Blind to the Lessons of History

Blind to the Lessons of History

© David Burton 2008

Photo from the Great Depression The Great Depression

     Our liberal Democratic politicians and their anointed presidential candidate tell us that they have the solution to all the economic woes of this country - take from the rich and give to the poor; soak the rich; and increase taxes on money-making businesses. They sound like the ancient despots who gave bread to the unwashed masses to curry their favor. If bread wasn’t sufficient, the masses were given great spectacles, e.g., blood sports in the Roman Coliseum. Today the liberal Democratic cry is, “give the unwashed masses tax breaks” and “throw the rich to the lions”. Are we, the American people, so stupid and ignorant of history that we will accept these actions? Doesn't the phrase, “killing the goose that laid the golden egg” mean anything? We have been in the midst of a major economic “meltdown” that we’ve been told has been caused by a lack of liquidity in our financial system. Obama and his Democratic supporters are proposing to remove money from the economy, by increasing taxes on the “rich” and giving it to the “middle class” in the form of tax breaks. While I may not be the brightest bulb in terms of economic matters, my common sense tells me that when the economy is in trouble because of a lack of liquidity, the solution ought to be to increase the amount of money in the economy, and the way to do that is to lower taxes on “the rich” and on business so that their money can be infused back into the economy to provide the capital to create new jobs and to provide business with the cash flows they need to function and grow. Taking money out of the economy by raising taxes just worsens the problem.

     “The Obama proposals of raising taxes and jacking up social spending during a recession are economic insanity.” “Raising the capital gains tax during a recession? Renegotiating trade deals or killing them outright?” Obama displays an economic cluelessness that borders on criminal.” (Ref. 1)

     Instead of focusing on eliminating previous tax cuts, the solution to maintaining a strong and expanding economy should be on stimulating the economy by continuing to lower the tax rates. “Our corporate tax rates are second highest in the developed world, penalizing job creation and investment.” “The capital gains tax was lowered to 15% in 2003” But it’s not indexed for inflation and Democrats are proposing to hike the tax rates. Instead, we should be lowering or inflation-indexing the capital gains tax. “The uncertainty in U.S. tax rates and the scheduled tax rate increases have been reason enough for investors to prefer foreign investments.” Just what the American economy needs - a flight of capital to foreign markets similar to flight of American dollars to foreign oil producing countries. “While many other countries are making clear their plans and techniques to cut [tax] rates,” liberal Democrats in Congress focused on which taxes to increase in order to s"top" other taxes, such as the Alternative Minimum Tax (AMT) from going up. (Ref. 2)

     “A powerful shot in the arm [of the American economy] would be to make permanent - and indeed, deepen - the tax cuts on dividends and interest that expire in 2010. Reduce the levy on dividends and capital gains from 15% to 10% and you’d see a sharp boost in equity markets, as well as in consumer and business confidence. Business capital outlays would boom, as would entrepreneurial startups.” Someone said that if you give a family some fish, they will have food for one day, but if you provide them with fishing gear, they will have food indefinitely. Increase taxes on the "rich" and the “non-rich” will have a few more dollars in their pockets for a while. Reduce taxes to increase capital spending so that new and better paying jobs will be created and the “non-rich” will have more dollars in their pockets indefinitely. Unfortunately, “Congressional Democrats instinctively oppose things that actually facilitate progress.” They continually strive for that socialistic u"top"ia where everyone is equal and there is no such thing as the rich and the “non-rich.” (Ref. 3) The Democrats would love to make everyone "non-rich".

     What history teaches and what liberal Democrats fail to understand is that “Tax rebates [and tax give-aways to the middle and lower classes] don’t stimulate the economy. Cutting tax rates does. Simply put, low tax rates encourage new wealth creation. Tax rebates [tax give-aways] merely redistribute existing wealth.” “. . . after the 2003 tax rate reductions, business investment surged, the stock market leaped 32%, and the economy created 5.3 million new jobs. Overall economic growth doubled.” (Ref. 4)

     A more potent historical lesson which our liberal Democrats blithely ignore occurred more than 70 years ago. “During the Great Depression, Congress raised taxes sharply in the revenue Act of 1932. The "top" rate went from 25 percent to 63 percent. As a result, the real Gross Domestic Product dropped by 133 percent and unemployment rose from 15.9 percent to 23.6 percent.” It has been said that the policies of the American government after the stock market crash in 1929 in raising tax rates and imposing protectionist trade barriers through the Smoot-Hawley tariff bill which raised tariff rates to unprecedented heights turned a recession into the great depression and prolonged the economic disaster for several more years than would have been the case if tax rates had not been increased and trade barriers had not been not set up. While the Smoot-Hawley tariff bill might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the "beggar-thy-neighbor" policies (policies designed to improve one's own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. Opponents of NAFTA, other free trade agreements, and protectionism proponents take notice!

     With respect to NAFTA, Obama and the Democrats have been less than truthful with the American people. “The real record of NAFTA is overwhelmingly positive. Since 1993, we’ve added a net 26 million new jobs, household income and earnings per hour are up smartly and manufacturing output has climbed by 66%.” (Ref. 5)

     More recently, “In 1990, the first President Bush . . . raised the federal gasoline tax and federal excise tax, and imposed a 10-percent surtax on the "top" income bracket, raising its taxes to 31 percent.” (Ref. 6) The recession of 1991-1992 resulted.

     “It is obvious that increasing capital gains taxes by a minimum of one-third and possibly doubling them, both of which Obama has proposed, would send a signal to investors to keep their money under the mattress. Who would buy stock knowing that the tax on any profits . . . is going up sharply” (Ref. 6)

     In a strong economy, Obama’s proposed tax increases would raise questions. In a weak economy, they portend a catastrophe. It would be like bleeding a sick patient, the medicine of 200 years ago, depriving him of blood even as he needs more, not less, circulating through his arteries.” (Ref. 6)

  1. Stupid! It’s the economy, Michael Graham, Boston Herald, Page 19, October 14, 2008.
  2. Washington: Out of Tune With Growth, David Malpass, Forbes, Page 29, November 26, 2007.
  3. It’s the Dollar, Stupid (and Taxes, Too), Steve Forbes, Forbes, Page 19, February 11, 2008.
  4. Go for Growth, Brian M. Riedi, Forbes, Page 22, February 11, 2008.
  5. Truth on Trade, Daniel Griswold, Cato Institute, Forbes, Page 18, April 7, 2008.
  6. Obama may break bent economy, Dick Morris and Eileen McGann, Boston Herald, Page 23, September 23, 2008.
  16 October 2008 {Article 50; Politics_07}    
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