The Obama Tax and Spend Economy is Here

[Tigermike 4,240]

Morning Bell: The Obama Tax and Spend Economy is Here

Posted March 2nd, 2009 at 9.21am in Ongoing Priorities.

Yesterday, just days after President Barack Obama signed his economic stimulus measure, the White House released a statement claiming credit for the reopening of a window and door factory in Chicago. Vice President Joe Biden said, “The reopening of this factory and the rehiring of these workers provide an excellent example of how the money in the Recovery Act is targeted to spur job creation quickly.”

If the Obama Administration is going to claim credit for every job created since Obama and Biden were elected, then if they are honest, they should also take the blame for every job lost. (Does anyone think they will? More blame Bush would be my bet.) Since Obama’s election Nov. 4, the Dow has dropped 2,562 points. This past Friday, the Commerce Department reported that the U.S. economy shrank by 6.2%, making it the worst quarter since 1982. Many economists predict that labor data to be released this Friday will show that as many as 700,000 jobs were lost in February.

Why has our economic downturn accelerated only since President Obama took office? Because the Obama Administration’s policies amount to a declaration of war on the investors, entrepreneurs, and small businesses that make our economy grow. The budget released last week only confirmed the worst fears about the direction the Obama Administration wants to take the country.

Taxes: At a time when only the economists on the White House payroll believe our economy is about to recover, the Obama Administration plans to raise taxes on the American people by almost $2 trillion. The first $1.3 trillion of these taxes are aimed at the highest earning Americans, corporations, and small businesses. According to Heritage Foundation senior analyst Brian Riedl, while the top 20% of taxpayers now pay 80% of all taxes collected by the government, under the Obama plan, the top 20% of tax filers would pay 90% of all taxes, and the number of families who owe no tax would climb to near 50%. Riedl warns: “You can only increase taxes on the rich so much before they stop working, saving and investing, and that reduces economic growth for everybody.”

Then there is the $646 billion tax hike on every American. The Obama Administration euphemistically refers to these taxes as “climate revenues” from their planned carbon capping scheme. But make no mistake: government taxes on energy will be passed on to the consumer. And the deadweight loss from this massive and regressive tax hike doesn’t even include the costs of the invasive new government monitoring of all economic activity necessary to make the plan work.

Spending: Obama’s budget proposes $1.13 trillion in regular discretionary spending for 2010. This is a full 12% increase over the 2009 spending baseline. On top of this the Obama budget increases entitlement spending by another $700 billion. The proposed post-recession spending level of 22% of GDP has been exceeded only eight times in the post-World War II era. And these numbers do not include the spending priorities of the unchecked far left in Congress.

The Chicago Tribune reports today: ”President Barack Obama will break a campaign pledge against congressional earmarks and sign a budget bill laden with millions in lawmakers’ pet projects … Taxpayers for Common Sense, a watchdog group, identified almost 8,600 earmarks totaling $7.7 billion.”

Deficits: The Obama budget claims to cut the deficit in half by 2012, but relies on audaciously optimistic economic forecasts that no one believes in. Adding the “stimulus” bill to a realistic budget baseline yields a projected 2010-2017 cumulative budget deficit of $8.4 trillion – 2.5 times the size of President Bush’s deficits over the same eight-year period. Before the recession, revenues were 18 percent of GDP and spending was 20 percent. After the recession, President Obama would maintain revenues at 19 percent of GDP, and spending at 22 percent. In other words, all new tax revenues would finance new spending, rather than deficit reduction. President Obama’s structural budget deficit would exceed President Bush’s.

Defending Obama’s budget Sunday on Meet the Press, Democratic Leadership Council chairman Harold Ford Jr. commented: “In November voters said, ‘We want a different path.’ If it doesn’t work, [Obama]’s indicated, ‘I own this budget. I own this economy.’ “ Exactly.

Quick Hits:

Joint Chiefs of Staff chairman Adm. Mike Mullen said Sunday that the U.S. now believes that Iran has amassed enough uranium that with further purification could be used to build an atomic bomb.

The U.S. Treasury is readying another $30 billion bailout, as AIG’s debt problems mount.

Secretary of State Hillary Clinton is calling for $900 million in aid for Gaza.

On Sunday, European leaders rejected a Hungarian plea for a $240 billion bailout of struggling Eastern European countries.

According to the Washington Post, the left’s attempt to kill school vouchers for Washington D.C. “would dash the best hopes of hundreds of children.”

link

So you have, in the time of economic contraction and massive deficit, a 12% increase over the 2009 spending baseline in discretionary spending. 12%. And entitlement increase of $700 billion. In an 8 year time period (should he be re-elected in 2012) Obama plans to add 8.4 trillion to the debt - a full 2.5 times larger than the huge debt George Bush added. This is a phenomenal and eventually crippling level of borrowing and spending. There is no end in sight. Where the Bush administration spent 2% above the revenue, even with an increase in revenue from increased taxation, the Obama administration plans on maintaining a 3% spending gap of revenue/spending.

