'Tax and spend' back with a vengeance

President Obama will unveil his 10-year budget projections today.  In many ways, it's a throwback to the time when liberals actually bragged about taxing and spending – and electing.

"We will spend and spend, and tax and tax, and elect and elect," said FDR advisor Harry Hopkins.  Reading this report in Fox News, you can't help but be struck by how simply – and stupidly – the White House addresses budget issues in the same way:

"What I think the president is trying to do here is to, again, exploit envy economics," Ryan said. "This top-down redistribution doesn't work."

Obama's budget proposal for the fiscal year that begins Oct. 1 will offer an array of spending programs and tax increases that Republicans now running Congress have already dismissed as nonstarters.

White House officials were not authorized, by name, to discuss the budget, but described the proposal to The Associated Press on the condition of anonymity.

The proposal improves on an idea that the administration has pushed since the summer of 2013. The administration's budget last year proposed a smaller four-year bridge-and-highway fund. While it paid for it by taxing accumulated foreign earnings, it did not specify a formula.

This time, the budget will call for the one-time tax on the up to $2 trillion in estimated U.S. corporate earnings that have accumulated overseas. That would generate about $238 billion, by White House calculations. The remaining $240 billion would come from the federal Highway Trust Fund, which is financed with a gasoline tax.

The former chairman of the House Ways and Means, now-retired Rep. Dave Camp, R-Mich., proposed a similar idea last year with a lower mandatory tax, but the plan did not make headway in Congress.

At issue is how to get companies to bring back some of their foreign earnings to invest in the United States. The current 35 percent top tax rate for corporations in the United States, the highest among major economies, serves as a disincentive and many U.S. companies with overseas holdings simply keep their foreign earnings abroad and avoid the U.S. tax.

Under Obama's plan, the top corporate tax rate for company profits earned in the U.S. would drop to 28 percent. While past foreign profits would be taxed immediately at the 14 percent rate, going forward new foreign profits would be taxed immediately at 19 percent, with companies getting a credit for foreign taxes paid.

This is so typical of this administration: lower the boom on corporations when incentivizing a return of much of those foreign stashes would be infinitely better.  If the U.S. had a reasonable corporate tax rate, companies would not feel the need to park their profits overseas.  Obama's economic advisors are either brain-dead or Keynesians (is there a difference?).

Lowering the top corporate rate to 28%, which is what Obama is proposing, doesn't help much.  The GOP has proposed lowering the rate to 25% and closing several loopholes, making the tax broader-based and more fair.  But Obama is also proposing an increase in capital gains taxes on the sales of securities for taxpayers making more than $500,000 a year.  This is in addition to the tax on trust funds and raising the capital gains tax to 28%.

The administration expects that all these tax increases will generate about $320 billion over 10 years.  But if there is one constant in the universe, it's that planned revenue targets are never reached when taxes are raised.  Rich people have an army of accountants and tax experts who allow them to reduce their tax bills when any new laws are put on the books.  This is a given, which makes the administration projections so much garbage.

Every single dime in new revenue will be spent – and then some.  The administration projects a "manageable" deficit of $687 billion by 2025, with deficits rising gradually between now and then.

The Congressional Budget Office, on the other hand, projects a $1-trillion deficit by 2025, with deficits rising precipitously beginning in 2018.  Since Obama's projected budgets are a politcal statement, not an economic document, I'd put money on the CBO projections over those of the White House.

Tax, spend, and elect.  It may be outdated, and the Democrats might not be quite as open about their plan as they were in the 1930s.  But the success of this mantra is undeniable, and the Democrats are going to milk it for all that it's worth.

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