Even by Keynesian standards Obamanomics is an embarrassing flop — yet its only solution is more of the same.
(Page 2 of 3)
It is a paradoxical truth that tax rates are too high today, and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the tax rates….[A]n economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs or enough profits.
Kennedy’s proposed tax rate cuts were adopted in 1964. The next year, economic growth soared by 50%, and income tax revenues increased by 41%! By 1966, unemployment had fallen to its lowest peacetime level in almost 40 years. U.S. News and World Report exclaimed, “The unusual budget spectacle of sharply rising revenues following the biggest tax cut in history is beginning to astonish even those who pushed hardest for tax cuts in the first place.” Arthur Okun, the administration’s chief economic advisor, estimated that the tax cuts expanded the economy in just two years by 10% above where it would have been.
But today’s Obama/Che Guevara Democrats don’t understand any of this. That is why even though Obama tries to brag that he has cut taxes for small businesses 18 times, none of it has worked. As Investor’s Business Daily explained on July 13:
[I]f you look at Obama’s list, you quickly realize that all but four have either expired or will soon expire, aren’t cuts at all, or are double counted. And the rest are pretty much worthless…. One of these makes it easier to deduct cellphone costs and another limits penalties for errors in tax reporting. But these two changes will cut small business taxes a grand total of just $567 million over the next decade.
And then there’s the small-business health insurance tax credit. The Obama administration promised that this credit [would help] 2 million to 4 million small companies get money back for providing health insurance benefits to their employees. But a Government Accountability Office report found that just over 170,000 companies actually claimed the credit. The reason: You had to wade through a thicket of rules to see if you were eligible for what turned out to be, in the GAO’s words, an “insubstantial” amount of money.
This is the problem with Obama’s entire approach to tax cuts, and why none of them has made a noticeable difference. They are either too narrowly targeted or too complicated, require businesses to jump through hoops to qualify, or are too temporary to have any long-term incentive effect. “These are rifle-shot provisions that don’t have the same benefit as permanently lowering individual income tax rates…,” said Chris Witcomb, tax counsel to the National Federation of Independent Business.
This is the same problem with the further tax cuts Liebman touts in Obama’s proposed Jobs Plan, tax cuts “for small businesses that add jobs or increase wages.” Those are tax credits, not rate cuts, for taking actions the government commands. The same idea was tried and failed in the 1970s, like every economic policy Obama embraces.
Tooth Fairy Economics
Liebman reflects the fallacies, actually the more accurate word after long experience now is stupidities, underlying Obamanomics, saying: “There is a strong consensus about what the immediate challenges facing our economy are: first and foremost, a continued lack of demand as a lingering result of the recession….And we have a good idea of what tools work best to address these problems.” Those tools are increased government spending, deficits, and debt which supposedly provide the missing demand.
But economic recovery and growth are not based on increased government spending, deficits and debt, a fallacy that Wall Street Journal senior economics writer Steve Moore has rightly labeled “tooth fairy” economics. That is because the money for such spending needs to come from somewhere, and so drains the private sector to the extent of such increased government spending, leaving no net effect at best.
What drives economic recovery and growth are incentives for increased production, as Reaganomics proved. Obama’s assault on such incentives by raising virtually all federal tax rates this January 1 is why trillions are sitting on corporate and bank balance sheets, and America is suffering a capital strike and capital flight. If demand was inadequate, prices would simply fall to clear the market. The result would not be the perpetual stagnation and depression we have seen under Obamanomics.
U.S. News and World Report chairman Mort Zuckerman explained that ongoing stagnation and depression in yesterday’s Wall Street Journal, writing:
The official unemployment rate is 8.2%. But if you add to that the number of discouraged workers who have dropped out of the labor market since the recession began in early 2008 — approximating eight million — the rate would be an alarming 12%. Fifty percent of the jobs created since the recession hit have been part time, with no benefits and a wage that’s inadequate to enter the middle class. If you add the number of part-time workers into the mix, the unemployment rate climbs to 14.9%. Fewer Americans are working today than in the year 2000, despite the fact that our population has grown by 31 million, and our labor force by 11.4 million.
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.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?