December 9 2010

Read My Lips... No New Spending!

Hadley Heath

President Obama's tax deal has two parts (if it can get through Congress): unemployment extension, and Bush tax cut extension. 

If President Obama agrees with Nancy Pelosi that unemployment benefits are a form of "stimulus," then he'd be happy to see an extension of unemployment benefits through 2011.  This philosophy of "unemployment benefits as stimulus" takes its root in the belief that unemployed people will spend their checks as soon as they get them, and inject the economy with more demand.

Of course, unemployed people and people in lower income brackets spend a large portion of their (unemployment checks or) paychecks to meet their basic needs.  Rent (especially in Washington DC!), groceries, insurance, and transportation are going to take a bigger chunk out of a poor man's income than a rich man's income.  But by this logic, if we were all poor, we would all spend, spend, spend, and then somehow our economy would be in great shape.

Clearly, spending doesn't tell the whole economic story.  The "wealthiest Americans," and even a lot of Americans in the middle class, invest money into business ventures or stock markets.  This is how wealth is channeled into job creation and greater opportunities for Americans at all levels of income.

But then again, spending - whether it's consumers or bureaucrats who are doing it - is an important part of our current administration's economic philosophy.  While liberals are so focused on spurring spending in the private sector, they refuse to limit government spending.

And they have been very reluctant to extend the Bush tax cuts.  (It's December of 2010 and only now has Congress taken them up for consideration.)

Let's ignore for a moment that tax cuts to the most productive Americans "offend" the president's "conscience."  (Somehow, taking more of someone's hard-earned money offends mine.)

And let's focus on the only argument left against the Bush tax cuts: fiscal responsibility.

I believe in paying off a debt as soon as it's owed, and I don't like living in a country with $13 trillion in national debt.  But the argument that our deficit problem can be attributed mainly to the Bush tax cuts is flawed.

Even though President Obama told us during his campaign that he would cut spending (haha!), his time in office has seen a huge increase in spending.  Just in 2009, the increase from 2008 spending levels was $535.6 billion.  That's right, total federal outlays in 2008 were $2.98 trillion (that's too high anyway!) and somehow the following year they jumped to $3.52 trillion.  In 2010, federal outlays increased by another $200 billion to $3.72 trillion.  A closer look reveals that the vast majority of these increases was in mandatory spending on entitlements like social security, Medicare, Medicaid, unemployment, and other programs.

Meanwhile, the buzz today is about the $600 - $900 billion lost to the government by avoiding a tax hike and maintaining tax rates as they are.  These figures, like many projections, are calculated with a static view of our economy in mind.  But if a Bush tax cut extension puts government on an allowance, then our leaders should stick to it, instead of spending beyond their means.

From the Daily Caller:

Rep. Paul Ryan, Wisconsin Republican, did echo [the Committee for a Responsible Federal Budget's] call for a spending reduction plan to accompany the tax cut deal.

"Policymakers cannot continue to chase ever-higher levels of government spending with ever-higher tax rates. To address the Federal Government's fiscal imbalance, we need both economic growth and serious spending discipline," Ryan said. "It is critical that we match opposition to tax increases with a commitment to restrain the explosive growth of government spending."

But while Ryan said he has "concerns with some specific aspects of the plan," he also said he supported "the proposed framework" agreed to by Obama and Senate Republicans.

Many Republicans shrugged off the deficit impact, saying tax cuts are not spending.

"It depends on whether you think it's the government's money or the American people's money. In other words, I view it as the American people being able to keep their money by not having to pay more taxes," said Sen. John McCain, Arizona Republican.

I'd like to point out that, if President Obama had stuck with spending levels like those of George W. Bush (not the best example of a fiscal conservative!), then we'd be better off.  During his presidency, President Obama is going to add much more than $600 - $900 billion to government outlays.  We can't fix our current debt problem with a sunset of the Bush tax cuts.  The only way we will climb out of the hole we're in is to get serious about cutting spending.

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