How to Hurt the Economy
May 22, 2009 | By Nathaniel Ward
America remains in recession, and Washington politicians keep talking about ways big government can fix the problem. But their solutions would just dig the economy into a deeper hole.
For example, liberals in Congress have outlined a 2010 budget plan that contains major tax hikes and other changes that would "hurt the economy in good times but will devastate it in its current weakened state," explains Heritage senior tax policy analyst Curtis Dubay.
- Hiking Taxes. Under the liberals' budget plan, the government would raise taxes to Clinton-era levels on high-income individuals, including many entrepreneurs and investors who are key to recovery. Instead of raising tax rates, Congress should keep them at current levels and allow taxpayers to invest their money and help grow the economy.
- Temporarily Blocking Other Tax Hikes. Congress is considering a three-year extension of the Alternative Minimum Tax patch, which keeps millions of middle-income Americans from facing a big tax increase. But the patch's temporary nature breeds uncertainty. A better policy would be to extend this patch permanently and pave the way for the AMT's eventual repeal.
- Preserving the Death Tax. Liberals in Congress want to keep the death tax intact at its 2009 level. But Dubay notes that "the death tax is a drag on productivity because it discourages saving and investing and undermines job creation and wage growth." Instead, Congress should repeal the death tax.
"The most effective way to spur economic recovery is to increase incentives that drive economic recovery," Dubay argues. "To do so, Congress should abandon the policies in the budget resolution and reduce tax rates on work, saving, investment, risk taking, and entrepreneurial activity."
Other efforts to "stimulate" the economy through tax-and-spend policies aren't working either. Not only is the bill premised on the dubious notion that government spending can boost the economy, Heritage's Patrick Tyrrell explains that the "stimulus" bill isn't working out as the Left advertised. Most egregiously, much of the spending is slated for 2010 — after many economists, including Federal Reserve Chairman Ben Bernanke, expect the recession to end.
If the economy does turn around, Tyrrell proposes that Congress budget the unspent "stimulus" money for across-the-board tax cuts, which could allow the economy to grow stronger still.
Other Heritage work of note
- Heritage Foundation experts work hard every day to get the facts out about conservative ideas. For example, here's what Heritage national security expert Jim Carafano did yesterday. With barely a minute to grab a quick coffee, Carafano blogged about President Obama's speech, submitted an article on the same speech to Politico, wrote for Fox News about the dueling Cheney and Obama speeches, submitted a comment to Politico's Arena blog on the Cheney-Obama speeches, commented on a USA Today op-ed, gave an interview to the New York Times, and, at noon, finally broke for air. Another successful day of keeping the American public informed -- and that was just in the morning!
- California voters on Tuesday soundly rejected several ballot measures that would have raised taxes and increased government spending. Heritage's Conn Carroll reports that this outcome was despite a ferocious effort by the Left: "Teachers unions and other big government allies outspent opponents of the propositions by 10 to 1." Carroll also notes that this flies in the face of recent claims by the Left that Americans now favor more taxes and more government. "But telling a pollster you support high taxes is one thing. Actually going into a ballot box and voting for them is another," he explains.
- The Left justifies its plans to gut the defense budget with "a deeply ideological aversion to military power that is increasingly out of date and dangerous in the post-Cold War world," Heritage distinguished fellow and former Senator Jim Talent argues on National Review Online. But their arguments ignore reality. For example, they ignore the exhausted state of much of our defense equipment and the grave risks America currently faces.
- President Obama is expected to sign into law counterproductive new regulations on credit card companies. "In their rush to punish the credit-card industry, Congress is about to hurt a number of innocent people," Heritage economist David John writes on National Review Online. While detailed legislation on credit-card practices may make legislators feel that they have resolved a tricky issue, their legislation is far more likely to make it harder for low- and moderate-income workers to get the credit they need. By significantly raising cost, the bill practically guarantees less credit to higher risk customers."
- Many in Congress raised concerns about the harmful taxes in the proposed Waxman-Markey global-warming bill. So Congress "compromised" and, in typical fashion, their "negotiations succeeded in making the revised plan even more economically debilitating," Heritage Vice President Mike Franc explains. The revisions to the 90-year program would cause energy costs to rise even higher, which would have the effect of further depressing economic activity.
- Former Massachusetts Gov. Mitt Romney and former Speaker of the House Newt Gingrich will highlight The Heritage Foundation's first-ever Protect America Month. Romney's June 1 address and Gingrich's July 10 remarks will bookend the five-week effort to showcase the need to enact policies that will truly protect the nation, including a commitment to sufficient levels of defense spending.
In other news
- The federal government may push General Motors into bankruptcy as soon as next week. Conservatives, of course, argued for bankruptcy back in the fall—before tens of billions of taxpayer dollars were spent on bailouts that only delayed the inevitable.
- The New York Times has an alarming report about the consequences of releasing terrorists detained at Guantanamo Bay. They cite a Pentagon report saying that one in seven of the 534 detainees transferred overseas has returned to terrorism. Meanwhile, the first Guantanamo detainee will soon face a civilian court.
- Britain's credit rating has been lowered over concerns about growing government debt. This will make it harder for the U.K. government to borrow money in the future. American lawmakers should take note.
- New Hampshire's legislature has blocked legislation creating same-sex "marriage" in that state. Lawmakers voted it down not because they oppose changing the definition of marriage but because they objected to language protecting religious groups who oppose them.
- The FBI and other agencies foiled a terrorist plot in New York City. Four men planted what they believed to be real explosives near Jewish buildings; they were in fact dummy bombs provided by the government.
Coming up at Heritage
To attend these or any other events at Heritage please RSVP at Heritage's website. Or you can view these events live online. All times are Eastern.
- On Monday, June 1 at noon, author James Muller will discuss the political thinking of Winston Churchill.
- On Thursday, June 4 at 4:00 p.m., authors Martin and Annelise Anderson explain how Ronald Reagan fought to stop the Soviet Union in its tracks and abolish nuclear weapons.
Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation. Amanda Reinecker contributed to this report.
