Scott Spiegel

In a recent article on the upcoming 112^th Congress, the Associated Press warned that gridlock between the Republican House and Democratic Senate might result in a failure to act that “could threaten the nation’s economic health.”

Are they kidding?  What do they think has been going on for the past two years, when Democrats controlled both chambers and the White House and put us further in debt than the first 100 Congresses combined?  Gridlock in Congress is the best prescription for helping our economy recover.

Mainstream news outlets have noted that Republicans hold two main objectives after their swearing in on Wednesday: repealing or defunding ObamaCare and finding a politically palatable solution to the imminent overrun of the federal debt ceiling President Obama signed into law last year.

If Republicans don’t vote to raise the ceiling above its existing limit of $14.3 trillion by March 4, when the current stopgap measure runs out, we are told that they will be responsible for a government shutdown like the one in January 1996.

Obama’s Chairman of the Council of Economic Advisers Austan Goolsbee declared that failure to raise the debt ceiling would have a “catastrophic” effect, in that the federal government would essentially be in default.

In contrast, if we pass a resolution increasing the debt ceiling and continue to spend into the stratosphere, the world will be fooled into thinking that we are on financially sounder footing.

Huh?

An arbitrary limit chosen by Congress that will be increased repeatedly in coming months and years will have that much of an impact on our global creditworthiness, but our actual spending behavior won’t?

If I understand correctly, the purpose of a debt ceiling is to prevent politicians from spending so much that the federal government goes into debt at a level higher than that specified by the ceiling.  In other words, the ceiling is set so that spend-happy legislators trolling for votes can’t overrun a predetermined limit in the future.  The fact that the ceiling is voted into law means the debt level is inviolable and cannot be increased.

Something seems to have gone wrong here.

If we don’t stop increasing the debt ceiling to ever-higher levels, what’s the point of having one?  What meaning does it hold?

Is it at least possible that the world might interpret our declining to raise the debt ceiling as a sign that we intend to scale back our meteoric rise in federal spending and return to earlier levels?

Hasn’t the party that failed to pass a budget for the last two years, and passed but failed to live by its own sanctimonious PAYGO “pay-as-you-go” rule, damaged our international standing more than the GOP’s failing to declare a meaningless debt ceiling could?

Goolsbee scolded Republicans for “playing chicken” with raising the debt ceiling.  This is exactly the same thing Congressional Democrats did when they accused Republicans of being ‘the party of ‘no’” on health care reform, financial regulation, and extending the Bush tax cuts for only the middle class.  Goolsbee threatens that not raising the deficit ceiling will result in a greater financial crisis than the one in 2008, just as Democrats claimed that not enacting all of their other policies would result in catastrophic consequences for the nation’s economic well-being.

Everyone knows there are two ways to reduce the federal debt, one of which is to cut spending.  (The other involves taxes, though liberals and conservatives disagree on the direction: liberals believe raising them increases revenue, whereas conservatives believe lowering them does.)

In that light, I highly recommend for educational purposes the New York Times’ Budget Puzzle: You Fix the Budget from November of last year.

I, for one, was able to eliminate the projected $418 billion 2015 shortfall, and the projected $1,345 billion 2030 shortfall, without raising a single dollar in taxes, obtaining 100% of my savings from spending cuts.

I achieved this primarily by: (1) capping Medicare growth starting in 2013, (2) raising the Social Security retirement age to 70, (3) reducing the tax break for employer-provided health insurance, and (4) increasing the Medicare eligibility age to 70.  That’s it.  Each of these four measures resulted in $100 billion or more in projected savings to the deficit by 2030; combined with other, more minor cuts, the job was done.

True, I had to reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015, and trim some other military spending, in order to cross the finish line.  But I didn’t have to resurrect the estate tax, reinstate taxes on capital gains and dividends, allow any of the Bush tax cuts to expire, impose a millionaire’s tax, or institute a national sales tax, a carbon tax, or a bank tax.  (I didn’t even have to cut Vice President Joe Biden’s salary to its market value of $13,500!)

And all of this was done without relying on the assumption that cutting taxes will increase total government revenue, as it has every time taxes were cut, by Presidents both Republican (Reagan and Bush II) and Democratic (Clinton).  Such increased revenue would mitigate the need for spending cuts or yield budget surpluses.

The budget can be “solved,” without raising taxes or the debt ceiling, solely by cutting spending, in a framework so clear and intuitive even a child could do it using an interactive online “puzzle.”

If certain stubborn teenagers in Congress can’t figure that out, then the government ought to be shut down so they can have a nice, long timeout.



 Print This Post

Related articles

• Lindsey Graham Is Coming For Your Social Security (alan.com)
• Early fireworks in the new Congress, Part Two (powerlineblog.com)
• Debt ceiling: DeMint threatens to blow up government; Ryan, Graham look for hostages (dailykos.com)
• Refusal to up debt ceiling ‘catastrophic’: Obama aide (alternet.org)
• White House Wants to Raise Federal Debt Limit (usnews.com)

Conservatives have been pounding their fists and screaming for decades that tax cuts stimulate the economy.  With lower taxes, investors and business owners can provide more capital for new ventures and engage in more hiring, because they know less of their profits will be confiscated to pay for things like solar panels at the White House.

