Tuesday, July 13, 2010

Morning Bell: The Obama Tax and Spend Threat to Economic Recovery

July 13, 2010

Remember President Barack Obama’s promise to the American people not to raise taxes? Forget about it. While the President has already raised taxes on cigarettes and tanning beds, none of that compares to what could happen in January. If you earn income, your taxes are about to go up. If Congress does not act to preserve current law, even the lowest 10 percent bracket will rise to 15 percent. Throw in tax hikes on capital gains, dividends and other tax code fixes, and the American economy is staring straight down the barrel of $3.2 trillion tax hike over the next ten years.

It doesn’t take a genius to realize that raising taxes by $3.2 trillion dollars would be an economic recovery killer. Even Sen. Evan Bayh (D-IN) admitted to CNBC yesterday: “We don’t need to raise taxes now.”

The tax raising culprit here is the expiration of the 2001 and 2003 tax cuts set to take effect on January 1, 2011. The leftist majority in Congress is refusing to extend current law because they believe that these tax cuts are the cause of our trillion dollar deficits. They are wrong. Heritage Foundation research fellow Brian Riedl explains why in today’s Wall Street Journal: With Washington set to tax $33 trillion and spend $46 trillion over the next decade, how does one determine which policies “caused” the $13 trillion deficit? [President] Obama could have just as easily singled out Social Security ($9.2 trillion over 10 years), antipoverty programs ($7 trillion), other Medicare spending ($5.4 trillion), net interest on the debt ($6.1 trillion), or nondefense discretionary spending ($7.5 trillion).”

The real cause of our nation’s debt problem is spending. According to the Congressional Budget Office (CBO), extending all the 2001 and 2003 tax cuts will place revenues at 18.2% of gross domestic product (GDP), which is actually above the 18% average over the past 50 years. Meanwhile, spending, which has averaged 20.3% of GDP over the past 50 years, is set to explode to 26.5% of GDP by 2020. These spending increases are being driven by our entitlement programs (Social Security, Medicare and Medicaid), which along with net interest payments are projected to rise by 5.4% of GDP between 2008 and 2020.

The leftist majority in Congress has had years to address this impending economic disaster but have refused to act. Last month, the House leadership announced that for the first time in the history of the budgeting process, they would not set a budget this year. And not only are they refusing to set any limits on their own spending, but now they are even talking about punting the tax issue into December so that they can raise our taxes without having to answer to the American voter. Sen. Tom Harkin (D-IA) told The Hill earlier this month: “It’s not going to get done before the election. The lame-duck session is when all of this is going to get resolved.”

And the end of the 2001 and 2003 tax cuts are just the beginning of President Obama’s tax hike spree. The Obama administration’s budget also calls for higher taxes on small businesses, higher taxes on energy and higher taxes on American companies that compete overseas. Speaking about the impending tax hikes on CNBC last night, House Minority Whip Eric Cantor said: “We should over the next three weeks focus squarely on small businesses and say right now, make sure we’re not going to raise taxes this year, the way the administration continues to talk.” Sen. Bayh not only agreed with Cantor, he even went a step further: “To Eric’s list, I would add some of the increased taxes on companies that do business overseas. We don’t need added uncertainty, added burdens on business right now.”

Quick Hits:

•After losing in federal court twice, the Obama administration issued a new oil drilling ban which continues to unnecessarily threaten thousands of jobs, and is crippling the local Gulf economy.

•According to the latest Washington Post poll, public confidence in President Obama has hit a new low with nearly six in 10 voters saying they lack faith in the president to make the right decisions for the country.

•The latest Democracy Corps poll, performed by Democrats James Carville and Stan Greenberg, shows 55% of likely voters think “socialist” is a reasonably accurate way of describing President Obama.

•According to Rasmussen Reports, 53% of voters nationwide favor repeal of Obamacare.

•A full week later, after first being supportive, the White House is now repudiating statements made by NASA Administrator Charles Bolden that his assignment at NASA was to reach out to the Muslim world, and make them feel better about their scientific achievements.

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