Wednesday, May 13, 2009

Martin Feldstein on the aforementioned massive tax increase 

Yesterday, we took our early shots at the Obama administration's proposed massive tax increases. Today, Martin Felstein adds his considerably more authoritative voice to the outrage:

The barrage of tax increases proposed in President Barack Obama's budget could, if enacted by Congress, kill any chance of an early and sustained recovery.

Historians and economists who've studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997.

I increasingly wonder whether the Obama administration has persuaded itself that blame for the poor economy is so completely on the shoulders of George W. Bush that the public will not hold it responsible for the poor economy at any point. Or, perhaps, that the massive new largesse showered on American voters will protect the Democrats in forthcoming elections. Perhaps they are right about both. But that does not change this: Not only was the bashing of business the most important reason for the "second" Depression in 1936-38, but the modern European social welfare states to which the Democrats aspire impose much lower corporate income taxes than the United States even before Obama's huge new increases. You cannot spread wealth that has not been created in the first place.

Something has got to give.


By Anonymous Anonymous, at Wed May 13, 10:59:00 AM:

If economic health is construed to determine political outcomes, then clearly the Congress should be very worried.

Megan McArdle wrote yesterday of possible investor disquiet with Treasuries and CNBC talked today of the possibility of a drop to AA for US debt.

There is also the crowding out effect that could limit investment in the real economy, and that may already be happening as interest rates have lately been rising despite only mediocre private demand for debt.

There is the possibility of inflation returning in force, which may explain some of the recent market rise in commodity names. All of these things are bad, but not anything is as bad as increasing taxes in the face of a severe recession because households in all their masses will tighten the spending lid in fear.

If Congressional Democrats are worried about reelection, these concerns should scare them. They scare the hell out of me, but then I'm a Republican.  

By Anonymous MAS1916, at Wed May 13, 11:06:00 AM:

Absolutely True!!

Obama and the Democrats should be very, very worried. They are pursuing the same economy as Jimmy Carter did back in the '70s. Overspending during an economic downturn accelerates inflation and will produce double digit unemployment and interest rates. The inflation and interest rates alone kill off any jobs recovery.

Obama is not 'Carter lite' though... He is Carter on steroids. These disasters will be in full flower by the 2010 elections.

Obama learned nothing from the Carter years. For a top ten list of Carter "accomplishments" as well as similarities to Obama policies, you can hit:


By Blogger Georg Felis, at Wed May 13, 11:37:00 AM:

"Something has got to give."

It's nice that the Obama administration thinks that I'm something, because they certainly think I need to "give". I just wish they would show their appreciation in a different manner.  

By Blogger Porkov, at Wed May 13, 03:12:00 PM:

Apparently our shiny new president believes that printing money is how you create wealth.  

By Anonymous Anonymous, at Wed May 13, 03:21:00 PM:

I think we also have to include in our analysis the fact that our country has a vast proportion of 'dumb people'. So if we implement economic policies similar to Europe, we will probably be poorer then they are, despite our vast natural resources, and despite the fact that we are currently 20-40% richer per capita than most European countries.  

By Anonymous Anonymous, at Wed May 13, 03:45:00 PM:

How is it not in Obama's interest for this to deepen into a depression?

The recession of 1981 was blamed, successfully, on Carter. President Reagan argued (successfully) that it was just a continuation of the malaise days.

Obama seems likely to be doing something similar. Many congressional Republicans, eager to seem "moderate" and in the habit of delivering pork to their districts, are obliging him by not challenging him on the deficit or taxes. Even more damning, most of them are utterly unwilling to go after Barney Frank, Chris Dodd, Charlie Rangel and others whose "access to affordable housing" laws created this whole housing mess in the first place.

If blame can be unequivocably placed on the GOP and hazily-described "deregulation", then you have a political replay of the New Deal, where a laisez faire arch conservative (Hoover) destroyed the economy and FDR, wielding liberalism and big government, saved everyone. Nevermind whether it was true then or is true now, the worse the economy gets, the better for Obama. He'll be even more of a savior and legend, and the democrats will own government for another two generations.

The only way it hurts Obama is if the crisis is perceived to be over. Up until then, it's Bush's problem, Obama's saving us, and millions of jobs are being "created or saved" by trillions in payoffs to democrat interest groups (who, in turn, will have full campaign coffers for 2010).  

By Anonymous Anonymous, at Wed May 13, 04:28:00 PM:

I've decided that it does no good to describe the current administration as socialist, despite how similar it is in many respects to the communist countries in the 50's.

