Politics Vs Economic Principles

At his news conference Wednesday President Obama insisted on tax increases for “the wealthy” a strategy that directly targets small and medium sized businesses that are most likely to create jobs.  He was reminded by a reporter that he had agreed in 2010 to give up fighting for tax hikes and keep all the Bush tax rates in place.  Considering we face the same situation, a lame duck Congress with only a few days to prevent across the board tax hikes he  was asked why he would not agree to extend them again.  Part of his answer:

Well, two years ago the economy was in a different situation. We were still very much in the early parts of recovering from the worst economic crisis since The Great Depression, and ultimately we came together, not only to extend the Bush tax cuts, but also a wide range of policies that were going to be good for the economy at that point.

The chart to the left shows the last four quarters of GDP growth before the President decided in December 2010 that the economy was too weak to sustain a tax increase.  There had been one barely adequate quarter followed by three hopelessly weak quarters.  Such anemic GDP growth simply can not support the kind of robust job growth that some 23 million unemployed or underemployed Americans desperately need.  So the President decided, correctly, to go along with Congressional Republicans and even some Congressional Democrats who said a tax hike on high income taxpayers, mostly small businesses, would further weaken an already pathetic economy.

The next chart displays the economic report card the President’s advisers are showing him today.  It looks very similar to the situation in 2010, a mediocre quarter followed by three quarters too weak to rebuild a prosperous economy.  The difference is the weak quarters are even worse than they were in 2010!

Yet somehow Obama has determined that today’s economy is strong enough to sustain the same tax increases he rejected in 2010!

The President’s demand for tax hikes is a political act, disconnected from economic reality.  He campaigned against “the rich” and he is determined to whack them with a tax hike, even if it results in continued mass unemployment and economic misery for the middle class folks he claims are his primary concern.

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1 Comment so far

  1. Larry Walker Jr on November 18th, 2012

    Hiking taxes now, in advance of the pending Medicare Tax Increase, from 2.9% to 3.8%, on those making $200K ($250K if married); the new 3.8% Medicare Tax on Investment Income including capital gains; and Obamacare Taxes of $2,000 per employee on company’s with 50 or more part-time employees (working 30 hours or more), probably isn’t wise. One must pare any proposed tax increase with the hikes which are already scheduled.

    Many of the provisions commonly referred to as the Bush Tax Cuts, were lowered gradually between 2003 and 2010, culminating in the lowest rates in tax year 2010. Since Congress has extended these temporary provisions for two years, I have no problem with returning to the 2008 tax law right now (i.e. prior to the Stimulus provisions which added to the current madness). I would not call removing the 2010 provisions and Stimulus provisions a tax hike, because each were designed to be temporary, not to be extended ad infinitum. However, if Congress insists on actually increasing income tax rates, then any such increase should be gradual (i.e. staged in over a 7 to 10-year period), not jammed in all at once. Americans have to be careful not to turn a blind eye to what’s already baked in the cake when discussing the next barrage of tax changes. IMHO, Barack Obama is not qualified to address income tax matters; he lacks mathematical fortitude. His words are just noise, good for little other than forefinger exercise in finding the mute button.