As if the economic news is not worrying enough, politicians around the world have decided to make things worse. The Chinese regime treated vice president Joe Biden rudely on his visit to Beijing to discuss economic issues of mutual concern—the rapidly depreciating dollar worries the Chinese, while the too slowly appreciating yuan is on Biden’s list of woes. So much for a coordinated effort to cope with imbalances. French president Nicolas Sarkozy and German chancellor Angela Merkel met to sort out the eurozone crisis and agreed that more meetings are needed. So much for calls to increase the bailout fund and make Germany’s balance sheet available to poorer countries. The European Central Bank has decided that the eurozone, with growth somewhere between zero and negative, really needs higher interest rates, not a policy most economists would consider rational. The Finns say they won’t go along with further bailouts for Greece unless the Greeks find something of value (sunshine doesn’t count) to offer as collateral, and the Austrians say that what is good enough for Finland is surely good enough for Austria.
Here, in America, Republican presidential candidates tripped over one another to display their ignorance of economic affairs, with the entire field promising Iowans and a national television audience never to raise taxes even in the unlikely event that the Democrats agree to cut spending by ten times as much. And the newest hot entry in the race, Rick Perry, rode in from his Texas governor’s mansion to promise to do “ugly” things to Federal Reserve Board chairman Ben Bernanke if he dared show his face in the Lone Star state, and perhaps even to try him for the near treasonous behavior of printing money in order to stimulate the sagging economy. Meanwhile, President Barack Obama chided Congress for not acting on several trade agreements, neglecting to mention that he has not submitted the agreements for congressional approval lest he antagonize the trade unions.
The world’s politicians have no monopoly on mischief making. Warren Buffett, the multibillionaire, weighed in with a complaint that his effective tax rate is too low, lending support to the president’s argument that “millionaires and billionaires” should pay more. Of course, there is nothing to stop Buffett from paying more: since 1843, the treasury has accepted donations “from individuals willing to express their patriotism to the United States.” But the Omaha sage says he prefers to put his billions into private charitable foundations, including three run by his children, because “they will do a better job with lower administrative costs and better selection of beneficiaries than the government.” Oh.
Buffett’s sally into tax policy is no trivial intervention. He is a much admired, folksy, shrewd investor whom no one begrudges the billions he has earned. But either deliberately or unwittingly he has lent support not to a tax on billionaires, which in any event couldn’t yield enough revenue to affect the rounding error in the nation’s debt load, but to Obama’s plan to raise taxes on individuals earning more than $200,000 per year, and families with annual incomes in excess of $250,000. As the Wall Street Journal points out, “Roughly 90% of the tax filers who would pay more under Mr. Obama’s plan aren’t millionaires, and 99.9% aren’t billionaires.” Many are the small business entrepreneurs on whom the president is relying to create the millions of jobs the nation so sorely needs.
Worse still, Democrats on the joint select committee on deficit reduction—the 12 members of Congress, six from each party, charged with finding $1.5 trillion in deficit reduction over the next decade, and reporting their finding by the end of November for a congressional vote—now feel more inclined than ever, if that is imaginable, to hold out for substantial “revenue enhancements,” tax increases, as part of any deficit reduction package. Republicans, of course, are equally dug in to their no-new-taxes-of-any-kind-ever position, all of which bodes ill for the committee, which has to figure out how to cut the deficit while paying for the entitlement programs that are set to bankrupt the nation as our baby boomers, rich as well as poor, tap the health care system for hips, knees, organs, and other benefits made available by advances in medical technology.
One exception, perhaps: Insiders tell me that Ohio Republican senator Rob Portman, formerly President George W. Bush’s budget director and now a member of the deficit reduction committee, would sensibly look favorably on elimination of various tax preferences. His Republican colleagues see such a move as a tax increase, but if Portman sticks to his guns he might be the swing vote that allows the committee to concoct a deficit reduction package that includes both the revenue enhancements that might flow from tax reform and meaningful spending cuts.
Absent some agreement, it is likely that the Fitch and Moody’s, the two rating agencies that have so far refused to go along with Standard & Poor’s downgrade of U.S. debt, will reverse course. Buffett, by the way, was additionally helpful to Obama by criticizing S&P’s decision to downgrade U.S. debt, a position possibly affected by the fact that his Berkshire Hathaway has been an important shareholder in Moody’s, a rival rating agency.
Hovering above all of this is a fundamental question: What is needed now that the U.S. and world economies are teetering on the brink of another recession? Economists on the left are warning that spending cuts lower growth and tax revenues, increasing deficits and creating a downward debt spiral. Their opponents argue that unless spending and deficits are cut, interest rates will soar, putting a further damper on growth.
In any event, the die is cast for now. The Fed can’t loosen monetary policy much more, and the government is too indebted to fund another significant stimulus, although Obama will probably take a whirl at that next month relabeled as “infrastructure development.” The real question is whether he will deploy any of the pro-growth tools at his disposal: scrap the 4,257 regulations now pending and no new regulations for an extended period; remove restrictions on the development of domestic energy resources, rather than tighten regulation of shale gas drilling; send the trade deals to Congress for a vote, even if Nancy Pelosi threatens to rally her troops in opposition; insist that all banks, including foreign banks with which U.S. banks do business, be adequately capitalized and transparently so; at long last, offer a well timed debt reduction plan; and push for tax reform.
The president can surely take time from the vacation he undoubtedly needs after last week’s exhausting campaign tour in what Politco dubs Ground Force One to extend this list. It is in the interest of the 25 million Americans who need work that he do so.