James Pethokoukis

Politics and policy from inside Washington

Why Team Obama thinks your taxes are going up

Aug 3, 2009 16:28 UTC

The White House can try and walk back from the comments yesterday by Geithner and Summers, but don’t buy it. Pretty much — like 99.9 percent — of center-left economists think Americans don’t pay enough in taxes to support the modestly-large welfare state/military superpower that they seem to prefer. And by not enough, I mean $500 billion to $1 trillion a year too little.

There is no reason to believe Summers, Orszag, Goolsbee, Bernstein and even Obama don’t also believe that. The only question is what will be the taxing mechanism. All the wonks love a value-added tax. It is efficient and somewhat below the radar. That second thing is important since Team Obama is certainly smart enough not to buy into the theory that Americans are ready to pay vastly higher taxes. There is nothing in recent polls or election results to imply that. Just ask the folks in California ….

Will GDP pop in the third quarter? If so, will Obama smile?

Aug 3, 2009 13:55 UTC

That is the case being made by the always-great Ed Yardeni (bold is mine):

If nothing changes during Q3, real GDP will be up 4.6% during the quarter. This isn’t our forecast. It is arithmetic. If there is no change in final sales to consumers, business, governments, and foreigners, and if nonfarm inventories are unchanged, that’s how much real GDP will increase. This is because nonfarm inventory investment was minus $144.4bn (saar) during Q2. If it is zero during the current quarter, real GDP will surge. The inventory investments component of real GDP has been negative for five consecutive quarters, the longest stretch since Q1-2001 through Q1-2002. … By the way, during the first quarter of the last 10 economic recoveries, real GDP rose 5.8% on average, with a high of 17.2% during Q1-1950 and a low of 1.4% during Q4-2001.

Me: Will the White House then be ready to declare the end of the recession? My guess is that rising joblessness will impel them to keep any smiles on hold. Also, as long as they can say we are in a “recession,” they can keep talking about how they inherited it from Bush. But they will own the recovery for good or ill.