The near collapse of our financial institutions and the overall economy and the misguided notion that a few trillion dollars of additional federal spending would return us to prosperity moved us in early 2009 to suggest an alternate approach. We proposed in an essay published in The American, the on-line journal of the American Enterprise Institute, a fifty percent tax credit up to a fixed limit for every taxpayer who purchased any consumer goods anywhere in the United States.
Our theory was that a robust economic recovery would be fueled by increased retail purchases, and that every dollar of cost to the treasury represented a prior retail purchase within the American economy. This, by definition, would have produced an immediate increase in revenues to our struggling business and manufacturing sectors. That essay and the positive feedback it engendered provided the impetus for the establishment of the Of Thee I Sing 1776 website, the goal of which has been to produce weekly, timely, and hopefully, thought provoking essays.
This week we return to the subject of economic stimulus as more and more politicians from both sides of the aisle and columnists from left to right have pronounced the stimulus a disappointment, at best, and a disaster at worst. More likely, given the nation’s accumulated debt, the latter may be the more apt description.
So is there a Plan B, so to speak, in the works? The answer so far, based on bills recently considered and rejected by members of both parties in Congress, is that Mr. Obama would prefer to double down on the discredited Keynesian approach which didn’t work during the great depression and which failed miserably through the recently “ended” (at least by common definition) great recession. Tell the 9.5% of the workforce who are still unemployed that the recession is over. Tell that to those who have watched the average time the unemployed are out-of-work grow from six weeks to 12 weeks, to 25 weeks to 35 weeks.
The number of unemployed is essentially the same percentage of people who were unemployed before the Administration and the huge Democratic majority in Congress, in the name of “job creation”, started shoveling our tax money out the door (or as some might say burning it in a bonfire). And just why won’t President Obama, Majority Leader Reid and Speaker Pelosi wake up and smell the fire that continues to burn? The answer can be found in two very telling and, now, very familiar utterances of the president and his senior staff in the early days of the new Administration. The president said he wanted to “fundamentally change America” and his chief of staff, Rahm Emanuel, when economic disaster was around the corner, famously said, “Never waste a crisis.”
Because not enough people dug below the surface to question what it means, “to fundamentally change America,” President Obama and his acolytes in the Congress set about “not wasting a crisis.” To be sure we were, indeed, in the midst of a major crisis calling for meaningful governmental action. To prevent a complete meltdown of the world’s financial system and a seizing up of all interbank credit, Federal Reserve Chairman, Ben Bernanke, and Treasury Secretary Henry Paulson, during the last weeks of the Bush Administration, pumped liquidity into the financial markets using tools the Fed had never before utilized. In that effort they, joined later by Timothy Geithner following President Obama’s assuming office, did do a remarkable job and stabilized the banks and the financial markets. Fortunately, Geithner, as President of the New York Federal Reserve Bank under Bush and a key member of the TARP One planning process, was able to “hit the ground running” when he was tapped by Obama to become Secretary of the Treasury.
The stimulus package(s), however, is another story. While strong action was needed to jump-start an economic recovery, having Congress appropriate an unprecedented amount of money essentially to be spent without guidelines was the opportunity of a lifetime for the political left. Claiming they would produce or save millions of jobs, they swiftly assumed control of vast swaths of the private economy, something they had long coveted. So where are those jobs? Why hasn’t the private sector recalled millions of employees now that trillions of stimulus dollars have been pumped into the economy? They don’t exist because the various, highly inefficient stimulus plans have stimulated no net consumer spending.
The unprecedented federal spending didn’t work and, in fact, simply burdened the nation with increased debt. Even the Business Roundtable, which supported Mr. Obama’s initiatives, (we believe more out of a patriotic instinct during a crisis than out of common sense) has issued a fifty-four-page report to Peter Orszag, the outgoing director of OMB detailing the Administration’s job creating initiatives.Roundtable President John Castellani stated: “We stuck with that [Congressional] majority ‘through trying circumstances,’ even ‘alienating many of our traditional colleagues,’ and what did we get? They keep “vilifying” the private sector! And taxing it, and empowering unions, and ignoring trade. ‘The time has come for a new course,’” declared Mr. Castellani, a mere 18 months after Democrats announced plans to tax companies, empower unions and ignore trade.
All of this, together with near government ownership of the auto industry, the student loan business, health care legislation that, despite promises that everyone can keep their own insurance if they so desire, (how kind of them to permit us to keep our own insurance) is inevitably on a track toward the single payer system long preferred by President Obama and the left wing of the Democratic Party.
The government takeover or control of so much of industry creates an atmosphere of uncertainty, which, in turn, inhibits companies and individuals from returning to the risk-taking investments and new initiatives, which really do create jobs.
Why not try another approach? The left is ever scornful of, and resolutely opposed to, Republican tax-cutting proposals, notwithstanding compelling evidence that such tax policy invariably results in explosive economic growth (think the Reagan tax cuts of 1981 and the Bush tax reductions in 2001). The “rich” must “pay their fair share” they cry even though the upper five percent of taxpayers pay approximately sixty-one percent of the federal income taxes collected, and the bottom 50% contribute only three percent of all income tax collected, and 43% pay no income tax at all. The answer lies in what Mr. Obama really means about fundamentally changing America. His vision is nearer to the socialist dream of transferring wealth from the most productive members of society to those less fortunate on the wealth scale … and the tax system is the left’s best weapon to achieve that result.
Thus, the so-called stimulus approach of flooding the economy with federal spending, the creation of tens of thousands of pages of new regulations which will stifle growth, the continued failure to legislate meaningful tort reform (frivolous litigation being a method to force major corporations to make what amounts to extortion payments to avoid the costs of litigation), all combine to accomplish the twin results of wealth transfers and the inhibition of economic growth.
At a time when the country desperately needs the purchasing power of its people to energize a hesitant and insecure economy, the Obama Administration is swiftly moving to vacuum from that economy trillions of dollars to redistribute according to its transformative priorities.
Prominent economist Arthur Laffer, whose writings inspired the Reagan tax cuts, in an op-ed piece in the July 8, 2009 edition of the Wall Street Journal, posited the following:
“Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. That is a lot of money. My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does 2.5% sound?”
To the contrary, in 2011, taxes are scheduled to increase with the expiration of the Bush tax cuts. The top income tax rate will increase to 39.5 percent from 35 percent, with a 43 percent top rate, a product of the healthcare legislation, due in 2013. The top rate on capital gains and dividends are scheduled to grow from 15 percent to 39.5 percent. And the estate tax is scheduled to kick back from zero in 2010 to 55 percent, with a $1 million exclusion in 2011 unless Congress acts as they had been expected to do starting last year. Their failure to do so, leaving many Americans, particularly the elderly, in a complete state of confusion about how they or their estates will be taxed is nothing less than a dereliction of duty by Congress.
With fall elections looming, we had better keep our eyes open until Congress adjourns in July. And although Will Rogers said “no man’s property is safe when Congress is in session,” concerned Americans better hold on to their wallets and pay attention even after the Congress adjourns later this month. The real danger may come following the fall elections. Many Democrats, whether they win or lose in November, envision a lame-duck session as the potential final opportunity, for many years, to finish Mr. Obama’s transformation of America from an engine of economic growth to a statist nation where the government has its finger in every pot and its thumb on every scale.