[AFTiger 282]

This is BamBam's economy now!

[BamaGrad03 0]

If we are being honest, I don't think any of Obama's policies have had long enough to effect certain inevitabilities that were on the horizon before he took office.

While I don't think he should take credit for all the jobs added in the future, and I don't think he should blame everything on the former administration, I feel like he inherited a situation that wouldn't be any worse or better RIGHT NOW had he not been president.

[autigeremt 7,537]

I agree with you BamaGrad, but the clock it ticking. What he has done in the short term.....will be a scar on the future of this nation. I am very, very disappointed in him, and I wouldn't vote for him if we were a dictatorship.

I am strong on principal, and I thank him for helping strengthen my resolve.

[OldNewby 27]

Eventually, the piper must be paid. And, it's going suck bigtime.

Never have so few done so much harm to so many in so little time.

[bigsixfive 341]

If we are being honest, I don't think any of Obama's policies have had long enough to effect certain inevitabilities that were on the horizon before he took office.

I'm not sure. When Chris Dodd can open his trap and the stock market immediately plummets, its volatile enough right now due to extreme uncertainty to ebb and flow based on daily events.

[AFTiger 282]

The stock market bets on the future and has been doing so since BamBam emerged as the Democrat frontrunner.

Wall Street Journal

The Obama Economy

As the Dow keeps dropping, the President is running out of people to blame.

As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.

Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.

The Democrats who now run Washington don't want to hear this, because they benefit from blaming all bad economic news on President Bush. And Mr. Obama has inherited an unusual recession deepened by credit problems, both of which will take time to climb out of. But it's also true that the economy has fallen far enough, and long enough, that much of the excess that led to recession is being worked off. Already 15 months old, the current recession will soon match the average length -- and average job loss -- of the last three postwar downturns. What goes down will come up -- unless destructive policies interfere with the sources of potential recovery.

And those sources have been forming for some time. The price of oil and other commodities have fallen by two-thirds since their 2008 summer peak, which has the effect of a major tax cut. The world is awash in liquidity, thanks to monetary ease by the Federal Reserve and other central banks. Monetary policy operates with a lag, but last year's easing will eventually stir economic activity.

Housing prices have fallen 27% from their Case-Shiller peak, or some two-thirds of the way back to their historical trend. While still high, credit spreads are far from their peaks during the panic, and corporate borrowers are again able to tap the credit markets. As equities were signaling with their late 2008 rally and January top, growth should under normal circumstances begin to appear in the second half of this year.

So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note. The reality of a sharp recession has been known and built into stock prices since last year's fourth quarter.

What is new is the unveiling of Mr. Obama's agenda and his approach to governance. Every new President has a finite stock of capital -- financial and political -- to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his "stimulus" spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.

His Treasury has been making a similar mistake with its financial bailout plans. The banking system needs to work through its losses, and one necessary use of public capital is to assist in burning down those bad assets as fast as possible. Yet most of Team Obama's ministrations so far have gone toward triage and life support, rather than repair and recovery.

AIG yesterday received its fourth "rescue," including $70 billion in Troubled Asset Relief Program cash, without any clear business direction. (See here.) Citigroup's restructuring last week added not a dollar of new capital, and also no clear direction. Perhaps the imminent Treasury "stress tests" will clear the decks, but until they do the banks are all living in fear of becoming the next AIG. All of this squanders public money that could better go toward burning down bank debt.

The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade. And every risk-taker and investor now knows that another tax increase will slam the economy in 2011, unless Mr. Obama lets Speaker Nancy Pelosi impose one even earlier.

Meanwhile, Congress demands more bank lending even as it assails lenders and threatens to let judges rewrite mortgage contracts. The powers in Congress -- unrebuked by Mr. Obama -- are ridiculing and punishing the very capitalists who are essential to a sustainable recovery. The result has been a capital strike, and the return of the fear from last year that we could face a far deeper downturn. This is no way to nurture a wounded economy back to health.

Listening to Mr. Obama and his chief of staff, Rahm Emanuel, on the weekend, we couldn't help but wonder if they appreciate any of this. They seem preoccupied with going to the barricades against Republicans who wield little power, or picking a fight with Rush Limbaugh, as if this is the kind of economic leadership Americans want.

Perhaps they're reading the polls and figure they have two or three years before voters stop blaming Republicans and Mr. Bush for the economy. Even if that's right in the long run, in the meantime their assault on business and investors is delaying a recovery and ensuring that the expansion will be weaker than it should be when it finally does arrive.