Tax cuts don’t revive the economy the second they’re passed—no one, not even Rick Santelli, ever said they did.  They don’t do so a few weeks later; they don’t always do so in time for the next election.  But eventually they do.

Tax cuts trim government revenue temporarily, but soon increased growth from lower tax rates results in net revenue increases.

In contrast, tax increases—which is what the impending reversal of the 2001 and 2003 Bush tax cuts would amount to—shrink the economy by decreasing hiring and investment.  Regarding the Bush tax cuts, that’d be a combined tax increase to the tune of half a trillion dollars over the next decade.  (Pop quiz: If Rhode Island and Massachusetts’ tax structures were switched, would John Kerry still take the trouble to dock his yacht in another state, even though it would cost him half a million dollars a year in taxes?)

It’s really not that complicated.

Imagine that you run a lemonade stand and make $100 profit a day, and the Obama administration taxes you at 50%, for a government revenue total of $50.

Now imagine that the incoming Christie administration slashes that rate to 20%.  Instead of worrying about paying your bills and staying afloat, and resenting the government’s punishing your entrepreneurship, you hire more workers and eventually expand to five franchises.  At $20 in taxes per stand, you are now sending twice as much revenue to the government as before.

Leftists refuse to see the economy as dynamic and capable of expansion; they view it as a fixed pot that must be redistributed from oppressors to oppressed.

The 1990s were prosperous, not because Bill Clinton was a laissez-faire capitalist extraordinaire—though he was forced into the role of pseudo-free-marketer by Republican Congressional majorities after 1994—but because of the cumulative effect of Reagan’s policies throughout the 1980s.  Reagan campaigned on the idea of permanent tax cuts across the board and enacted them while in office; they remain largely in effect to this day.  The degree of certainty, stability, and flexibility that this consistent posture afforded investors and business owners over the next two decades should not be underestimated.

Reagan steadfastly resisted the call of Congressional Democrats and some Republicans to ramp up government spending during the early 80s recession.  Under his administration, deficit as a percentage of GDP never rose above 6.0%.  By 1987 it was down to 3.2%.

In contrast, the Office of Management and Budget expects the deficit-GDP ratio to be 10.0% in 2010 under Obama, and to barely decline in 2011.

During his presidential campaign, Obama was not shy about promising to let Bush’s tax cuts expire in 2011 if elected.  When Charles Gibson asked Obama why he would support an increase in capital gains taxes, even though raising them in the 1980s decreased revenue and lowering them in the 1990s and 2000s increased revenue, Obama insisted he would do it “for purposes of fairness.”  In other words, Obama feels obligated to make rich people suffer for the sin of being productive, even if that means poor people will suffer more in the long run.

In the spring of 2009, Obama and Congressional Democrats passed their poorly designed, massively irresponsible stimulus spending bill.  Before passage, Obama warned that without the $787 (now $862) billion bill, the unemployment rate might rise to 8.0%.

When unemployment hit 10.0% in 2010, Obama’s new tagline became, “Yes, but it’s not 12 or 13, or 15.”

Democrats’ halting efforts to offer targeted tax cuts to special interest groups as part of the stimulus bill were not convincing.  Giving a tax break to a “green” company that wouldn’t survive on its own does not create the wealth that a tax break for an independent, self-sufficient, productive company would.

Now that it’s become obvious to everyone except Paul Krugman that runaway government spending does not mysteriously create wealth, Federal Reserve Chairman Ben Bernanke has been caught admitting to the House Financial Services Committee last Thursday, 18 months after the stimulus bill has had a chance to work but failed, that extending the Bush tax cuts will strengthen the economy.

Bernanke was quick to walk back his statement and claim that extending the tax cuts is just one way to stimulate the economy.  (One way that works, he did not say in so many words, but give him credit for letting the genie out of the bottle.)

Since the end of last Thursday, the Dow Jones has rallied some 200 points to 10,500, after have troughed earlier in the week at just above 10,000.

Last month Obama economic advisor Christina Romer and her husband published a paper in The American Economic Review demonstrating that tax hikes hurt economic growth.  Their article included the following takeaway: “Our estimates suggest that a tax increase of 1 percent of GDP reduces output over the next three years by nearly 3 percent.  The effect is highly significant.”

Over the weekend, Republican senators revived the idea of extending the Bush tax cuts.  Now even some Democratic senators are talking up the idea, including Evan Bayh, Kent Conrad, and Ben Nelson.

So I guess tax cuts stimulate the economy after all, according to our liberal president’s Federal Reserve chairman, his economic advisor, and multiple Democratic senators.  It used to be newsworthy when we discovered that Obama’s associates and cabinet nominees were terrorists, communists, and Maoists.  Lately the scoop seems to be that a few of his cronies, if allowed to speak freely, occasionally have some sane ideas about how to run the country.



 Print This Post

Related articles by Zemanta

• If the Bush Tax Cuts Expire (online.wsj.com)
• Bernanke Says Tax-Cut Extension Maintains Stimulus (bloomberg.com)
• Liberal Tax Revolt Game-Changer? (realclearpolitics.com)
• The Facts About the Bush Tax Cuts (redstate.com)
• Tax-Hike Hypocrites (realclearpolitics.com)