2008 record      

 

Stimulus:Furious with President Obama for making a deal with Republicans, Democrats have hit on a new reason for supporting economy-killing tax hikes: the deficit. This would be funny if it weren't so tragic.

'Tax Cut Plan Digs Deeper Deficit Hole," roared a front-page Los Angeles Times headline Thursday, echoing growing sentiment among Washington Democrats.

Unfortunately, it's wrong in both substance and implication — and so are all the Democratic congressmen shedding crocodile tears over the deficit.

These are, after all, the same people who rang up $4.85 trillion in deficits in just six years after taking control of Congress in 2006. For the record, that's more than the total deficits of $4.68 trillion in the previous 75 years.

For them to now scream about the deficit dangers of the Obama-GOP deal to keep the Bush tax cuts in place is laughable. Any economist will tell you that a deep recession with 9.8% unemployment and 30 million people unemployed or only partially employed is not the time for a tax hike. And contrary to the misleading Times headline, this deal is not a "tax cut" — it is an agreement not to raise taxes. Big difference, but one that even the most nuanced neo-Keynesian thinkers seem unable to grasp.

Besides, the real fiscal problem we face isn't "tax cuts." It's too much spending. Even the recent Obama Fiscal Commission report, which some criticized for its "draconian" spending cuts, would lead to an annual increase in federal outlays of $1.6 trillion over the next 10 years — from this year's swollen $3.8 trillion level to around $5.4 trillion.

What's truly bizarre are the repeated claims by Democrats that if we cut spending, it will have disastrous consequences for economic growth. This is another demonstrably false idea that somehow seems to have taken root in the liberal mind.

As economist Brian Riedl has noted, FDR and the Democrats doubled federal spending in the 1930s. The result? Unemployment remained at 20% until World War II.

In the 1990s, Japan passed 10 stimulus packages, becoming the global poster boy for Keynesian stimulus. Its economy stagnated.

How about the Obama "stimulus," which pushed our deficits to a postwar-record 10% of GDP? According to a recent study by the Federal Reserve Board of San Francisco, net job growth as of September from Obama's stimulus was zero. Nothing.

The budget arithmetic is clear and simple: America now faces a decade in which spending is expected to surge to $44 trillion from about $24 trillion in the last 10 years. Over this stretch, deficits are expected to total about $10 trillion. Merely by halving the expected 83% growth in spending, we can balance the budget.

If whining Democrats are really interested in fiscal responsibility, they should take this to heart. Rather than spending money on anything and everything to "stimulate" the economy, they should be looking to reduce government to core, essential functions — and leave the rest to resourceful Americans and the private sector.

Those truly worried about the political consequences should know that a recent study of 24 Organization for Economic Cooperation and Development countries that cut spending found little or no political fallout for governments that did it.

Here in the U.S., a Gallup Poll shows that 39% of Americans want spending cuts, not tax hikes, to balance the budget. Just 5% say they want more spending. This confirmed last month's IBD/TIPP Poll in which respondents put spending cuts at the top of their list of priorities and tax hikes next to last.

Fiscal marching orders have been issued to both Republicans and Democrats. Who will be foolish enough to disobey?

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