National Taxes

Competitiveness not government spending

Under current policies the United States is projected to run fiscal deficits every year until 2084 while its debt to GDP ratio is forecast to rise above 700% according to the Congressional Budget Office. Since President Obama took office, the national debt has increased by 50% to $15 trillion dollars, yet as we inch steadily towards insolvency, the President blames the Bush administration, demonizes the wealth and talks about more fiscal stimulus.

Reasonable people can disagree about policy, but should be able to have a conversation about reality. The reality is that the policies of the Obama administration have produced the weakest economic recovery on record, with slow GDP growth and even slower employment gains. The only reason the unemployment rate is falling is because Americans have become so discouraged that they are dropping out of the workforce altogether, an alarming phenomenon, prompting the Federal Reserve recently to revise downward its estimates of potential US economic output – in other words, the productive potential of the economy is being permanently lowered. While attacking Paul Ryan’s budget proposal, calling it social Darwinism, the President has failed to produce a single serious budget in the time he has been in office. The President has no plan for ever regaining fiscal equilibrium, quickly disregarding the proposals of the Bowel-Simpsons committee – as soon as they turned out to be not to the administrations liking.

The current trajectory of the budget and the failure of leadership will result in a predictable outcome – in several years’ time, the federal budget will consist of health care, social security and interests on the national debt crowding out defense and every other domestic spending priority. Even worse, given the lack of leadership, 2013, is likely to bring about harsh fiscal adjustment. First, the need to increase the federal debt ceiling will lead to another Congressional fight, further damaging business confidence and threatening the US sovereign debt rating. Next, the expiration of the payroll tax cut will mean an immediate tax increase on all Americans, taking away over $1000 in disposable income from each family (according to the President’s own numbers). The upcoming expiration of the Bush-era tax cuts will mean an additional immediate tax increase on all Americans. Finally, the budget cuts agreed upon as a result of the debt-ceiling-raising-compromise in 2011, will hit defense and domestic discretionary spending in 2013. These new tax increases will reduce consumer spending, while government cuts will hit the smallest part of the budget, but responsible for funding infrastructure, R&D and education, while leaving the drivers of the debt, Medicare and Social Security, untouched.

The Obama administration continues to pile on $4 billion dollars of new debt each day, while the President talks about the Buffett Rule, higher taxes for all Americans and locking-in an expanded size of the federal budget. In the meantime there is no plan for fiscal balance – not this year, not next year, not ever. What the United States needs is leadership and improving its competitiveness. The US needs tax reform, better infrastructure, entitlement reform and improvements in basic education. The administration should be looking for ways to improve US competitiveness – not more government spending.


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