The other shoe is dropping

When my favorite socialist, Barack Obama, was running for election, he claimed that he could cover his expensive social programs and unfunded mandates without raising taxes on the middle class. Remember that?

At first, he said that individuals making over $200,000 a year, or couples making over $250,000, would not see a tax increase under his administration. I never believed that assertion no matter how insistent he was in repeating it. Did you? Do you really think money grows on trees and the "wealthy" can pay for everything?

But instead of just raising taxes on the wealthy to increase spending, Obama has also turned to borrowing. So long as the U.S. has a line of credit, he is going to tap it. But if you borrow money, then you aren't paying for your spending by taxing the wealthy, you are putting off much of that decision until later.

How are these debts going to be repaid? Is the plan to tax the middle class about to be revealed?

A clue came in today's Globe (June 23, 2010), page A8. And I quote:

"A top House Democrat said yesterday that tax increases will eventually be necessary to address the nation's mounting debt...."

"In the near-term, Steny Hoyer, House majority leader, raised the possibility that Congress will only temporarily extend middle-class tax cuts set to expire at the end of the year. He pointedly suggested that making them permanent would be too costly."

Hoyer is smart enough to know that the Democrats can't increase taxes on the middle class before the next election in November. So he and Obama will wait until after.

Mitch McConnell, a Senate Republican leader, was quoted as saying "It's now official. Top Democrats on Capital Hill are starting to signal their intention to raise taxes on the middle class."

Anyone who believed candidate Obama's promises to hold the middle-class harmless was in some serious denial. But another broken promise isn't what is important. Candidates promise things they can't deliver all the time. The problem is the position itself. Raising taxes on any segment of society is harmful to our economic recovery, it reduces our overall economic output, and it hurts our ability to eventually pay back all of these debts.

The cost of government, both present and future obligations, is rising too fast, consuming more and more of our economic output as a society. This is what is driving the need to increase taxes.

Let's not confuse tax revenue with tax rates. If tax revenue rises, that is a good thing. It means that our economy is doing well and we can afford to be more generous. But revenues need to increase because of increased economic activity, not because the tax rates go up. High tax rates (and mandates like health insurance) provide a negative incentive for private enterprise.

When times are tough, government needs to reduce its spending, not increase it, and not increase it by taking on debt which just postpones the pain.

Our economic salvation can only come when private enterprise is allowed to generate more wealth, which will increase jobs and eventually produce more tax revenue. Having the government increase spending by hiring more government workers does not produce wealth and only temporarily helps our economy. Eventually, all of the borrowed money has to be paid back.

So if we hire one government worker at $50,000 a year, that helps the economy. But since we borrowed that $50,000 and it isn't available the next year, we have to fire two workers (we have to lay off the new one we hired plus a second worker to pay back the borrowed $50,000). So the long-term net effect on the economy is zero.

Government spending does not create long-term jobs, only private enterprise can do that. And increasing taxes on the middle class (and the wealthy) just takes more money out of the private sector which will mean a slower recovery.