President-elect Barack Obama unveiled key elements of his blueprint for turning around the economy -- and the team tasked with making it work -- including a massive stimulus package and tax cuts for a "vast majority" of Americans paid for by the nation's "wealthiest."
Against a backdrop of increasing calls for him to establish a viable economic rescue plan well before he takes office on Jan. 20, Obama said reforms in Washington will be needed to create a "sustainable economy," including larger contributions from taxpayers earning more than $250,000 per year.
"We've got to restore some balance to our tax code and the Bush tax cuts were disproportionately targeted to the very wealthiest Americans -- those who were making more than a quarter million dollars a year can afford to pay a little more," the president-elect said.
"And it is important if we're going to help pay for some of these expenditures that are absolutely necessary to get our economy back on track that those who are in a position to pay a little more do so. Whether that's done through repeal or whether that's done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on," he said.
Saying his priority is to create 2.5 million jobs and sustain economic growth over the long term are his priorities, Obama on Monday named Timothy Geithner as his choice for Treasury secretary and Lawrence Summers as head of the National Economic Council.
This economic recovery proposal has both a math problem and a history problem. The proposal will cost somewhere between $500 billion and $700 billion. Yet, President Elect Obama says he will pay for it by raising taxes on the wealthiest 5%. This is an absurd distortion of basic math. Raising taxes on the wealthiest Americans will likely net no more than $75 billion in extra receipts and that assumes that most of this won't be eaten away as a result of the weakened economy. That leaves somewhere between $400 and $600 billion unaccounted for. In other words, this is NOT paid for. Rather, we are going to needlessly raise tax on the job creators in order to slightly reduce the massive addition to our budget deficit that his proposal will create.
Obama's second problem is even more troubling. His proposal total dismisses all economic lessons of history. FDR also raised taxes while increasing government spending exponentially during the Depression, and this policy caused our economy to still be in a Depression when he campaigned for President in 1940. That's because the stimulus of increased government spending was combined with the contraction of taking money away from those that create jobs in the private sector.
President Elect Obama continues to cling to the very destructive and faulty notion that if someone can afford higher taxes that this means there are no consequences with making them pay higher taxes.
Just because the wealthy will still be wealthy even while they pay more taxes, doesn't mean this extra tax burden won't contract the economy. The money that Obama is taking from these folks could be used to buy a second home, an investment property, a building, a business, a mutual fund, a stock, or even just simply be deposited into their bank. We no longer live in a world where money is kept in a mattress, and that means any extra tax is money taken out of the economy. The disaster of such a policy in the Great Depression is all the history lesson we need to see where such a policy will take us.
It appears that President Elect Obama is determined to impose income redistribution on our economy in the middle of a serious recession. This sort of social engineering is problematic enough during relatively good times. It is a total and unmitigated disaster during the current economic period.