Spending increases, tax hikes, unrealistic assumptions, and a scary declaration exacerbate an economy on the brink.
By Matt Dycus
Contributing Editor
February 1, 2010
There is a lot of debate going on around the country about whether or not Barack Obama is a Socialist. The President’s critics point to his embracing of the “Progressive” label and a sharp uptick in federal spending, while supporters point at the last two years of George W. Bush’s policies and claim the economic mess was a result of Republican failings.
Well, as of today, the case is closed. In Obama’s letter to Congress that accompanied his proposed FY2011 budget, the President laid out his rationale for the huge spending and federal deficits that took place in his first year in office, took credit for halting the downslide, and then dropped this bomb near the end of the 2nd page:
“In the aftermath of this crisis, what is clear is that we cannot simply go back to business as usual. We cannot go back to an economy that yielded cycle after cycle of speculative booms and painful busts.”
In other words, say goodbye to capitalism. If the President gets the lion’s share of his proposals, welcome to – if not outright socialism or communism – at least a new American order: Obamunism. Marked by the expansion of entitlement programs such as welfare, Medicare, Medicaid, and Social Security, and along with a massive increase in the size of government, Obamunism will raise taxes, stifle innovation, and send America hurtling towards an unsustainable deficit.
Laughably, Obama’s budget claims that the federal deficit will be cut in half, to roughly $750 billion, by the end of his first term. The assumptions made to reach this number, however, are demonstrably implausible.
First, the President’s plan to raise taxes (both the income tax and capital gains tax on the top 3% of earners) flies in the face of logic, especially during a perceived recession: The theory of Taxable Income Elasticity suggests tax revenue will decline after a marginal increase in taxes. When Reagan cut the top tax bracket from 70% to 28% in 1981, overall tax revenue increased.
Secondly, Obama’s budget assumes receipt of taxes from banks (the famous “We want our money back” tax), the energy industry, and charitable donations made by wealthy individuals, without taking into account the effect of higher taxes on the overall economy. This is on top of the principal and interest already repaid by most of the big banks -- even the ones, like BB&T, that did not need federal funds but were forced to take them anyway. Faced with higher taxes, the current freeze on hiring is less likely to thaw, extending the worst period of unemployment since the Great Depression. The President’s budget assumes real GDP growth of 4.2% annually for the next four years. The two ideas – higher taxes and unemployment versus GDP growth – are incongruous.
The probable outcome of four years’ worth of the President’s economic policies is a doubling of the national deficit, from $10 trillion to $20 trillion. The resulting lack of confidence in the American market will further depress the dollar, stunt economic growth, and make a recovery nearly impossible – except for the tens of millions of Americans receiving government entitlements, of course. At that point, it will be too late. The Cloward-Piven strategy will have worked.