So I'm going to use the label "anti-capitalists" instead. That way we won't get distracted by those liberals and well-meaning democrats who insist that the Pres is not a socialist. It's very hard to argue that he's not an anti-capitalist. That also gives us the opportunity to detail the benefits of capitalism rather than try to detail the problems with socialism.


By Anonymous Anonymous, at Wed May 13, 04:39:00 PM:

The market is a discounting mechanism. The truth is that some of the scary downdraft last summer and Fall was the market looking forward to and dreading the Obama administration! Of the 6000 points from 13000 (early Summer 08 when the race was still up in the air) to 7000 at least half were Obama. Who wants to be a business owner when your President "doesn't stand with you"? Look at your postings today and in the last few weeks.... the market was right to fear him!

Furthermore the unintended consequences of current bonehead Obama policies like trampling bondholder rights in Chrysler will come home to roost when they try to finance this deficit. Boom add 200-300 basis points to lend to any Business with Unions or high paychecks to compensate for demogoguary risk. At some point Obama will find nobody will buy the USA bonds he needs to sell to finance this ridiculous Deficit.

The USA is the greatest country in the world but it's not a given that we stay that way. It is due to our freedoms of opportunity and while not perfect in our skewed income distribution the way to fix that is to pull people up not bankrupt the country  

By Anonymous Anonymous, at Wed May 13, 04:43:00 PM:

All of the labels being applied to Obama i.e. Marxist, Communist, O-Hitler, etc. just turn everyone off and are name calling.

The fact is he hasn't been truthful to everyone. He did not tell the truth about his birth certificate, the foreign money raised via web site/credit card for his campaign, that he would cut the deficit, he said he would not nationalize the car companies and banks, he would stop torture and close Guantanamo, allow five days for public comment before signing bills, the list goes on.

He hasn't been truthful.  

By Anonymous Blacque Jacques Shellacque, at Wed May 13, 06:19:00 PM:

You cannot spread wealth that has not been created in the first place.Sure you can. Print the money first, then spend it.  

By Anonymous Anonymous, at Thu May 14, 08:43:00 AM:

If you look at the timing and content of Stimulus, and other actions that Obama & Co have taken, it looks like they want a poor 2009 by design ... to create the platform for a rebound in 2010 they can then take credit for. If we have any kind of recovery in 2010, it'll be hard for Obama's opposition to gain traction ... which is part of the grand plan. It's not hard to generate a good year or two when you run a $1.8 trillion deficit.

Obama & Co could have written a stimulus bill that was quicker and more targeted ... and that actually included "investments" with a measurable payback period ... and so have done more in 2009 ... and not just squandered a trillion or two.

As we get past 2010, Obama & Co's actions will kill our growth rate -- stagnant growth will make the projected deficits even worse. States which should be going bankrupt this year -- notably California -- will find themselves even broker. Anyone want to take the bet that we'll have at least 10% inflation sometime in the next five years?

The Medicare insolvency date -- now projected to be 2017 -- will move even closer. At what point do we collectively wake up to this? The alternatives are to lift payroll tax ceilings entirely -- even that won't work without raising the rates -- or to radically revise the program. This has been said before: Bernie Madoff has nothing on our entitlement programs.

3.5% sustained growth is a wonderful thing -- without a modicum of growth our system doesn't work. We'll figure this out the hard way.

Link, over  

By Anonymous Marie Devine, at Fri May 15, 02:59:00 PM:

God warned against debt, interest, insurance, gambling and seeking riches, honor and pride. In addition to not keeping the Ten Commandments as written in Exodus 20 and Deuteronomy 5, our ways are against God's wisdom and warning. To go into debt and try to restore what God wants destroyed is futile and unprofitable.

The goal in life is not employment; it is a garden paradise lifestyle where we choose trees, plants and pets that provide fresh food around us. With an abundance of food, we can take people into our homes and ride out the storms of life. Without available free food, there will be famine and chaos as transportation companies go out of business and we are unable to transport food.

The garden paradise lifestyle solves the world problems we created with the employment, bondage and stress lifestyle: pollution of air, land, water, and food, disease, energy crisis, war, immigration, crime, high health care costs and social security insecurities. The garden paradise lifestyle is easy to implement, inexpensive, fair, beautiful and sustainable throughout eternity. We need to turn around and return to God's provision of all those things He can grow and supply for us with no sorrow added.  

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