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Thursday, February 28, 2013 1:31 PM

Did Obama Tax the US Into Recession?

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Here's the question of the day: Did president Obama tax the US into recession?

Trim Tab's Charles Biderman makes that exact claim in U.S. Entered Recession in January Yet Fed Fix Keeps Stocks Pumped.

Welcome to the new recession. TrimTabs tracking of real-time wages and salaries shows that the United States has entered into a recession this year. I had been predicting a slowdown after the big bump in December incomes due to the hike in taxes. It has taken a while for us to get a handle on income this year given all the changes in tax rates. But now enough time has passed that I can say I was right. The U.S. economy has slowed enough to enter into recession.

This is how I know we have entered into a recession. After-tax wages and salaries net of inflation have been shrinking year over year since the second week in January. What has been growing dramatically in real time this year is income and employment tax payments. Withheld income and employment taxes have been running about 8.3% higher year over year, comparing the same 33 business days between Tuesday, January 8 and Monday, February 25.

Checking with our favorite official Washington economist, we now know that higher employment taxes accounted for 6% and new soak-the-rich taxes 2% of that 8.3% gain. That means that, before inflation, after-tax wages and salaries grew by only 0.3% for the 135 million Americans that have jobs subject to withholding.

After inflation? Well, what is inflation now? If you believe the Fed, around 2%. Others say higher. Regardless, there is no doubt that the Obama Administration has taxed us into a recession. Congratulations.
Inquiring minds may wish to read the rest of Biderman's article for some interesting thoughts on insider selling, stock buybacks, and Trim Tabs' employment projections vs. BLS reporting.

When Did the Recession Start?

Biderman claims the recession started in 2013. I suggest the US has been in recession since last  June or July but the recession was masked over by four identifiable factors.

  1. Obamacare was responsible for huge hiring of part-timers in the third and fourth quarter, distorting unemployment statistics.
  2. Tax policy and Obamacare policy further shifted expenses and salaries into 4th quarter, yet nominal GDP was still negative for the quarter.
  3. Electioneering games, particularly in regards to military spending, distorted the third quarter statistics.
  4. Blatantly dishonest GDP deflators have overstated Real GDP for all of 2012 but especially the second half of the year.

Let's assume I am wrong about recession timing, and Biderman is correct. The initial question remains.

Is Obama to Blame?

The answer is no, not really. If the US was not in recession before and is now, the tipping factor is likely to be 2% payroll tax hikes that started in January and secondarily state tax hikes such as Proposition 30 Tax hikes in California, not specifically Obama's tax-the-wealthy policies.

Certainly Governor Brown and union fearmongering is responsible for the hikes in California.

Who is to blame for the payroll tax hikes? I suggest both parties. There never should have been a cut in the first place with these preposterous budget deficits.

It's not that I am against tax cuts. Rather I am against preposterous budget deficits and both parties are certainly to blame for that.

This does not detract from Biderman's overall analysis, just the finger-pointing about who is to blame.

Ultimately, Fed policies, fractional reserve lending, and Congressional spending are the real culprits in this mess, and I bet if Biderman gave it a second thought, that he would agree (regardless of which of us is correct on timing).

Mike "Mish" Shedlock

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