by John McClaughry
President Obama’s new $447 billion plan for stimulating the economy and creating jobs reflects his deeply held belief that increasing government spending, through more bailouts, handouts and tax credits, is the foundation for job creation and economic recovery.
Like the ill-fated $787 billion Obama stimulus program of 2009, this idea has a natural appeal to those who believe the federal government ought to have complete control over the economy. Many, such as Sen. Bernie Sanders, lament that it is too timid, and fails to sufficiently hammer “the rich and the big corporations”.
On the other hand, one does not have to be a screaming libertarian to know that this scheme, like the last one, not only won’t work, but will make things worse.
A centerpiece of the Obama plan is a one year only, fifty percent cut in the Social Security payroll tax rate for both employers (up to $5 million in payroll) and employees. The President seems to think this will create new jobs. It’s hard to see how more than a few employers will be motivated to hire new $40,000 a year permanent employees in return for a one-year, $1,240 reduction in social security tax payments.
This new stimulus is estimated to reduce payroll tax revenues into the social security program by $150 billion. How will that be made up? The administration will draw upon the general revenues of the United States, which is running a trillion and a half in the red this year.
So where will the Treasury find the additional $150 billion? By borrowing! And how will that new borrowing be repaid? Obama proposes to collect $467 billion over the next decade from his favorite revenue sources, “the rich” and the big corporations. That will pay off the one year social security raid and cover the remaining smorgasbord of subsidies for the usual list of worthy recipients.
Corporations (oil and gas, hedge funds, corporate jet depreciation) would pay in around $40 billion. The big money would come from snatching back the income tax deductions now taken by taxpayers with $200,000 a year ($250,000 for a couple) incomes: charitable contributions, mortgage interest, state and local property taxes, health savings accounts, etc. .
These targeted people constitute the top two percent of all taxpayers. Obama says, misleadingly, that these “millionaires and billionaires” aren’t paying their “fair share”. But consider: the top five percent of income taxpayers are now paying 58% of all income taxes. The top two percent – the ones Obama brands as “the rich” – are paying about 45% of all income taxes, far more than their share of income. Is this more or less than their “fair share”? There is no objective answer to that question.
Hitting up “the rich” to pay for Obama’s latest stimulus adventure is far from the whole story. Beginning in 2013 the “Bush tax cuts” will expire, and Obama is dead set against extending them again. In addition, dozens of new Obamacare taxes start. As Peter Ferrara, tax analyst for the Carleson Center for Public Policy, observes, “Just wait until [the arrival of] that tidal wave of tax increases in 2013, when the failure [of Obamanomics] will hunt you down, and punch you in the face.”
Obama and Congress need to face up to the hard fact that a Federal government now $15 trillion in debt – almost 100% of GNP – has very little prospect of spurring economic recovery by levying hundreds of billions of dollars of new taxes on “the rich”, to finance another wave of election-year handouts.
What’s the Grand Solution? One set of options would be to implement a progressive consumption-based tax in place of the loophole-ridden income tax; repeal productivity-killing overregulation; reverse the pro-union bias at the National Labor Relations Board; repeal the Dodd-Frank concept of businesses “too big to fail”; open Federal lands for oil and gas production; stop subsidizing noncompetitive “green jobs” programs; favor lower energy prices, not higher; welcome high skilled immigrants; let global corporations bring a trillion dollars of foreign profits home and pay them out in(taxable) dividends; reduce both discretionary spending and foreign military commitments, and put the brakes on ever rising entitlements.
A tall order? Yes. Controversial? Of course. But extricating America’s future from impending bankruptcy and economic chaos is worth a heroic effort.
John McClaughry is vice president of the Ethan Allen Institute