Tuesday, February 2, 2010

The 29 Percent Solution

The budget proposal announced by the President on Monday provides for spending increases of 29 percent over levels in 2008, the last year of the Bush Administration. This puts federal spending at a whopping 25 percent of GDP, a peacetime record.

The budget assumes a booming economy to provide the revenues for this largesse. It includes an estimated $ 2 trillion in tax increases and, even at that, the national debt pushes on toward bankruptcy.

Here are the two biggest lies in the budget:

1) Increasing tax rates will increase tax revenues. To see why this can be predictably false when tax rates are exhorbitant (as they are), imagine that personal tax rates were raised to 100 percent. Would that rate raise a lot of revenue? There probably won't be anywhere near $ 2 trillion in new revenues, because of the damage that the Obama tax increases will do to the economy.

2) The economy is going to boom in the face of the most massive increase in tax rates in world history. No economic theory that I know of suggests a boom in the face of the largest tax rate increases in human history.

This is the anti-Reagan, anti-Kennedy prescription. Waste a lot of money and increase taxes to record levels.

If much of this budget becomes a reality, you can expect stagnation for more than a generation. Worse, bankruptcy of the United States government is now on the table as a likely outcome.


A. Barrow said...
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A. Barrow said...

History teaches us that decreasing taxes increases revenues every time. Since I don't believe Mr. Obama is stupid, I can only surmise that it's more a power/control play than an honest effort to raise revenue.
Unfortunately, I don't see a way to get out of this unless politicians are willing to commit political suicide by adjusting entitlements, which is where the real money is. I say suicide because which ever side attempts working on the entitlements will be demagogued by the other side. Frankly, I think we're doomed.