 recession isn't over, and cites these reasons:
• Unsecured Government Debt
• Structural Unemployment
• Falling US Incomes Causing Rising Mortgage Foreclosures
• Lagging Employment Impacts Bond Markets
• High Unemployment Impacts Social Security Benefits
And from October 2011, is this article by Robert Lenzner, former national editor and senior editor at Forbes magazine. Lenzner says that the recession of 2008 has never ended. Below are reasons Lenzner believes this to be the case. The recession of 2008 ending would have required:
• the Gross Domestic Product (GDP) to advance beyond its former 2007 peak, which it has barely been able to do
• the main stock market indexes to have advanced past their old peak levels
• the number of unemployed workers should have been far reduced
• the level of public and private debt should have been reduced
• the key interest rates should be higher than they are
• that there wouldn't be 45 million Americans on food stamps
• that there wouldn't be 45 million Americans earning less than $22,000 per year, the cutoff for poverty
• that there would still not be 11 million homes facing foreclosure, and housing prices would not be continuing to decline
• that there wouldn't be such a sharp decline in manufacturing activity and a dropoff in exports
Here is a news item that the MSM managed to miss and/or not report. The Economic Cycle Research Institute (ECRI) says that the U.S. is already in recession, one that began in July 2012, because, "... three of those four coincident indicators saw their high points in July (vertical red line in chart [below]), with only employment still rising."
The ECRI says:
"... simultaneous declines in industrial production and personal income since July, that combination has never occurred outside a recessionary context in over half a century -- but it's occurred in every recession." [ECRI also says] " ...how could employment be higher three months later? Actually, this was also true in three of the last seven recessions -- and in the severe '73-'75 recession, job growth stayed positive eight months into the recession. Thus, positive jobs growth isn't inconsistent with the early months of recession."
The ECRI says that because of the current recession, "...production, income and sales will keep trending down for now, and employment too is likely to turn down."
But not to worry. Obama's Council of Economic Advisers (CEA) says that the U.S. is not now in a recession, that all is well with the economy. But by the CEA's own admission (see chart in CEA article), the GDP growth rate they cite of 2.0 percent is only for one quarter. The GDP growth rate change, since Obama took office in January 2009, is 1.98 percent (ignoring the -5.3 rate change for Q1, 2009). The CEA says, "...the economy posted its thirteenth straight quarter of positive growth...," but fails to mention that the average growth rate for those 13 quarters was an anemic 2.16 percent. For comparison, the average growth rate from 1948 through 2009 was 3.28 percent (that includes the Bush economy but excludes the Obama economy).
The CEA then says, "Over the last thirteen quarters, the economy has expanded by 7.2 percent overall,.." That sounds great, but "expansion" and "growth rate" are not the same thing. The problem is, of course, that the MSM will report the "last thirteen quarters" figure and the "7.2 percent expansion" figure, but will never get around to reporting what is really going on.
Analysis by James Pethokoukis tells us that 70 percent of the time a recession follows a sub-2.0 percent GDP growth rate. Pethokoukis' analysis is, because of the CEA's own chart, very applicable.
Since Lawhern and Lenzner and Pethokoukis and the ECRI are not part of Obama's economic cabal, their opinions can be dismissed and ignored in favor of concluding that the U.S. economy (including the private sector) is in great shape, and that the coming tax increases will be just fine. The White House says that Obama will not sign a fiscal cliff-avoiding "deal" unless the deal includes raising taxes.
So, is the U.S. in a recession or not? It all depends on who you ask. We know that Obama's CEA cannot be trusted to analyze and/or report all of the economic news, only what makes Obama look good. The CEA is the information source to whom Obama listens, so tax increases are, to Obama, quite appropriate. Analysis by other economists be damned! As a result, fiscal cliff, here we come.
And where will Obama be while all the coming tax increases are finally applicable? Hawaii! Obama's 21-day vacation will cost us taxpayers "only" $4 million. That's okay, since the tax increases will cover Obama's vacation, but all us taxpayers will be lucky to get any vacation at all.
But that's just my opinion.
Dr. Beatty earned a Ph.D. in quantitative management and statistics from Florida State University. He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision-making. He has been a consultant to many small businesses and is now retired. Dr. Beatty is a veteran who served in the U.S. Army for 22 years. He blogs at rwno.limewebs.com.
FOLLOW US ON