Barack Obama's Back to the Future Economics

I have noticed a terrible habit by Barack Obama surrogates. Whenever they attempt to try and justify one of his plethora of tax increases, they do it by going into the past and finding a time when that particular tax was higher. Here is what Obama surrogate, Larry Summers, said recently.

The Obama campaign called on former Clinton administration Treasury Secretary Lawrence Summers to defend Sen. Obama's plans. "At a time when the 10-year interest rate is in the three's, at a time when it is clearly lack of demand for products rather than the cost of capital that is inhibiting investment, the idea that a return to the tax policies of the 1990s would somehow damage the economy in a substantial way seems to me supported by neither theory nor evidence nor the longer-term history," Mr. Summers said.

Of course, it is interesting that Mr. Summers talks about economic theory and evidence. That's because there is no serious economic theory or evidence that says the right way to make decisions on tax rates is to compare them to other eras. Of course, these comparisons are really significantly more sinister and dangerous than merely that lack of logic. Look at how Obama advisors, Jason Furman and Austen Goolsby,make their comparisons.

The top capital-gains rate for families making more than $250,000 would return to 20% -- the lowest rate that existed in the 1990s and the rate President Bush proposed in his 2001 tax cut. A 20% rate is almost a third lower than the rate President Reagan set in 1986.

...

The estate tax would be effectively repealed for 99.7% of estates, and retained at a 45% rate for estates valued at over $7 million per couple. This would cut the number of estates covered by the tax by 84% relative to 2000.

Overall, in an Obama administration, the top 1% of households -- people with an average income of $1.6 million per year -- would see their average federal income and payroll tax rate increase from 21% today to 24%, less than the 25% these households would have paid under the tax laws of the late 1990s.

So, depending on the tax increase, it might be compared to the Reagan Era, the beginning of the Clinton era, the end of the Clinton era, or even the Bush era. In other words, we're supposed to believe that his tax increases are perfectly acceptable and will work just fine because sometime in history they were higher. Of course, we have no comparison between the level of his tax proposals and any one era in whole. Furthermore, why are they making these comparisons in the first place?

To me, this is tax equivalent of what Bill O'Reilly refers to as excusing bad behavior by pointing to behavior that was even worse. The Obama administration wants to raise income taxes, capital gains taxes, corporate taxes, and even taxes in death, and they justify each tax increase by pointing to an era, a different one always, in which the same tax was even higher. We're supposed to feel fine paying 25% more in capital gains taxes that's still less than it was in 1986. Furthermore, we're supposed to feel fine paying more in income taxes because that is still lower than that was in 1992. Nonsense, I say.

Here are some periods in history that you will never hear an Obama advisor ever reference. 1912, that's because the income tax wasn't created until 1913. Somehow the country not only survived but thrived for about 150 years without an income tax at all. We created trains, automobiles, the telephone, the radio, and went through the industrial revolution all without taking one penny of income tax. 1968, that's because that was the period that began the rapid expansion of the capital gains tax. Before then, the capital gains tax was usually in single digits. How exactly is a comparison to either the Clinton, the Reagan, or the Bush era any more relevant than the nineteen teens or 1968?

Of course, none of these comparisons are at all relevant. The only things that matters when making a tax decision are what the taxes are now and how those taxes compare to our competitors. Why would one compare the income tax now to the income tax in 1986 when we are facing a unique economic dynamic that doesn't lend itself to such a comparison. We didn't just go through a real estate boon that just crashed in 1986. Since we didn't how exactly is the tax rate then relevant to a current discussion of taxes.

The Obama campaign would like the country to disregard policies that won't merely put us into a recession but a depression by engaging in misdirection. They want everyone to forget that the country is facing trillions of dollars in tax increases because they can always find a period in time when taxes were even higher. That's not a tax policy. That's an excuse to raise taxes in an obscene and justify it by some sort of pseudo economic explanation.

What I don't understand is how folks that make economics their living can be so oblivious to this? Larry Summers, Austen Goolsby and Jason Furman all have long careers in economics and yet they are peddling pseudo economics that wouldn't pass the mustard of basic Economics 101. This would be laughable and pathetic if it weren't so dangerous.

The Obama administration is planning on raising trillions of dollars worth of taxes at a time when our economy is already weakening. Many times, like to corporate tax, that makes our taxes, already uncompetitive with the rest of the Western world, even less competitive. They justify it all by proclaiming that there were times when all these taxes were even higher. Unfortunately, our economy doesn't know or care what our taxes were in 1986. It will be affected just the same no matter how high they were then. The simple fact that all these justifications fail to address is that tax increases stunt the economy. When the economy is already weakening, any artificial stunting is a recipe for a DEPRESSION.