What does The Lucy Show, Dragnet, and the Three Stooges
all have in common?
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THE CONSERVATIVE REVIEW - April 19, 2011
Tax and Debt Bomb
by: Larry Kudlow
Townhall.com
We thought tax reform meant lowering rates and broadening
the base by eliminating or cutting back on various deduct-
ions, credits, and loopholes. That's what the Bowles-
Simpson commission proposed. That's what Paul Ryan and
David Camp are working on. And that's the pro-growth model.
But President Obama unveiled a much different tax-reform
vision in his much-anticipated debt speech on Wednesday.
He would raise tax rates on upper-income earners and small
businesses. He also would eliminate deductions and credits,
or so called "tax expenditures." The president referred to
these tax-expenditure reductions as "spending cuts." In
his context, they most certainly are not. They are more
tax hikes.
Basically, the president is giving successful earners and
small-business filers a double tax hike. That's what it
really is.
Of course, the president's formula of estimating higher
revenues to lower the deficit is completely wrong. The
reality is that higher tax rates will slow the economy,
inhibit new start-up companies, penalize investors, and
may very well lose revenues and increase the deficit.
In the latter part of his speech the president did mention
some kind of middle-class and corporate tax reform. But he
gave no specifics.
He also touted $750 billion in discretionary spending cuts,
but again without any details. Most of that amount probably
comes from the recent continuing resolution to avoid a
budget shutdown. Since Obama is extrapolating out twelve
years, who knows how this is scored.
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On the entitlement front, Obama rejected Paul Ryan's
consumer-choice and competition approach to Medicare
reform. Instead, he invoked the Obamacare central-planning
agency called the Independent Payment Advisory Board,
which is supposed to make reductions in Medicare. Medicare
itself would exercise more price controls on prescription
drugs, rolling back the consumer choice and competition
established under George W. Bush.
In total, President Obama is claiming $4 trillion in
deficit reduction over twelve years. But we'll never see
it. Interest expense savings is supposed to make up $1
trillion of that amount, while the rest will somehow come
from a concoction of fewer tax deductions, higher tax
rates, and $400 billion in defense-spending cuts.
In effect, the president has moved to the left. He has
embraced the Democrats' so called progressive caucus in
the House by slashing defense and jacking up taxes, all
while offering no serious entitlement reform. (Hat tip
to Jimmy Pethokoukis for nailing this earlier in the
week.)
My final point is this: President Obama's harsh-rhetoric
rejection of the Ryan budget and his new (presidential)
campaign to raise taxes on the rich sets up a huge
confrontation with House Republicans on the eve of the
hugely important debt-limit expiration.
Sometime in mid to late May, the debt ceiling to allow the
government to borrow more money is going to run out. The
Treasury can move money inside government accounts to
forestall a debt breakdown for another couple of months.
But the potential for a major political conflict on the
eve of this process sets up the worst possible outcome:
Failure of the U.S. to pay the interest on its own debt.
This is unnerving to financial markets. Instead of
compromise, the president decided to seek confrontation.
Caveat emptor. Investors beware.
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