All Commentary
Wednesday, August 4, 2010

Will Increasing Taxes Bring Economic Recovery?

The New York Times says yes.

I often read economic commentary in the New York Times, not because I believe it is sensible, but rather because I want to know what America’s ruling-class spokespersons have to say about economic matters. It has been a long time since I read sound, intelligent economic commentary in the “Newspaper of Record,” and its recent editorial on the economy kept that streak intact.

In its August 1 edition the editors of the Gray Lady published a lengthy editorial that claimed our economy is in trouble because tax rates are too low. That’s right, the “experts” at the Times say that what we need to bring our economy back into balance is a big increase in taxes. The editorial declares:

There is a lot of heated talk in Washington these days about the deficit, unfortunately little of it serious. Playing on Americans’ deep anxiety about the economy, Republican politicians have seized the deficit issue as their own — eagerly blaming the stimulus and even an extension of unemployment insurance for the problem — while denying their own culpability for helping dig this deep hole with years of irresponsible tax cuts.

Now, I heartily agree that the spending policies of the Bush years – including the trillion-dollar-invasions by our armed forces – were disastrous. However, they were disastrous because government lived beyond our means and the government now borrows endlessly — not because we don’t pay enough.

However, they don’t get it at the Times. Instead, we hear nonsense like this:

When it comes to controlling the near-term problem — trillion-dollar deficits every year for the next 10 years — the biggest help will be a return to solid economic growth and, with that, increasing tax revenues.

Growth will not be enough. There is no chance to put the budget on a sustainable path without significant tax increases, and not just on the wealthy. Few politicians, of either party, are willing to tell that truth.

It gets better:

Much of the deterioration resulted from huge Bush-era tax cuts, which left the nation chronically short of revenue, especially when it had to pay for two wars. And because the budget was already in bad shape when the financial crisis hit in late 2008, the necessary spending to rescue the system only deepened an already deep deficit. Unchastened, Republicans — joined by a few Democrats — are now determined to dig the hole even deeper by calling for all of the Bush tax cuts to be extended beyond their scheduled expiration at the end of this year.

What about the stimulus? The deficit has risen further under President Obama, to about $1.4 trillion this year, as the White House has tried to contain the recession it inherited.

The $862 billion economic stimulus, enacted by the Obama administration and Congress in 2009 along with subsequent aid, like extended jobless benefits, prevented a bad situation from becoming much worse, by supporting consumer demand at a time when private sector demand had collapsed. More help is needed. So far, stimulus accounts for an estimated 15 percent of the deficit in 2009, 28 percent in 2010 and 14 percent in 2011.  [Emphasis added.]

One hates to remind the editors of the Times that the nation is not the government. Furthermore, the “stimulus” did not prevent “a bad situation from becoming much worse.” It made things worse, much worse, because it kept the liquidation of many malinvestments from occurring while increasing the burden of government.

Unfortunately, the dinosaur known as the New York Times is clueless. On one hand, the editors realize we cannot sustain this national debt and budget deficits. On the other hand, they insist that government attempt both to stimulate the economy and raise taxes at the same time.

The government cannot tax and spend this economy into recovery, no matter what the Times editorialists imagine. No, we will have a recovery when we stop reckless government spending and allow the necessary adjustments in the economy to take place. Such adjustments do not require tax increases; they require economic literacy.

  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.