President Obama “spoke candidly” in an interview with Fox News Wednesday, (November 18) from China, warning about the risks of spending money to “stimulate” the economy without increasing the already astronomical deficit.

He also spoke about tax incentives for businesses to reverse the rising unemployment rate.

“There may be some tax provisions that can encourage businesses to hire sooner rather than sitting on the sidelines. So we’re taking a look at those,” Obama told Fox News’ Major Garrett.

“I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

A double-dip recession is when gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. It refers to a recession followed by a short-lived recovery, followed by another recession.

The causes for a double-dip recession vary but often include a slowdown in the demand for goods and services because of layoffs and spending cutbacks from the previous downturn.

A double-dip (or even triple-dip) is a worst-case scenario. Fear that the economy will move back into a deeper and longer recession makes recovery even more difficult.

Obama should be cutting taxes, not raising them.

Obama’s health care bill threatens businesses and working individuals with a new battery of taxes but taxes won’t be enough to help offset its costs. To help offset costs, the bill takes away tax incentives designed to encourage businesses to invest into the economy in certain ways, such as investing in solar cell technologies.

As if this weren’t bad enough, the Cap and Trade bill looms on the horizon. If passed into law it will further tax industry. Economics 101 tells us that tax burden will be passed to the consumer.

At this point it would appear America is on the verge of being taxed to death and suggests President Obama’s tax and spend policies will continue to exacerbate America’s anemic economy even further.

Take A Page From History, Mr. Obama

In 1924, Secretary of Treasury Andrew Mellon wrote,

“It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates.”

Mellon pushed for a reduction of taxes on the rich, which were pegged at 73% and eventually it was reduced to 24%. The resulting decrease in these taxes, as well as tax breaks for lower brackets, saw personal income-tax receipts rise from $719 million in 1921 to over $1 billion in 1929, which many attributed to the rate cut.

According to economists out of UCLA, after scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

In their article in the August 2004 issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

A more recent article in the Wall Street Journal reaffirms the findings of the Journal of Political Economy article.

From the Joint Economic Committee Report of 2006, “The Reagan Tax Cuts: Lessons for Tax Reform”,

The 1993 Clinton tax increase appears to having the opposite effect on the willingness of wealthy taxpayers to expose income to taxation. According to IRS data, the income generated by the top one percent of income earners actually declined in 1993. This decline is especially significant since the retroactivity of the Clinton tax increase in that year limited the ability of taxpayers to deploy tax avoidance strategies, temporarily resulting in an increase in their tax burden. Moreover, according to the FY 1997 Clinton budget submission, individual income tax revenues as a share of GDP will be lower during the first four years of the Clinton tax increase, which include the effects of the 1990 tax increase, than under the last four years of the Reagan tax changes (FY 1986-89). Furthermore, according to a study published by the National Bureau for Economic Research,[2] the Clinton tax hike is failing to collect over 40 percent of the projected revenue increases.

Incidentally, the claim that unrealistic supply side Reagan Administration revenue projections caused large budget deficits during the 1980s is false. Nonetheless, this false allegation is often used against current tax reform proposals. The official Reagan revenue projections immediately following enactment of ERTA did not assume huge revenue increases, and were actually quite close to the CBO revenue projections. Even the Democrat-controlled CBO projected that deficits would fall after the enactment of the Reagan tax cuts. The real problem was a recession that neither CBO nor OMB could foresee. Even so, individual income tax revenues rose from $244 billion in 1980 to $446 billion in 1989.

Even President Clinton’s economic advisers understood this economic fundamental. Looking back to the the Economic Recovery Tax Act (ERTA) of 1981, President Clinton’s Council of Economic Advisers in 1994 summarized the economic benefits of ERTA, the Reagan tax cuts, by saying,

“It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth.”

New shackles upon America’s economy

How does America effectively compete with the rest of the world when the cost of doing business shackles America’s economy? How will Americans be able to pump their discretionary income into the economy when they have less money in their pockets?

I doubt most are aware of this one, but Americans now have to think about their new $2,631.00 tax increase (per year) brought upon them by the 2007 Senate Budget, described as the largest tax increase in America’s history.
If this additional tax burden has you worried, consider too that America’s business leaders will be looking for new ways to compete with the rest of the world, unshackled by the expenses associated with new health care taxes and taxes upon business brought to them (and us) via the looming Cap and Trade bill. It will probably result in American businesses sending more jobs off-shore to take advantage of a more hospitable business climate. This will no doubt add to the already rising rate of unemployment which will further reduce the level of discretionary income to be pumped into the already anemic economy.

It doesn’t take a rocket scientist to figure out that when consumers are over-burdened with taxes, it means less discretionary income to spread onto the economy. Without that revenue, businesses will report a smaller tax basis to the federal government and to their surprise, their tax revenue doesn’t increase, it actually decreases. What is worse is that business will not be able to replenish an inventory which doesn’t move and so factory orders will diminish as well. This will lead to more unemployment, factory closings and will leave this Obama administration believing they didn’t raise taxes enough.


It’s a death spiral for America.