Opinion and Taking Issue

RUSTHOVEN: How is Obamanomics working for you?

October 1, 2011

RusthovenLiberals see themselves as enlightened tribunes of the people, opposed by narrow rightist ideologues. Witness President Obama, in full re-election mode, speaking this week at a $35,800-per-couple fundraiser: “From the moment I took office, what we’ve seen is a constant ideological pushback against any kind of sensible reforms that would make our economy work better and give people more opportunity.”

Really? Let’s use current Obama economic initiatives as our focus, defining an “ideologue” as one whose devotion to a political world view trumps the facts about what “works better.”

First, the president proposes to follow his $700-billion-plus “stimulus” package with a $447 billion reprise, rechristened a “jobs bill.” The stimulus is a deficit-ballooning failure, primarily benefiting public employee unions and chimerical “green jobs” projects (e.g., now-bankrupt Solyandra, with its $535 million federal loan guarantee). The “jobs bill” targets the same Democratic favorites.

So, we are to spend nearly a half-trillion more along the same unsuccessful path. Hmm. Sensible reform, or ideological insistence?

The president’s other big idea is $1.5 trillion in tax hikes. These include higher rates on incomes over $200,000 (“millionaires,” in Obama-speak), limits on charitable deductions for the “wealthy” and raising capital gains rates. How do these fare on “facts versus ideology?” On income taxes, conservatives have the facts and liberals the ideology. Every major tax cut (including Kennedy’s) has yielded economic growth and increased revenue. The Reagan cuts are a dramatic illustration.

In 1996 constant dollars, tax revenue increased more than $1 trillion from 1980 to 1990—an average of over $100 billion a year. In 1989, the government collected $267.1 billion more at the lower Reagan rates than it did in 1980 at the much higher Carter rates.

Lower tax rates, particularly for top earners who invest in job-creating ventures, spurred enormous growth. From 1982 to 1989, the economy grew 34.3 percent—faster than even Reagan’s economic team predicted. As economist Richard Rahn observes, by 1989, “the economy was generating more tax revenue at a maximum 28-percent rate than many on the left forecast it to generate at a maximum 70-percent rate.”

The 1980s were also boom years for private charitable giving, which Obama would now constrict by limiting deductions for those who give the most. In 1992, professor Richard McKenzie of the University of California-Irvine gathered pertinent data on what the left calls the “Decade of Greed.”

From 1980 to 1989, total giving grew 56 percent, with annual growth 55 percent higher than from 1955 to 1980. The growth rate in corporate giving was 52 percent higher in the 1980s than over the preceding quarter century. On a per-capita basis, total giving in the 1980s rose at twice the annual growth rate of the prior 25 years. The percentage of national income devoted to private charitable giving was nearly 30 percent higher in 1989 than in 1979.

As McKenzie concludes, Americans in the 1980s “outpaced by a wide margin their giving patterns established in earlier decades,” even “at a time when, because tax rates fell, the after-tax cost of giving rose.”

Leftist ideology is even clearer on capital gains taxes, which Obama wants to raise from the current 15-percent rate to 20 percent or higher. As Rahn notes, this is “self-defeating”—nonpartisan analysis shows that increased capital gains rates “would result in lower tax revenue and higher deficits.”

Given this, why would the president want higher capital gains rates? For an answer, we have his own words in 2008. Asked this very question, candidate Obama replied he would consider raising capital gains taxes “for purposes of fairness.”

There you have it: The Obama vision of “fairness” demands higher taxes even when they help no one, reducing revenues and raising deficits. If our president wants examples of the triumph of ideology over sensible reform, he need only look in the mirror.•
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Rusthoven, an Indianapolis attorney and graduate of Harvard College and Harvard Law School, was associate counsel to President Reagan.

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