President Obama’s plan for taxes and spending has been hailed by the media as “populist.” A more accurate word to describe his agenda is “reactionary.” It won’t, to use Obama’s catchphrase, “win the future.” It probably won’t even win the past.
The Obama administration has adopted the fiscal strategy of the Greek government. The Greeks favor raising taxes on the wealthy and massive borrowing to freeze in place the present size, scope, and spending of the government. So does Obama, thus the reactionary nature of his plan.
The Greeks have balked at laying off a single government worker or privatizing any of the immense assets—in land, resorts, and a lot more—owned by the government. When told recently by a visiting delegation from the EU, IMF, and European Central Bank that Greece must cut spending and the bureaucracy deeply to qualify for another bailout, the Greek finance minister abruptly left the room—and didn’t return.
Now Obama has left the room. His speech in the Rose Garden last week vowing to veto any budget compromise without large tax increases means a deal with Republicans is off the table. Assuming he’s serious, the bipartisan congressional “super-committee” assigned to come up with $1.2 trillion in deficit reduction might as well disband. Obama is demanding tax hikes on the wealthy and various business interests—a poison pill to nearly all Republicans and many Democrats who fear a new recession.
The president led a crowd in Cincinnati last week in chants of “Pass this bill,” referring to his $467 billion “jobs bill.” Those in the crowd should have saved their breath. That measure is dead, too, killed by Obama’s insistence it has to be “paid for” entirely by raising taxes.
Obama seems to believe that higher taxes pave the road to a prosperous future. He touts tax reform as a way, as he put it in his White House speech, “to get rid of the decades of accumulated loopholes, special interest carve-outs, and other tax expenditures that stack the deck against small business owners and ordinary families who can’t afford Washington lobbyists or fancy accountants.”
That’s fine as far as it goes. But tax reform has two parts, one to broaden the tax base, the other to reduce tax rates. The lower rates are an incentive for investment, innovation, entrepreneurship, economic growth, job creation, and a brighter future. Tax reform, properly understood, aims to stir investment in the private sector, rather than promote crony capitalism in which the financiers and business moguls seek favors in Washington. Obama prefers cronies.
Since his rebuke in last Novem-ber’s election, the president has talked up deficit reduction. His new plan, he says, will shrink the deficit by $3 trillion over the next decade. The Republican staff of the Senate Budget Committee, which has far more credibility than Obama on budget numbers, says the “actual deficit reduction” is $1.4 trillion, none of it from spending cuts. The Obama plan would leave federal spending at 24 percent of GDP in 2021, the staff said, “a stunning 18 percent increase in the size of government relative to the historical average.” And it would add $9.7 trillion to the national debt over 10 years.
This would put America on the brink of an endless cycle of increased borrowing, rising debt, and less money for both private and public investment. Throw higher taxes into the mix and we have the story of Greece. Its future is grim. Greece is becoming an honorary member of the Third World.
To avert what’s happened to Greece, structural reform of the main drivers of debt—Medicare, Medicaid, and Social Security—is required. This is not a secret. Obama pays lip service to it. Yet he offers only “modest adjustments” to Medicare and Medicaid that would do practically nothing to restrain spending. He wouldn’t tinker with Social Security at all.
Instead, entitlements would be left essentially unchanged. So would food stamps, Pell grants, and a whole host of other social programs, except that Obama has made them more generous than ever. The result: All this spending and debt is bound to cramp America’s future.
For one thing, the ability of the military to project power around the world will be lessened. Soaring domestic spending has already seen to this, siphoning off billions from defense and rendering America weaker on the world stage.
Obama advocates taxpayer subsidies for electric cars. This hardly represents a leap into the future, at least for the next few decades. For now, electric cars are smaller, slower, and inconvenient because of their constant need of recharging. Though the Big Three auto companies are profitable again, Obama’s allies in Congress refuse to offset spending for disaster relief by cutting the Energy Department’s Advanced Technology Vehicle Manufacturing loan program. Heaven forbid!
Obama is quite a throwback. In some ways, he would return us to centuries past. His administration is spending trillions to build high-speed trains, despite minimal consumer demand. Trains are a 19th-century technology. Subsidies are also doled out for wind power, a medieval technology. Meanwhile, the space program is all but jettisoned.
Rather than rely on fossil fuels, the president would make America run on renewable energy. The last renewable in widespread use was the horse.
The biggest worry, though, is the fate of innovation. Under the rule of Obamacare, will pharmaceutical companies still have the lofty profits required to fund research and development of a multitude of lifesaving wonder drugs? I doubt it. Will higher taxes curb the enthusiasm of oil and natural gas companies for exploration? Maybe.
In Cincinnati, Obama dismissed anxiety over raising taxes on the well-to-do and big corporations during an economic downturn. No problem, he said. If he gets his way, their taxes won’t go up until 2013. The future, it turns out, is in more jeopardy than we thought.
Fred Barnes is executive editor at The Weekly Standard.