Team Obama is out and about mourning a “double-dip recession,” while Fed head Ben Bernanke is warning of a faltering economy. I have described the current economic environment as the front end of a recession.
But Obama’s populist, class-warfare attack on millionaires and billionaires, his new war on bank profits, his linking arms with the protesters occupying Wall Street, and his big-government stimulus plan will surely not solve this crisis.
The September jobs report underscores the economic alarm. The unemployment rate stayed at 9.1 percent. But the rate of marginally unemployed (U6) jumped from 16.2 percent to 16.5 percent. Nonfarm payrolls rose by 103,000 while private payrolls gained by 137,000, small-enough increases to dodge a recession bullet right now. But nearly half those job gains came from the return of 45,000 striking Verizon workers.
And while the small-business household survey showed an encouraging jump of 398,000, it turns out that an even larger 444,000 are only working part-time. So household employment — excluding the part timers — actually fell
by 46,000. That’s a discouraging sign. At the same time, worker earnings are rising less than the inflation rate. That’s a consumer drag on the economy.
Were it not for the business investment of highly profitable companies, we’d be in the recession soup right now. But that doesn’t stop President Obama from attacking these corporations, especially the oil and gas firms that if left alone could save the entire economy.
When their first stimulus bill passed in 2009, the White House projected the jobless rate would be close to 6 percent today, not 9.1 percent. But that’s not the main reason for Team Obama’s double-dip economic panic. They’re trying to sell their faux jobs package, with its $200 billion in higher spending and $250 billion in temporary tax cuts.
People are not stupid. They know the spending won’t work. And they also know they cannot spend or invest a temporary tax cut, which goes away in a year.
President Bush tried this rebate idea and it failed. President Obama has already tried it once, and it failed too.
Here’s the real silliness of all this. The Obama plan would permanently raise tax rates in order to pay for a temporary tax cut. In other words, taxes are going up, not down, as far as the eye can see under Obama’s program.
And here’s more silliness. The White House and Senate Democrats want a 5.6 percent surtax on millionaires, which is supposed to pay for the entire stimulus package. And don’t forget: The Obama budget would raise the Bush tax rates for people making over $200,000, while the Obamacare budget would substantially increase payroll taxes that apply to investors. On top of that, the Obama budget would lower the value of numerous personal deductions.
So the top personal tax rate would move to nearly 50 percent under the Obama plan. Now do the incentive math. At a 50 percent tax rate, successful earners, investors, and small-business owners would keep only 50 cents on the extra dollar earned. Under current law, however, at the 35 percent top income-tax rate, they would keep 65 cents. So if the plan goes through, it would mean a 23 percent reduction in marginal incentives. This in a stalled economy where job creation doesn’t keep up with a rising population and is less than half the necessary level to shrink the unemployment rate.
Of course, the individuals and families who would suffer the greatest tax-penalty increases are the ones who are most likely to invest and run small businesses. In fact, Treasury data show that over 80 percent of millionaire tax filers reflect small-business income. Why demonize them? This is what Gov. Chris Christie meant when he said President Obama is sending a “demoralizing” message.
This tax attack is the latest assault from a White House that is making a sharp populist shift to the left. It coincides with a president who trashed the Bank of America for raising debit-card fees in response to a Dodd-Frank price-control edict, and who suggests that banks do not have an inherent right to profit. It’s in league with a president who is throwing in with the Wall Street protesters. And it’s a sorry sign that the White House doesn’t understand that anti-capitalist nostrums will not solve our economic problems.
How about unleashing a wave of free-market capitalism, which has proven to be the best path to prosperity?
Unfortunately, Team Obama will have none of it.
– Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.