Skip to comments.Obama’s Fear of Spending Cuts
Posted on 02/27/2013 6:49:17 AM PST by SeekAndFind
According to President Obama, the $62 billion in new taxes this year imposed as part of the fiscal-cliff deal will have no effect on economic growth. In fact, the president believes that he can safely impose another $58 billion in tax increases to replace spending cuts from the upcoming sequester. And, of course, Obamacares almost $42 billion in new taxes (and regulations) in 2013 dont have any impact on hiring or investment. But, the president says, the $44 billion in cuts this year resulting from the sequester will throw the U.S. economy back into recession.
The president seems to labor under the impression that nearly all government spending adds to the economy and that wealth in private hands does not. Certainly, though one can debate the relative efficiency of programs funded by the government, a case can be made that some government spending can add to economic growth when such spending truly represents an investment (to use the presidents favorite buzzword) in, for example, scientific research, infrastructure, or education. In reality, however, most government spending has little to do with investing. Even under a fairly broad definition of investment, such spending represents less than 13 percent of this years budget. By far, most of the rest consists simply of transfer payments that is, taking money from one person and giving it to another. Transfer payments add to GDP only in a technical sense, but they do not create any new wealth or increase productivity.
On the other side of the equation, it is important to remember that every dollar that the federal government spends must first be extracted from the private sector, through either taxes or borrowing. That means that those resources are not available for the private sector to invest in ways that grow the economy.
President Obama may think that the rich sit around like Scrooge McDuck, watching piles of money in their vaults, but in reality individuals, even rich ones, either spend their money or they save and invest it. If they spend it, it helps provide jobs for the people who make and sell whatever it is they buy. If instead the money is saved or invested, it provides capital to start businesses and hire workers. And so, even in those few cases where government spending can be termed an investment, it displaces a certain amount of private investment, thereby reducing the net return on the governments action.
That would suggest that cutting government spending, even through an admittedly flawed process such as the sequester, might ultimately be better for the economy than preserving government spending at the cost of higher debt or taxes.
But, as the president and his supporters (Paul Krugman in every other column, for example) might respond, hasnt Europe shown us that cuts in government spending can devastate an economy? Great Britain is held up in particular as an example of how a country cannot cut its way to prosperity. Britain has embraced austerity and its economy has slipped back into recession.
But Britain actually shows just the opposite. The British government has made few real spending cuts. In real terms, total government spending did decrease marginally from 2011 to 2012 by £11 billion, or 1.6 percent of total spending, but it still remains £55 billion above 2008 levels after adjusting for inflation. On the other hand, there have been plenty of tax hikes, including increases in the Value Added Tax (VAT), income taxes for high earners, capital-gains taxes, payroll taxes, and taxes on home sales. Sound familiar?
Veronique de Rugy of the Mercatus Center has pointed out that in Europe generally, countries have raised taxes far more than they have cut spending. To blame slow European growth on spending cuts, then, would be quite a stretch.
In the U.S., the cuts under the sequester amount to roughly 0.3 percent of GDP. No doubt they will impose a certain amount of pain on individuals directly affected and on communities that depend heavily on federal payments. But they are unlikely to tank the U.S. economy. On the other hand, continuing to raise taxes or to run massive deficits will almost certainly continue to slow economic growth.
Higher taxes, more spending, more debt that, not the sequester, is something we should really be afraid of.
Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.
We could fill the universe with what this clown DOESN’T know about the economy!
For instanbce, he also confuses "taxes" with "revenue".
Revenue is what is derived from taxes but it doesn't necessarily follow that raising taxes increases revenue.
In many, if not most cases, raising taxes DECREASES revenue.
Ubama knows perfectly well what the rich do with their money. He's one of them.
You can't get into one of his dinners without a tie and a check for 40,000 dollars.
Now he's selling access to himself for 500,000 dollars.
His bestest buddy and big toe, Warren Buffett, heads up an investment firm, Berkshire Hathaway, that sells a single share of its stock for 185,000 dollars.
He's a control freak, plain and simple.
Five years into his presidency, and the economy is still deep in the crapper; clearly, Obama knows nothing about economics.
On the contrary, what he “knows” is all wrong, and it’ll be another four years and a different president before the American economy turns around - if it ever does.
Best to hang on to those nickels and dimes and dig in for the long haul.
Yes, Obama’s inflation will render them nearly worthless, but it’s better than starving.
If only we had a more informed public....
Taxpayers shouldn’t be fearing the forced spending cuts, they should be fearing that the CUTS DON’T GO FAR ENOUGH.
And politicians should realize that short-term debt service and long-term entitlements are going to keep shrinking the money left over for doling out goodies.
Like other things that can’t go on forever, fiscal irresponsibility won’t.
2. Baseline Budgeting: is an accounting method the United States Federal Government uses to develop a budget for future years. Baseline budgeting uses current spending levels as the "baseline" for establishing future funding requirements and assumes future budgets will equal the current budget times the inflation rate times the population growth rate.
3. Sequestration is a 2-3% decrease in the increase of baseline budgets.
4. No Dept will have less than they are currently operating, they all will have more money.
I'm afraid that Obama thinks like that. To his Marxist mindset no one gets "rich" other than through exploiting someone else. So the government must spread the wealth around. To Obama the perfect world is where an all powerful government controls every aspect of people's lives. However, Obama is also a hypocrite as he himself is "rich" and so are many of his supporters.
Higher taxes, more spending, more debt.
Democrats, not just Obama, fear spending cuts because government spending thru entitlements is the main motivator for the majority of the voter base. They have no idea how to win votes thru ideas, only by buying them with other peoples’ money.