Looking For The Truth? Look At The Statistics: 1% Tax Increase Lowers GDP 2-3%Apr 24, 2010
One of the most insightful and oft-quoted stock market analysts in the country is Virginia's very own Kent Engelke, chief economic strategist and managing director of Capitol Securities Management. His April 22 Early Morning Commentary quoted a profound statistic:
As per Bloomberg, next week the Treasury may sell an unprecedented $128 billion in notes which some believe might be the peak in issuance as the economy strengthens. At this juncture, primary dealers are estimating the Treasury will sell a record $2.4 trillion in debt in 2010 as compared to $2.11 trillion in 2009.
Regarding 2011, Treasury has stated the obvious that 2011 issuance will be based upon tax receipts and projected budget.
Will revenue and growth projections meet expectations? As written several times and as per the National Bureau of Economic Research, a tax increase of 1% of GDP lowers real GDP roughly 2% to 3%. In other words higher taxes lower GDP. Perhaps the only absolute is that taxes are going up next year.
Will revenue assumptions meet expectations, especially given that as per the IRS a record 47% of society will not pay federal taxes in 2009? Never have so few carried the burden of so many.
The NBER is a non-partisan, highly respected institution (it is the official arbiter of when recessions start and when they end). The highlighted statistic — not to mention the frightening aspect of Treasury debt — is something to heed: Raising taxes decreases economic activity, including job creation, tax generation (to reduce annual state and federal deficits and cumulative national debt), and, it reasons, access to health care.
So, exactly what has the Left done to us (against our collective will)? It has rammed through some of the largest tax increases in history through the health care bill, not to mention the plethora of other faults it encompasses. Is this ignorance? Demagoguery? Or just plain egalitarian socialism, where the playing field is leveled — so that everyone has horrible health care and chronically high unemployment? Maybe all of the above.
Over the last couple of weeks, the Left has lied, impugned and tried to discredit the Tea Party movement (ironic since in the same breath they say it is an inconsequential and contrived flash in the pan). One of the lies is that the movement should "thank" President Obama for lowering taxes for 95 percent of Americans, which is Orwellian. Be that as it may, there is no disputing what is scheduled to happen in several months as the Bush tax cuts sunset as well as the onset of the new health care law taxes.
So, who's actually telling the truth and what will be the actual outcome for the economy? Hint: Statistics don't lie.