Obama Want's to Spend More While Crippling the Economy Further
A barrage of news has been coming out lately about bank aid plans and government spending, and tax plans and everything else you can think of. I wanted to highlight a few things that I've seen today and explain why they are simply crazy.
Obama Budget Has Contingency for More Aid to Banks
Feb. 26 (Bloomberg) -- President Barack Obama’s first budget request includes a contingency for as much as $750 billion in new aid to the financial industry this year while laying plans for a health-care system overhaul and higher taxes on the wealthy.
The spending blueprint, sent to Congress today, forecasts record outlays for the current fiscal year of $3.94 trillion, up 32 percent from a year ago. That would yield a record deficit of $1.75 trillion in the year ending Sept. 30, equal to about 12 percent of the nation’s gross domestic product, the highest since World War II.
We have had a credit bubble in America (and most of the world) that has enabled people to spend beyond their means. Currently, businesses and individuals alike are (or should be) drastically reeling in their debt and getting their spending under control. What this means is that we are actually on a path towards simply spending money that we have, rather than money that we borrow into existence.
This can be seen in nearly every aspect of the economy, from layoffs, credit card companies reeling in debt, decreased demand for consumer and business debt, bonus reductions, banks hoarding of cash, and the list could go on. There is, however, one sector that doesn't seem to fully understand what is going on yet. That sector is the Government.
The Government Cannot Fix Problems with More Problems
Obama seems to think that more Government spending can fix this problem. This is a false assumption. The Government needs to be doing what everyone else in the country is doing, and that is to start cutting back. Cut back spending, cut back the deficit, increase savings, decrease the size of the government (yes, layoffs). Everyone else seems to understand this very well and has been acting on these ideas for quite some time. Why is it that Obama and his team cannot understand this simple fact?
Let's look at some more of what has been going on.
Obama Wants $634 Billion for Health, Says More Needed
Feb. 26 (Bloomberg) -- President Barack Obama proposed spending $634 billion to expand U.S. health care, financing the “down payment” with increased taxes on wealthy Americans and less government money for some drugmakers and health insurers.
The budget outline, presented today to Congress, calls for spending the money over 10 years while offsetting about half by limiting tax deductions for couples making more than $250,000 a year. The proposal would stop “waste” in government payments to Humana Inc. and companies like it that provide special plans for the elderly. It would also squeeze discounts to drugmakers, among them Eli Lilly & Co., that supply medicines to the poor.
Obama said Congress will have to come up with additional money to pay the full cost of making health care affordable to all and available to the 46 million Americans now without medical insurance. He said in the budget plan he was open to “all serious ideas,” including taxing employer-provided health benefits, something he opposed during his campaign. Economists say the full cost of covering everyone may reach $1.5 trillion.
Obama wants to spend another $750 Billion on the banks (add this to the 2 to 3 Trillion they have already gotten), and he wants a healthcare plan that may end up costing an addition $1.5 Trillion dollars. This easily begs the question, where is this money going to come from?
China to the Rescue
In More Reasons Why the 'Stimulus' is Bad; China to Own More U.S I talked about Hillary Clinton's recent talks with China. I pointed out then that Clinton's main reason was that we needed a buyer to "help finance President Barack Obama's stimulus plan." I think these new items can be wrapped up into similar categories of spending. It is all part of a "stimulus."
So it appears that what we have here is a team in our Government that is spending record amounts of money (and counting!), while knowing full well that we are relying on China to fund this spending. Obama and his team are knowingly selling this country away to the Chinese, while placing larger and larger burden's on the future citizens of this country.
Crippling the Economy Further
The fun does not end here, however. Obama does not think that indebting ourselves to China, increasing the deficit to a record $1.75 Trillion, expanding the role and size of the government, or nationalizing and propping up failing institutions is enough. In addition to these things, Obama wants to increase taxes as well. This will be helpful in further crippling the economy in much the way that Japan has crippled theirs.
Obama Seeks $1 Trillion Tax Increase in Budget Plan
Feb. 26 (Bloomberg) -- President Barack Obama proposed almost $1 trillion in higher taxes on the 2.6 million highest- earning Americans, Wall Street financiers, U.S.-based multinational corporations, and oil companies to pay for permanent tax breaks for lower earners.
Obama’s 2010 budget proposal, released today, would reinstate the top two Clinton-era tax rates of 36 percent and 39.6 percent in 2011, up from the 33 percent and 35 percent the richest Americans now pay. It would raise taxes on capital gains and dividends to 20 percent for top earners, up from the 15 percent set by former President George W. Bush in 2003.
The tax increases, which Obama vowed to impose as a presidential candidate, would be the first on high-income earners since 1993 and would reverse a course set by Bush of lowering the tax burden on the nation’s wealthiest people.
Now, I will preface this by saying that if you are going to raise taxes, there may be valid arguments that say taxing the wealthiest people will do the least harm. I do not know if I agree with this completely (further details below), but it is a valid argument nonetheless.
The real issue here is that Obama is taking 1 Trillion dollars out of the economy. The reason why I may have issue with the argument I mentioned above is because the wealthy people being taxed may also be the people most able to help drive new jobs in an ailing economy such as this one. Obama is taking this huge amount of money from these people, and diverting it to less-productive government expenditures.
When a government wants less of something, it taxes it. If a government wants more of something, it should tax it less. The income tax is essentially a tax on one's productivity, and as such, the Government is sending a clear signal when it raises taxes on companies and individuals: less productivity is coming. Of course, less productivity is the last thing we need during these times, so once again, Uncle Sam is resorting to insane policies that cannot work. These things are simply not good for the economy, and not good for the citizens of america (even the ones not having their taxes increased). e>
Alternative Ideas
I want to propose an Alternative Idea. I do not claim that this is the best solution, only that it is vastly better than anything that Obama and his team has come up with thus far.
Rather than increasing Government spending by unknown trillions of dollars with more and more perpetually in the pipeline, let's cut back on government spending, shrink the size of the government, and let the people participating in the economy keep the trillions and trillions of dollars to spend for themselves.
This would allow small and large businesses alike to keep more of their hard earned money, which would allow them to use that saved money productively to create more jobs and more wealth. The Government would be diverting less of this capital towards inefficient government spending, and freeing it up for increased market productivity.
What we need in America is more production. The Government is very bad at spending money and generating wealth (in fact, the Government is a very good destroyer of wealth). Thus, by decreasing rather than increasing government spending, and freeing up much of that same capital into the markets, we could recover from this recession much faster.
There would still be hurt, of course, but what is currently going on is only prolonging the hurt, and probably deepening it.
It should be clear that a record high $1.75 Trillion dollar deficit with more spending down the pipeline every day, zombie banks, zombie auto manufacturers, and higher taxes are not the things that we need during a recession caused by overspending.
We need a smaller government that lets businesses and individuals utilize as much of their own capital as possible to help grow the economy and make it thrive. Unfortunately we repeatedly see the opposite happen, and these poor decisions are seemingly perpetual and endless. We need to realize what is going on so that we do not continue to make the same mistakes.