“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased — not a reduced — flow of revenues to the federal government.” — John F. Kennedy
The U.S. Treasury Department announced on Tuesday that the federal budget deficit for the month of October 2012 was $120 billion.
For some fun perspective, Greece, Spain, and Italy produced deficits of $9 billion, $29 billion, and $87 billion, respectively, in 2011. Read that again. In a single month, the U.S. government accumulated about as much debt as three precariously recessive Eurozone countries did in a year. Of all the countries on Earth, only four — Japan, Britain, France, and Mexico — ran deficits in all of 2011 that exceeded Washington’s October shortfall.
By now, you have already heard ad nauseam that Barack Obama has added more than half as much debt as all the preceding U.S. presidents combined. You also know that spending is at the highest levels since the Second World War, and yet millennials are still, in a word, screwed. With the election behind us and the status quo ante more or less entrenched, we should expect the president will finally offer a real, centrist proposal to subdue the debt and unburden our drowning economy.
A week past the election, however, President Obama remains obsessed with effecting higher tax rates, which his allies are insisting do not matter. Before the election, the president campaigned on the need to lower corporate taxes in order to spur growth and create jobs. Now freed from the oversight of the electorate, Obama has reneged on this oft-repeated promise and literally doubled down on plans to sap resources from what he has agreed are the engines of our economy. Either the president has “evolved” on the question of private enterprise or he places a minimal premium on political and economic integrity.
Just as edible chemicals are not interchangeable for bodily health, not all taxes have the same effect on the economy. Put simply, taxes retard growth, but certain types do so more than others — hence the once-bipartisan agreement that corporate taxes should be cut and the fact of different rates for different kinds of income. As it happens, income taxes — which have already risen at the state level — are more associated with lower economic growth than are other kinds of revenue, and the U.S. already has an unusually progressive tax system relative to the rest of the developed world. Hence, Republicans have long admitted and embraced the need for more revenue while insisting only that tax rates not be increased. From an economic standpoint, and contrary to the administration’s demagoguery, this makes sense.
We all know that President Obama won the election, and the Democrats gained seats in Congress. The party of gracious victors was magnanimous enough to remind everyone of this fact, ad infinitum, in case we forgot. It was really very thoughtful of them. But now that the campaign is over, we need our elected officials to get serious about fixing this economy.
At the end of the day, the federal government is spending money far faster than it can possibly raise it, and our entitlement programs are on track to become insolvent in the next decade. I would love to see the president of the United States reckon with the reality of the mess, and I expect the Republicans in Congress, however weakened, will continue to insist that he do so.