Fed study shows tax increases, not spending cuts, are slowing the economy

This should cause a few heads to explode on the left.

Washington Examiner:

In fact, the San Francisco Fed reports that "federal fiscal policy was unusually expansionary during the Great Recession" thanks largely to the "American Recovery and Reinvestment Act, the economic stimulus program passed by Congress in 2009. As a consequence, federal government saving in the recession fell faster--that is, the deficit grew faster--than our historical norm would predict."

The San Francisco Fed does note that after the recovery began "fiscal policy sharply reversed course" and has since been "much more contractionary than normal." But in total "federal fiscal policy has been a modest headwind to economic growth so far in the recovery, but no more so than usual given the weak pace of growth."

Looking ahead, however, the Fed does see fiscal policy slowing growth, but not, as liberals would have you believe, due to spending cuts:

Surprisingly, despite all the attention federal spending cuts and sequestration have received, our calculations suggest they are not the main contributors to this projected drag. The excess fiscal drag on the horizon comes almost entirely from rising taxes. Specifically, we calculate that nine-tenths of that projected 1 percentage point excess fiscal drag comes from tax revenue rising faster than normal as a share of the economy.

So the next time a liberal complains about austerity, be sure to ask them which of President Obama's many tax hikes they want to repeal first.

Can't wait for Obamacare taxes to fully kick in. Then we can really expect a slowdown.

This report should be filed under "Why Liberals Believe Stupid Things."

This should cause a few heads to explode on the left.

Washington Examiner:

In fact, the San Francisco Fed reports that "federal fiscal policy was unusually expansionary during the Great Recession" thanks largely to the "American Recovery and Reinvestment Act, the economic stimulus program passed by Congress in 2009. As a consequence, federal government saving in the recession fell faster--that is, the deficit grew faster--than our historical norm would predict."

The San Francisco Fed does note that after the recovery began "fiscal policy sharply reversed course" and has since been "much more contractionary than normal." But in total "federal fiscal policy has been a modest headwind to economic growth so far in the recovery, but no more so than usual given the weak pace of growth."

Looking ahead, however, the Fed does see fiscal policy slowing growth, but not, as liberals would have you believe, due to spending cuts:

Surprisingly, despite all the attention federal spending cuts and sequestration have received, our calculations suggest they are not the main contributors to this projected drag. The excess fiscal drag on the horizon comes almost entirely from rising taxes. Specifically, we calculate that nine-tenths of that projected 1 percentage point excess fiscal drag comes from tax revenue rising faster than normal as a share of the economy.

So the next time a liberal complains about austerity, be sure to ask them which of President Obama's many tax hikes they want to repeal first.

Can't wait for Obamacare taxes to fully kick in. Then we can really expect a slowdown.

This report should be filed under "Why Liberals Believe Stupid Things."

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