Obama's Tax Hikes, Not GOP Spending Cuts, Are Killing Growth
Posted 06:42 PM ET
Recovery: Liberals are apoplectic about "austerity," claiming that draconian spending cuts are killing jobs and economic growth. But it's President Obama's tax hikes, not spending restraint, that are hurting growth prospects.
Everywhere you turn these days, liberals are bemoaning the harm caused by "austerity." The left-wing Center for American Progress claims spending cuts will cost 2 million jobs over the next seven years. The Brookings Institution says they've already cost 2 million.
Former Obama Treasury Secretary Larry Summers complained last week that austerity postponed "the acceleration of recovery . . . more than it needed." Democratic National Committee communications director Brad Woodhouse took to Twitter to wonder "what our economy would be doing if not for #GOPSequester, GOP refusal to make needed investments."
The press has swallowed this and routinely blames bad economic news on "Washington's austerity drive."
The liberals' mantra is understandable, since it supports their belief in an endlessly increasing federal government while blaming any bad economic news at Republicans who have been pushing spending cuts.
But researchers at the Federal Reserve Bank of San Francisco looked at the data and came to a completely different conclusion. They find that it's not the modest spending restraint pushed by Republicans that's harming growth prospects, it's the massive tax cuts Obama has engineered — tax hikes that liberals and the mainstream press ignore when they whine about austerity.
The researchers compared recent and projected spending and taxes to the historic norms at similar points in a business cycle. They found while deficits have fallen of late, spending is still higher, and tax receipts lower, than the norm at this point in a recovery. Fiscal policy, they say, has held back the recovery only "slightly to date."
Over the next three years, however, the fiscal drag on the economy is "much bigger" — cutting projected growth by about 1 percentage point. But that's not because of sequester-forced spending cuts.
"Despite all the attention federal spending cuts and sequestration have received, our calculations suggest they are not the main contributors to this projected drag," they wrote. Even with the sequester, they found, outlays will stay above historic norms over the next three years.
Instead, the researchers found, "the excess fiscal drag on the horizon comes almost entirely from raising taxes."
Taxes as a share of GDP are on track to rise well above historic averages and well above rates at comparable periods in previous recoveries.
And what explains this "super-cyclical" rise in taxes?
Well, let's see. Obama forced through a $600 billion tax hike on upper-income families at the start of this year in the name of "fairness."
Before that, he and his fellow Democrats imposed $1 trillion of new taxes for ObamaCare, taxes that are just now hitting the economy.
As a result, federal tax revenues as a share of GDP will hit 19.3% of GDP by 2015, a level reached just six times since World War II and well above the 17.9% average over the previous 40 years.
We'd only add that Obama's other economic policies — an out-of-control regulatory state, the looming disaster known as ObamaCare, various attempts at industrial policy among them — have also weakened what should have been a robust recovery.