Tax cuts and giveaways won’t save the economy
“If we don’t take meaningful steps to rein in our debt, it could … jeopardize our recovery.”
–President Barack Obama, January 2010.
“Next year [I will] start presenting some very difficult choices to the country” on debt reduction.
–Obama, June 2010
Bartender, giveaways for everyone!
–Essentially what Obama said, in so many words, December 2010.
Barack Obama pledged to reduce the national debt during his presidential campaign, but instead has added $2.7 trillion to that debt so far – more than the entire national debt in the year 1975. Throughout 2010, he repeatedly promised there will be no more treating the Treasury as a cookie jar. Now, suddenly, there will be $900 billion in new giveaways, financed entirely by borrowing.
Just a week ago the deficit reduction commission proposed wrenching cuts and tax increases that, best-case, would cut several hundred billion dollars from the deficit over the next few years. The deficit commission recommendations had only been out a week before the White House, most Republicans and some Democrats endorsed a giveaway of significantly more money than the wrenching cuts would save!
But don’t we need more giveaways to stimulate the economy?
First, there is little reason to believe this will work. Second and more important, constant additions to the national debt — coupled with the sense that Washington is out of control — may be the reason the economy keeps sputtering. The latest giveaway may cause more economic malaise, rather than cure it.
Won’t tax cuts save the economy?
The argument that extending the 2003 tax cuts is needed to boost the economy simply ignores that the economy declined with these cuts in place. Federal income taxes (for the working class and the middle class as well as the rich) were reduced in 2001 and again in 2003. Right after that, the economy began to sputter.
Maybe this would have happened anyway. But it’s incontestable that low taxes on the middle class and especially on the rich did not pull the country out of the recession of 2007-2009, or out of the slow growth of 2010. Reckless fiscal policy didn’t work. Now we’re supposed to believe that the same tax cuts that didn’t work before magically will work in 2011 and 2012.
Stimulus spending didn’t work either. George W. Bush supported $200 billion in stimulus spending in 2008. Obama added another nearly $800 billion in 2009, and about $300 billion rationalized as stimulus in 2010. All was backed by debt. Now we’re told $900 billion in additional debt will boost the economy — magically, though it didn’t before.
Of course everyone wants lower taxes. But federal income and corporate taxes are already at historical lows, while national debt keeps breaking records. The White House deal is transparently a package of giveaways. In the very worst of Washington traditions, a spending-spree mentality took hold — I’ll prove that I can give away more than you can! — with the negotiators emerging having agreed to hand out substantially more than the worst-case estimate when the talks began.
Will the latest giveaways harm the economy rather than help it?
If the White House plan goes through, national debt will have increased to nearly $6 trillion during the first term of the Obama presidency. Republicans are as much to blame as Democrats — no one has been more irresponsible with national finances in the last decade as Republicans. Regardless, you should be shocked by this number — almost as much debt taken on in four years as in the entire previous history of the Republic! And no plan to do anything about it.
Each time Washington increases the debt, it makes the United States less valuable — in the same way that each time you borrow against your house, you make your house less valuable. To you, at least. (The country, in this analogy, is becoming steadily less valuable to Americans, though more valuable to Chinese and Arab sovereign wealth funds.)
Since 2006, Congress and the White House, under leadership and presidents of both parties, have steadily made the United States less valuable via reckless fiscal policy.
This is a core reason the economy continues to sputter. Corporations are sitting on big piles of cash they won’t invest. Why invest in a country that keeps becoming less valuable?
Why innovate in hopes of future profit when systemic fiscal irresponsibility by both parties means either the United States will become a stagnant mega-Japan, or steep tax increases will be the only way out when panic sets in?
Corporations aren’t investing to spark new growth and create more jobs because they think Washington’s Democrats and Republicans alike are running the country into the ground. The new $900 billion giveaway provides evidence this view is correct. No one in the White House or in Congress is willing to act like a responsible adult. They’ve all got hands in the cookie jar, and future generations will suffer.
Bear in mind, when the early 1990s recession afflicted the country, President Bill Clinton did not back any form of giveaways. Instead he reigned in federal spending in order to reduce the deficit and create confidence the United States was becoming more valuable, not less. This worked! The deficit declined and the decade that followed was the best-ever economically for the nation.
Maybe this week’s deal tells us Barack Obama is simply becoming yet another political phony — a depressing thought at many levels. Last January during the State of the Union Address, when Obama declared there would be strict fiscal disciple but not “till next year,” the transcript recorded that there was laughter. Suddenly it’s not funny.
But the worst fear is that the deal tells us the president and congressional leaders have no backbone: whenever an interest group squeals, it will receive a handout, regardless of harm to the country.
Cutting the debt, by taxes and by spending reductions, could pull the economy of out the quicksand. Increasing the national debt will likely make matters worse.