Economic Outlook: Worse after the Election

Despite everything Obama has done to ruin it, the economy is getting better.  And while a growth rate of 2.3% and an unemployment rate of 8.3% are not exactly worth bragging about, the president is doing just that.  The direction of the economy, it seems, is more important than the record of the past three years.

The problem is that the present direction is largely the product of this administration's unprecedented deficit spending and of monetary loosening on the part of the Fed.  Once these forms of stimulus are withdrawn, as they must be after the election, the direction of the economy will reverse.

The real question for voters is not direction of the economy in the months leading up to the election.  It is Obama's record over the previous four years and the likely direction of the economy after the election.

Half of that information is already known.  In what may be the understatement of the year, the Congressional Budget Office recently noted that "in the recovery [from the 2008-2009 recession], the pace of growth in the nation's output has been anemic compared with that during most other recoveries since World War II."  In fact, in every month of Obama's presidency, the unemployment rate has been above 8%.  And at no time has GDP growth been higher than 3%.  That is the worst post-recession record of any president in American history.

But what of the future?  In its report entitled "Budget and Economic Outlook: Fiscal Years 2011 to 2021," the CBO reported that, given likely policy outcomes, "production and employment are likely to stay well below the economy's potential for a number of years."  Indeed, the CBO projects that the economic growth rate will remain 2.3% throughout the decade, even under the best scenario (ignoring, for example, the inevitable effects of the business cycle).  Private economists are more forthcoming: if the Bush tax cuts are not fully re-enacted, GDP growth will be cut by as much as 1%.  Even Christine Romer, Obama's former economic adviser, has stated that "an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent."  If all of the taxes Obama has proposed are enacted, taxation as a percentage of GDP will permanently increase from the recent historical level of 18% to over 24%.  According to Obama's own adviser, that amounts to an extraordinary reduction of 18% in potential GPD growth.

An important Heritage Foundation paper, "Obama's Tax Hikes: The Economic and Fiscal Effects," studied the effects of Obama's proposed tax increases for FY2011 and FY2012.  These are the same increases that he promises to enact if re-elected.  Between 2013 and 2019, Obama's tax increases on small business owners and investors will cost an average of 799,000 jobs per year.  Moreover, the destructive effects would continue for years beyond that.  Enactment of Obama's tax plan would cut GDP by more than $1 trillion over the following decades.

It's important to recognize that Obama's plan to raise taxes on "the rich" is, in reality, a tax increase on all Americans.  In reality, it is working Americans who would be hit the hardest under Obama's tax increases as small businesses fail, investment declines, and consumer spending is curtailed.  Voters need to see Obama's tax proposal for what it is: not a tax on the rich, but an enormous transfer of wealth from the American people to government.

The purpose of Obama's proposed tax increases is not to restore fairness, but to increase government power by shifting revenue from the private sector to government.  Once that revenue is controlled by government, it will be used to purchase influence, buy votes, silence opposition, and further restrict economic and personal liberty.

Small businesses are the main target of Obama's tax increases.  According to the Heritage Foundation study, half of all those affected by Obama's proposals would be small business owners.  Obama's regulatory assaults have already had a chilling effect on large corporations, forcing them to "work with" the administration or face retaliation.  Large health insurance companies were intimidated into supporting ObamaCare.  Financial firms were forced to accept bailout money whether they wished to or not, and having accepted such assistance, they continue to operate under agency rules that limit shareholder dividends and restrict executive pay, among other restrictions.  GM and Chrysler were taken over and, it would seem, forced to support government mileage targets.  New rules from the National Labor Relations Board will require every large or medium-size business to display a poster designed by the board advising workers of their right to strike.  These and a thousand other regulatory actions are transforming America from a free market-society into a corporatist economy where government sets the rules.  Now Obama wants to extend the same degree of control over small businesses.

If Obama is re-elected, there will be more to come.  As the president has told his supporters again and again, there is "a lot more work" to do.  The personal and economic liberties of Americans are under assault.  Obama will not stop until our basic freedoms have been shredded, the Constitution repudiated, and our economy placed under the boot of government control.   

Obama will continue to argue that he should be re-elected because the economy is improving.  Certainly the president will do all he can to assure that it continues to improve right up to election day, as will the Federal Reserve under Ben Bernanke.  After that, some very large bills come due.  And if Obama is re-elected, the long-term damage will be economic stagnation, and worse.

Jeffrey Folks is the author of many books on American culture, including Heartland of the Imagination (2011).

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