Early this morning, as detailed in James Pethokoukis's posts below, President Obama told us "the private sector is doing fine." Later in the day, Obama added, "it is absolutely clear that the economy is not doing fine."
I'm glad we cleared that up.
One possible explanation for the confusion is that Mr. Obama approaches the private sector like Hollywood's version of a Mafia Don selling "protection" to a local shop owner: "Nice business you've got here, shame if something was to happen to it." To Obama, the private sector is not the aggregation of millions of citizens pursuing happiness by freely associating with one another to pool their labor and create wealth. The private economy is just a juicy target from which to extort funding for the important things in life; namely those matters under Barack Obama's direct control.
Consider the heady days leading to the passage of Obamacare. In addition to buying congressional votes--remember the Cornhusker Kickback and Louisiana Purchase?--the Obama administration was desperate to neutralize industry opposition to the bill. After some arm-twisting, the pharmaceutical industry trade group cut a deal, ending the threat of a reprise of the Harry and Louise television ads that helped sink Hillary Clinton's single-payer Trojan horse in 1993. In contrast, the medical device industry--pharma's less profitable cousin--withheld its support and was therefore singled out for punishment.
The result? A 2.3% tax--levied solely on medical device manufacturers--takes effect on January 1, 2013. Since, conveniently enough, the government dictates the price of most high-technology medical products through the Centers for Medicare and Medicaid Services, this tax cannot be passed on to customers. So all else being equal, company profits will decline. But things aren't equal. We live in a global economy: capital is mobile and investors demand a return. So to avoid collapsing stock prices, med-tech company chief executives are in the process of slashing research and development expenses, meaning layoffs by the thousands.
I hope the high-tech solution for whatever ails you or your family members has already been perfected (our expectation of steady year-by-year advancement in medical technology is oh so 20th century). If not, take comfort in the fact that federal law now guarantees you access to that lifesaving technology that will never be invented.
Now you may be saying, "Heck, the tax is only a measly 2.3%." But remember: this is a levy on sales not profit. The feds already charge all corporations a highest-on-earth 40 cents on each dollar of profit.
Sales taxes that can't be added to the price take a deep bite. One of the most successful medical device companies, Medtronic, a pioneer in pacemakers and implantable defibrillators, has a net profit margin of 23%. The new tax whacks 10% right off the top. Medtronic employs 45,000 people, or did before Obamacare, and spends 10% of sales on R&D, about $1.5 billion annually, or used to.
For Medtronic competitor Boston Scientific, which employs 24,000, the situation is dire: the company's net profit margin is only 6%. So for this manufacturer, Obama's 2.3% off-the-top exaction to scratch his transformational itch amounts to a full 38% scraped off an already-thin bottom line.
Rep. Erik Paulsen (R-MN) is leading a vigorous fight in the House to repeal this economic weapon of mass destruction, winning passage yesterday with bipartisan support on a vote of 270-146. Predictably, the Community Organizer in Chief is promising a veto, preferring to decimate a leading U.S. manufacturing industry rather than permit the slightest change to his [in]Affordable Care Act.
Obamacare delenda est.
CORRECTION: It just occurred to me that I erred above in stating that "the feds already charge . . . 40 cents on each dollar of profit." The actual federal corporate income tax rate is 35%. The average combined corporate tax rate--federal plus state--is 39.3%, the highest in the world. Here in sunny California, the combined rate is 43.84%.