The Seven Deadly Sins

Just as applicable to Kevin Rudd as it is to Obama. The good people at Americans for Tax Reform put out this statement today on Obama’s first press conference:

Assertion 1:  The government can create wealth

OBAMA: “It’s absolutely true that we can’t depend on government alone to create jobs or economic growth.  That is and must be the role of the private sector.  But at this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back into life…when you have that situation; the government is an important element of introducing some additional demand into the economy.  We stand to lose about $1 trillion worth of demand this year and another trillion next year.  And what that means is you’ve got this gaping hole in the economy.”

FACT: The government cannot put into the economy what it first did not take out of the economy.  That would be like scooping up water from one side of a lake, dumping the water into the other side of the lake, and announcing that you’ve just filled the lake.

Assertion 2:  Cutting taxes doesn’t work

OBAMA: “But as we’ve learned very clearly and conclusively over the last eight years, tax cuts alone can’t solve all of our economic problems, especially tax cuts that are targeted to the wealthiest few Americans.  We have tried that strategy time and time again, and it’s only helped lead us to the crisis we face right now.”

FACT: Pro-growth tax cuts are the only proven remedy for economic weakness.  In the 1960s, the Kennedy top rate cut from 91% to 71% produced average economic growth of 6.2% until LBJ scuttled them for the Great Society and Vietnam.  In the 1980s, the Reagan top rate cut from 70% to 28% produced average economic growth of 4.3% until the Andrews Air Force Base bipartisan Bush tax hike of 1990.  In this decade, cutting the capital gains and dividends tax rate to 15% restored a healthy 3.0% average growth rate until the Pelosi-Reid-Obama leadership publicly announced they were going to raise taxes.

Assertion 3:   Government spending boosts the economy

OBAMA: “We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough and, as a consequence, they suffered what was called the ‘lost decade,’ where essentially, for the entire 1990s, they did not see any significant economic growth.”

FACT: In 1990, Japan embarked on a massive public works campaign.  Government spending grew from 32 percent of the economy in 1991 to 38 percent in 2000.  If that happened today in America, it would be like spending over $900 billion.  During this time period of little to no economic growth, the Japanese standard of living fell from 86 percent of the U.S. level to 74 percent of the U.S. level.  Is Obama really saying that if Japan spent this money a little faster it would have worked? The government does not create wealth, in one year or ten.

Assertion 4: If the government doesn’t spend more money, the government’s fiscal position will deteriorate

OBAMA: “Doing little or nothing at all will result in even greater deficits, even greater job loss, event greater loss of income, and even greater loss of confidence.”

FACT: According to the Congressional Budget Office, the amended Senate version of the package will spend $650 billion in new discretionary spending, entitlement spending, and welfare through the tax code.  By definition, that’s how much the national debt will go up, and how much bigger the government will get—unless of course Obama is a recent convert to dynamic scoring.

Assertion 5:  The government did not cause the banking crisis

OBAMA: “What got us into this mess initially were banks taking exorbitant, wild risks with other people’s monies based on shaky assets and because of enormous leverage, where they had one dollar’s worth of assets and they were betting thirty dollars on that one dollar, what we had was a crisis in the financial system.”

FACT: What got us into this mess was not over-leverage, but government.  It was the Federal Reserve who lowered interest rates too much and made credit too easy.  It was the Clinton regulators of the Carter-era “Community Reinvestment Act” which forced banks to lend to bad credit risks.  It was Rep. Barney Frank who chose to protect bureaucrats at the government-sponsored enterprises Fannie Mae and Freddie Mac rather than reform those bureaucracies.  Finally, it was the government Securities and Exchange Commission which forced the “mark to market” rules which eviscerated company balance sheets overnight.

Assertion 6:  Spending is not the biggest problem in the budget

OBAMA: “The biggest problem we’re going to have with our federal budget is if we continue a situation in which there are no tax revenues because economic growth is plummeting…”

FACT: Washington has a spending problem, not a tax problem.  Over the years, federal taxation has ranged within 2 percentage points of 18.3% of the economy.  Over the next forty years, though, federal spending is expected to double—from 20% of the economy today, to 40% in 2050.  Spending is the problem—not taxes.

Assertion 7:   Obama intimates that economists from across the spectrum endorse a massive spending package as the solution

OBAMA: “ I think that what I’ve said is what other economists have said across the political spectrum, which is that, if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.”

OBAMA: “I mean, you’ve got economists who were advising John McCain, economists who were advisers to George Bush, one and two, all suggesting that we actually needed a serious recovery package.”

FACT: While economists across the spectrum may agree on the need to take action, the “action” Obama repeatedly intimates is that all economists believe that higher spending is the answer.  In fact, many economists – left, right, and center – believe that this spending package is wasteful and will not grow the economy.

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One Response to “The Seven Deadly Sins”

  1. Leo Perkins Says:

    Great Post Tim! I came, I was informed, I enjoyed and left……. a comment.

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