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An Act of Economic Strangulation

June 30, 2014 in Economics

By Richard W. Rahn

Richard W. Rahn

Do you know why the U.S. economy shrank almost 3 percent in the first quarter of this year? When the news of the dreadful gross domestic product (GDP) number came out last week, many were surprised, but none were more surprised than the folks in the Obama administration. Many of their supporters had been saying this was the year of a real economic recovery.

The quick reaction was to blame the bad GDP numbers on the weather, and it is true that much of the country did have record cold temperatures, but in all likelihood the weather was only a minor factor. (It is rather ironic that the president blames the bad economy on the cold weather, while at the same time he is running around the country saying we have to spend many more tax dollars to prevent warmer weather a hundred years from now. Misplaced priorities?) The excuse-making by the president reminded me of how the rulers of the Soviet Union used to blame bad economic news on the weather — 70 years of bad weather.

However, serious economists such as professor Casey Mulligan of the University of Chicago have better explanations for the downturn. Mr. Mulligan has carefully documented both the explicit and implicit new taxes in Obamacare, many of which came into effect during the first quarter of this year. An implicit tax is a reduction in benefits going to workers, which reduces the rewards for working. Mr. Mulligan argues that Obamacare adds “about six points to the marginal tax rate faced, on average, by workers in the economy . Let’s not be surprised that, as we implement a new law that taxes jobs and incomes, we are ending up with fewer jobs and less income.”

Economic forecasters are downgrading their outlook for the U.S. economy this year. Yet the administration blames others for these mostly self-created economic headwinds. The United States has the highest corporate tax rate in the world among developed countries. Officers of companies that can produce and sell goods and services in many countries fail in their fiduciary responsibilities if they choose to headquarter them here, other things being equal, when they could save two-thirds or more on their corporate tax bill by moving out of the United States. As a result, almost every week there are announcements of companies moving out of the U.S., which over time will mean fewer jobs, reduced research and development and less total tax revenue. The obvious solution is to reduce the …read more

Source: OP-EDS

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