President Obama repeatedly invokes the problems he inherited when he assumed office. He has a point--the Bush administration departed while Americans were fighting overseas, the country was under threat from jihadists, the economy was in recession, unemployment was more than 7 percent, and a financial crisis continued to roil global markets. These are all pressing challenges.
But what will be Obama's estate?
What will the country be like when his term ends in 2013? This question is rarely asked. And of course it is impossible to know the answer. Still, Edward P. Lazear hazards a guess in today's Wall Street Journal:
Consider the legacies Mr. Obama will leave his successor. He grew the deficit that he inherited. He grew the government spending ratio that he inherited. And he has already promised to repeal the low tax rates that he inherited. At this point, the question is how much and what form the tax increases will take. Part of the Bush legacy includes low personal tax rates, an average ratio of taxes-to-GDP of about 18%, low rates on capital gains, and a period of low estate taxes.
It will be virtually impossible for Mr. Obama to keep his promise not to raise taxes on the middle class while paying for an enormous increase in spending. Given the planned spending levels, taxes will have to rise substantially to get to the target 4% deficit figure that the White House wants.
Medicare tax increases on wages and dividends, and new levies on businesses, are already being discussed. In the longer run, we may see a push to introduce a federal value-added-tax.
The hope for Obama is that the second half of his term sees the beginning of a stunning economic boom--one that brings the unemployment level down considerably and restores American trust in the marketplace. Then the tax dollars pouring into government coffers would be able to pay for at least a portion of Obama's social spending. A boom would make the public more receptive to the tax increases that Obama wants for ideological and budgeting reasons, as well. It would be morning in America, liberal edition.
The problem is that Obama's economic strategy is premised on an idea--government spending alone--that does not have the best track record of fostering prosperity. Certainly the stimulus, while preserving many government jobs, has not spurred private sector employment. And yet last night Obama called for ... another, much smaller, stimulus.
Does the Obama economic team really think that an additional $150 billion of spending will make a dent in unemployment? Or is Obama more concerned about the political favor he will gain by dispensing money to favored constituencies, and by funding projects that make for good photo opportunities? By persisting with this strategy, the president risks discrediting the idea of massive deficit spending to combat recession and bring about economic recovery. That may be another legacy Obama bequeaths to his successor.