Tuesday, April 22, 2008

Raising Taxes on a Weak Economy.

In the last presidential debate (you know, the now infamous “Stephanopoulos” debate on ABC that has caused so much wailing and howling from Democrats), Charlie Gibson asked, Senator Clinton and Senator Obama, very good and revealing questions regarding taxes. Aside from letting Bush’s tax cuts lapse, we all know that both senators have plans to raise capital gains taxes, and in Obama’s case, he also has his sights set at lifting the cap on wages. Now, here is what I was thinking when I was watching this debate and particularly the subject of raising taxes. If the American economy is still weak and sluggish in 2009 and one of these two is president, are they still going to go ahead and raise taxes? From all that I have heard for months from Hillary and Obama, I think that this is very likely scenario. If the economy is still in the doldrums come 2009, raising taxes when the economy is hardly growing in order to satisfy an ideological dogma would be a sure-fire way to sink the American economy. I commented on a liberal blog about this very likely scenario just last week and I didn’t get a straight response from anyone.

The next president is going to have a very difficult time putting our fiscal house in order: The federal budget deficit is at about $9 trillion and that doesn’t include unfunded entitlement obligations (Social Security and Medicare) that total up to about $73 trillion. This brings me to the other pair of questions that goes unanswered on liberal blogs when I ask them: When baby boomers start to retire en masse and they start using the services that were promised to them, how are we going to pay for them AND for the universal health care for every citizen in America that liberal Democrats pine for? How high are taxes going to have to go? I have never gotten a satisfactory answer to those two questions.

In U.S. News, James Pathokoukis noted the plethora of government programs that Obama wants to implement if he becomes president. Obama, “wants to reduce carbon emissions by 80 percent through a cap-and-trade system, proposes creating a ‘credit card Bill of Rights,’ advocates expanding the Family and Medical Leave Act, and, of course, touts a healthcare plan that would get the government involved in the sector as never before.” I don’t know about you but that long expensive list doesn’t seem like its going to fit Obama’s well known promise of not wanting to increase the deficit.This all seems like a lot of false promise and lot's of "hope."

If one of the Democrats do indeed get into the oval office in 2009 and they raise taxes on a weak or slow economy, they are going to find that all of their pet progressive programs are going to go up in smoke: There is a danger that raising taxes while the economy is in a slump may not only reduce revenue, but also kick start the sort of dreaded stagflation that haunted our country during the 1970's. There is one thing that was well illustrated by Bill Clinton in 1997--He cut capital gains taxes from 28% to 20% and he ended up with a budget surplus. It seems that the current crop of Democratic candidates have forgotten that bit of his presidency. Why? Are they so consumed to pander to populist sentiment in their zeal to get elected that they will say and do anything? Even populist politicians can become unpopular when their big government works projects don't work out as planned. They would do well to remind themselves of this well worn fact.

10 comments:

Fiendish said...

The points made here are simplistic.

Obama's plan is modelled on left-wing economics, on the theory that the money spent on free healthcare and other social programmes will be recouped through the raising of taxes.

Thus, because less money will be spent on healthcare, the effect on average real income will be minimal.

You're coming at this from a right-wing perspective, which is fine, but you're allowing it to cloud your sense of fundamental economics.

Kris said...

There is no doubt that Obama's plan is modeled after "left-wing economics", and what that comes down to is that he wants the government to take more money from my pocket! If all they do is take more taxes, and then pay my healthcare, I am no further ahead than when I started.

Either democrat now running for office will surly raise taxes--and that will affect everyone, not just the "rich" as they claim.

There is no way for all of the programs proposed by Obama (or Clinton for that matter) to be paid for without a substantial raising of taxes.

VulcanHammer said...

Thanks to all for your comments.

Kris, I agree with you. There is no way that this country is going to adopt a long laundry list of social programs or expand on existing programs by attempting to raise taxes to pay for it all. Not as long as GDP growth is flat and we have huge deficit. Additionally, if our trade policy turns protectionist, that will only compound the problem.

BoBo said...

Awww man..you had to put logic into the debate didn't you! :^) Excellent post. I made some of the similar points when I did my guest blogging over at one of those liberal blogs!!! I still don't understand why those Dems just don't get it! Raise taxes, revenues go down, unemployment goes up, inflation goes up. Lower taxes, revenues go up, inflation goes down, and unemployment goes down. Taxation 101!

The Candid Conservative said...

Why is it so much to ask that one of the candidates talk about fixing the most expensive mandatory entitlement outlays: Social Security, Medicare, and Medicaid? Atleast Reagan had the backbone to propose real changes in Social Security.

People are complaining about the economy now, saying it is as bad as the recession in the 1970s. But just wait to see how worse it will become if a dem gets into office.

Fiendish said...
This comment has been removed by the author.
Fiendish said...

It is quite juvenile of you to hold fast to your conservative view of economics without in any way addressing the points I made in my comment.

Kris: "If all they do is take more taxes, and then pay my healthcare, I am no further ahead than when I started." Absolutely. You won't be. The people who right now can't afford healthcare will be a lot further ahead, leading to a far more equal society.

VulcanHammer said...

Fiendish,

I don’t know if your last post was directed at me but I will gladly address your comments.

On your comment: “free healthcare and other social programmes will be recouped through the raising of taxes.” Yes, but how high must taxes be raised in order for this to be economically viable for 300 million people? And as I commented in the post, we have a tidal wave of baby boomers that are set to start retiring this year in great numbers. They will start drawing from federal coffers in greater numbers as years go by and we already know that we are going to struggle to fulfill their (social security and Medicare) benefits as prescribed under current law. Currently, we have about four workers per Medicare beneficiary. In years to come, that ratio will drop to roughly TWO workers for every beneficiary. This system is unsustainable. Now the scenario above doesn’t include a universal health care plan or what is to be done with the federal deficit. So, when Obama (or Hillary Clinton) goes through the list of massive social programs that he wants to implement, I know that he is going to attempt to raise taxes very high which will adversely affect economic growth.

On your comment: “Because less money will be spent on healthcare, the effect on average real income will be minimal.” Yes, this may be the case depending upon how much taxes go up for the list of programs being pushed by the Democrats. We see that in countries that have a universal health care plan, like Canada or Britain, a smaller share of GDP is spent on healthcare. But that is primarily due to those respective governments setting a strict budget ceiling for health care programs. This means that if Americans adopt universal health care, they are going to have to get used to some rationed care.

While I understand that many people feel that it is just and beneficial if everyone is provided with health care by the government, there are examples where these government mandated programs end up being long on promise but short on the goods.

As far as the uninsured, I hope that you will take the time to watch this video. It reveals that the reason and the cause of being uninsured is far more varied and not necessarily a wholesale indictment of our current health care system. That does not mean that I don’t believe reform is needed. There needs to be massive reform. But not to, in my opinion, healthcare systems that don’t work as well as they are advertised.

I appreciate your comments.

tashabud said...

You got me sold on this one. I wonder if it did the same to fiendish.

VH said...

tashabud: I doubt it.