President Obama’s newly proposed budget, which includes a host of taxes on the rich and tax breaks for everyone else, will decrease GDP by $700 billion, according to a “dynamic” new report from the Tax Foundation. Dynamic, because unlike what government data shows, the “Dynamic Analysis of President Obama’s Tax Initiatives” says that one plus one does not equal two when it comes to taxes.
“When politicians impose an excise tax on tobacco or alcohol, they know that revenues and spending are not one to one – a one-dollar increase will not yield one dollar in revenues because of the increased cost,” Stephen J. Entin, Senior Fellow at the Tax Foundation and author of the report, told The Daily Caller. “Unfortunately, their calculations about taxation seem to imply that one more dollar in taxes will yield one more dollar in revenues, which is not the case.”
This applies to both tax increases and tax credits Obama wants to pass, adds Entin. “Most of these credits, like those for children, do not encourage work and therefore wealth creation; they merely transfer money around. In addition, the saving subsidies the president proposes applies to such a small amount that it won’t make any difference in investment.”
“Investments are what drives economic growth,” continues Entin. “It pays for capital investment like machines and farms. Government spending, on its side, does not create growth unless it actually promotes growth like when Eisenhower built the Interstate System. Most of the time, government spending merely shifts production around rather than increasing it. Plus, this spending will have to be repaid either with higher taxes or borrowing, which both depress investment even more.”
Finally, the senior fellow predicts dire consequences if Obama’s plan for a one-time retroactive tax on corporate income held abroad gets accepted. “This tax would consider both liquid assets in money and physicals assets like plants held abroad on a tax-deferred basis equally. In short some might not even be able to pay this tax since plants cannot be sold easily. For the others, it will discourage future investment as people will be afraid to have their investments confiscated again.”