The Discerning Texan
-- Edmund Burke
Monday, March 09, 2009
Even The Economist is Jumping Ship
Probably not, but this extract from an editorial in the latest issue of The Economist (which endorsed Obama) on the president's Dow-busting budget proposals is worth noting:Although Mr Obama’s revenue plans are not clad in the ambitious rhetoric of his spending initiatives, they are just as profound. To pay for his plans and get the deficit down to manageable levels, he would return top tax rates to where they were before George Bush cut them, extract more from the rich by capping their deductions, increase taxes on corporations and auction carbon-emission permits. At the same time, he promises permanent tax cuts for 95% of workers.
Sadly, these plans are deeply flawed. First, Mr Obama’s budget forecasts that the economy will shrink 1.2% this year then grow by an average of 4% over the following four years. It might if the economy were to follow a conventional path back to full employment. But this is not a conventional recession. The unprecedented damage to household balance sheets could well result in anaemic economic growth for years, significantly undermining the president’s revenue projections. The economic outlook continues to darken and the stockmarket has already tumbled to 12-year lows. Mr Obama may either have to renege on his promise to slash the deficit to 3% of GDP in 2013 from more than 12% now, rein in his spending promises or raise taxes more.
Second, Mr Obama’s scattershot tax increases are a poor substitute for the wholesale reform America’s Byzantine tax code needs. Limiting high earners’ deductions for mortgage interest, local-government taxes and other things is certainly more efficient than raising their marginal tax rates even more. But it would be better to replace such deductions for everyone with targeted credits, abolish the alternative minimum tax (an absurd parallel tax system that ensnares a sizeable chunk of the upper middle class), and implement a broad sales tax. Rather than simply eliminating the sheltering of corporate income from abroad, Mr Obama could have broadened the corporate tax base and lowered the rate. In sum, Mr Obama could simultaneously raise more revenue and make the tax code simpler and more conducive to growth. But he hasn’t.