Only this president could brag about this economy’s anemic growth rate.
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Another Failure of Keynesian Economics
The reason for this pitiful economic performance is that from the beginning President Obama has addressed the economic downturn with Keynesian economics. Indeed, comprehensively following just the opposite of Reaganomics in every detail, he has play-acted as if Reaganomics never happened, or at least as if he was completely unaware of it. This public policy malpractice is why he does not deserve to be re-elected.
President Obama’s first act in office was his nearly $1 trillion stimulus package of wasted government spending and giveaways. That was supposed to stimulate the economy by increasing aggregate demand, under outdated Keynesian thinking rightly left for dead at the end of the 1970s. The reason such Keynesian economics never works is that borrowing a trillion dollars out of the economy to spend that trillion dollars back into the economy doesn’t do anything to increase the economy overall on net. I have been arguing in this space and elsewhere for more than two years that Obama’s Keynesian economics would fail for precisely this reason.
President Obama likes to pretend that a third of his trillion dollar stimulus actually involved tax cuts. But those “tax cuts” all involved temporary tax credits, which are economically no different from increased government spending. Indeed, a majority of the Obama “tax cuts” were “refundable” income tax credits, which involve sending a government check to people who do not even pay income taxes, economically indistinguishable from increased government spending. That is why even the federal government’s own official bean counters account for such refundable credits in the federal budget as spending rather than tax cuts.
Real tax cuts that promote economic growth involve reductions in tax rates, as under Reaganomics. President Reagan reduced the top tax rate from 70% when he first entered office all the way down to 28% by the time he left, with only one other rate of 15%, which applied to the middle class. That was the central factor in producing the historic 25 year Reagan economic boom.
Moreover, just the opposite of Obama’s wasted trillion dollar stimulus, President Reagan came into office with his much vilified at the time Reagan budget cuts. That involved a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, non-defense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this non-defense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, in Margaret Thatcher’s famous phrase, total Federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.
President Obama’s monetary policies are just the opposite of Reagan’s as well. With the full backing, indeed urging, of Obama, Fed Chairman Ben Bernanke has returned precisely to the discretionary Keynesian monetary policies of the 1970s that produced the roaring inflation of that time. Nicknamed “Helicopter Ben” because his monetary policies are the equivalent of dropping dollars from helicopters, his policy is to run the monetary printing presses until the economy recovers. But the central lesson of the life’s work of Nobel Prize winner Milton Friedman is that such discretionary monetary policy can only create inflation, not real growth. Consequently, instead of taming a historic inflation, Obama and Bernanke are re-creating one, while failing to produce a real recovery.
The Coming Crash of 2013
What too many commentators have failed to recognize is that President Obama’s tax rate policy is also the mirror opposite of Reagan’s. Already scheduled in current law for 2013 is the expiration of the Bush tax cuts, which Mr. Obama recently again vowed never to renew for single workers making over $200,000 a year, and couples making over $250,000, whom he disparages as “millionaires and billionaires.” Also scheduled to go into effect in 2013 under current law are all the tax increases of Obamacare. Together, these job-killing tax policies would result in a sharp increase in the tax rates on the nation’s small businesses, job creators, and investors for virtually every major federal tax.
The top income tax rate would increase by nearly 20%, counting the slashed income tax deductions Mr. Obama already proposed in his February budget. The capital gains tax rate would increase by nearly 60%, counting the new Obamacare taxes on investment income. The total tax rate on corporate dividends would increase by three times altogether. The Medicare payroll tax rate would also increase by 62% for these taxpayers. The Death tax would be restored with a 55% top rate.
That adds up to a top federal income tax rate of 44.8% on wage income. Counting state income taxes, the top marginal tax rate in Obama’s new Amerika would be over 50%.
But that is not all. What the President proposed in his April 13 national budget speech was an additional tax increase on these job creators of $1 trillion! And even then he was not done raising taxes, proposing in addition an automatic tax increase trigger that would raise taxes still further in 2014 if “our debt is not projected to fall as a share of the economy.”
In addition, American business currently suffers virtually the highest business tax rate in the industrialized world at nearly 40%, counting state corporate rates on average. Even in the left-leaning European Union, the corporate tax rate has been reduced from 38% to 24% over the last 15 years. In Canada, where the corporate tax rate is on its way down to 15%, voters last week voted for a dominant conservative majority in the Parliament. Both China and India enjoy lower corporate tax rates as well, leaving American business uncompetitive in the world. Yet, President Obama has remained oblivious to the job-killing result for America’s working people. Indeed, he proposed in his 2012 budget still more tax increases on American businesses, which are already built into the nevertheless still disastrous projections of deficits and debt in that budget.
But this is still not all. The President promises even higher prices for oil, gasoline, coal, natural gas, and electricity, with his EPA implementing by administrative dictate outside the democratic process the cap and trade tax policy. As the President himself has said, under these policies “the cost of electricity will necessarily skyrocket.” That is effectively still another, multitrillion dollar tax increase on the economy. While Reagan used to say that his energy policy was to “unleash the private sector,” Obama’s energy policy can be described as precisely to leash the private sector in service to Obama’s central planning “green energy” dictates.
Obama told us in the 2008 campaign that his tax policy was just to return to the Clinton era tax rates, and he and his propagandists still repeat this outdated talking point today. But President Obama’s proposed tax policies would now take us way beyond that, towards Swedish socialist tax rates.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?
H/T to National Review Online