President Obama's State of the Union Formula for Economic Stagnation: More Taxes for Still More Spending, and Still More Regulation


ACRU Staff


February 3, 2014

This column by ACRU General Counsel Peter Ferrara was published on January 31, 2014 on

In a column last month (Barack Obama’s Presidency Is a Complete Failure By His Own, Self-Imposed Standards 12/31/2013), I explained that President Obama’s Presidency has been a complete failure by his own standards. He tells us that he is fighting for the middle class. But real middle class incomes have been declining steadily throughout his entire time in office, more since the recession than during the recession.

He tells us that countering increasing income inequality is the defining issue of our time. But income inequality has been accelerating throughout his entire Presidency, with the real incomes of the top 20% rising, and the real incomes of everyone else, the bottom 80% — the middle class, the working class, and the poor – declining.

As a result, poverty has been soaring while he has been President, faster probably than even under Jimmy Carter, despite exploding welfare dependency. We need so-called liberals and so-called “progressives” for this?

President Obama has been promising us economic recovery, restored economic growth, and jobs, since before he was elected. He and his Democrats spent nearly a trillion dollars on so-called “stimulus” to deliver on those promises. But all that was stimulated was government spending, deficits and debt, with the worst recovery from a recession than under any other President since the Great Depression, and even before. Six years after the recession started, we still have not recovered all the jobs lost during the recession, while in all previous post Depression recessions all the jobs lost were recovered within 2 years on average. Obama’s strongest supporters, blacks, Hispanics, and the young, have been hurt the most, with the highest and longest unemployment

President Obama told us that Obamacare would provide universal health insurance for all. But after Obamacare was passed, CBO told us that 10 years after it was implemented, 30 million Americans would still be uninsured. Much worse, the only results so far have been to increase the number of uninsured, as more Americans have lost their health insurance than gained it under Obamacare.

The President told us that if you liked your health insurance, you could keep it. But it turned out that if he liked your health insurance, you could keep it, as millions of Americans found their health insurance cancelled by the new law, with probably tens of millions more to be cancelled once the delayed employer mandate becomes effective. He told us that if you liked your doctor, you could keep him, or her. But with your insurance probably goes your doctor, even for a deathly ill cancer patient being treated by the best in the world, keeping her alive beyond her life expectancy, as she explained in the Wall Street Journal.

President Obama told us that Obamacare would reduce health insurance costs by $2,500 per family. But health insurance costs have doubled or even tripled for millions of Americans under Obamacare.

So now let us judge President Obama’s State of the Union by his own standards as well. He told us near the start of his speech, “what I offer tonight is a set of concrete proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class.

His first concrete proposal was corporate tax reform. He said,

“Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home.”

Corporate tax reform that closed crony capitalist loopholes in return for lowering the rates would lead to booming economic growth, jobs, rising wages and economic recovery. But that is not what Obama and his Democrats are supporting. They want corporate tax reform that would impose a net tax increase from the current corporate tax code with the highest marginal tax rates in the developed world. That tax increase would then be used to finance increased government spending, which is what President Obama thinks is the real root cause of economic growth and prosperity, a concept reflecting miseducation in my opinion. That is what Obama meant when he said in the State of the Union, “Moreover, we can take the money we save with this transition to tax reform to create jobs rebuilding our roads, upgrading our ports, unclogging our commutes – because in today’s global economy, first class jobs gravitate to first class infrastructure.”

But increasing taxes still more on corporate employers, drawing still more funds out of private business and industry, to increase government spending still more, is not going to produce jobs, rising wages, and economic recovery and growth. Those still higher taxes are just going to cause still more capital flight from the United States, which is going to mean still fewer jobs and still lower wages for middle class, working class, and poor working people.

Higher taxes to finance increased government spending at best adds nothing to the economy on net. Increasing government spending on “infrastructure” was the central strategy behind all that spending in the 2009 stimulus, which again stimulated nothing except government spending, deficits and debt. Moreover, Congress is already preparing to spend hundreds of billions more on such infrastructure in this year’s Transportation bill, and what Obama called the “Waterways” bill. What Obama is proposing is not a new, progressive idea, but outdated ideology from the New Deal almost a century ago.

Enough Congressional Democrats are ready to join with Republicans to pass pro-growth tax reform with overwhelming bipartisan support. President Reagan, or President Kennedy, both strong growth titans, would be able to get such bipartisan reform done. But not President Obama, which exactly contrary to the rhetoric he used to get elected, is such a hostile partisan, he has never been able to get anything done on a bipartisan basis.

But that was not the only tax increase Obama called for in his SOTU to finance still more spending. Obama added, “Every four minutes, another American home or business goes solar; every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it, so we can invest more in fuels of the future that do.”

But oil and natural gas producers taking deductions for the same costs of doing business that any other manufacturer takes is not “giving $4 billion a year to fossil fuel industries.” What Obama cannot understand is that the federal government does not subsidize oil and gas companies. Oil and gas companies subsidize the federal government. Check out the federal taxes they pay, as compared to other businesses.

What the President is proposing here is increasing taxes still more on oil and gas companies producing low cost, reliable energy, to give crony capitalist handouts (more spending) to high cost, unreliable energy producers. That is not a concrete proposal to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class. That is driving down the productive with higher taxes, to subsidize the unproductive, meaning less production, and more waste. Which translates into the economic stagnation o
f the Obama Democrat new normal.

The market chooses “fossil fuels” to power the world’s leading economy because the energy in “fossil fuels” is highly concentrated. So naturally by the laws of physics it costs less than solar power from sunlight, where the net usable energy is highly diffuse, and so naturally more expensive to collect and use.

President Obama’s next concrete proposal was to further increase regulatory burdens and barriers. He said, “But we have to act with more urgency – because a changing climate is already harming western communities struggling with drought, and coastal cities dealing with floods. That’s why I directed my administration to work with states, utilities, and others to set new standards on the amount of carbon pollution our power plants are allowed to dump into the air.”

The term “carbon pollution” further reflects miseducation, as the carbon dioxide targeted by the regulations is a natural substance in the environment essential to all life on the planet. The only documented effect of increased carbon dioxide in the atmosphere so far is actually increased agricultural production, which greater atmospheric concentration of CO2 promotes. That increased production has been estimated by studies to be worth well over a trillion dollars.

But more directly pertinent, that increased regulation is not a concrete proposal to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class, as Obama promised at the start of his speech. Increasing regulatory burdens and barriers to production of low cost, reliable energy is just going to increase the cost of energy, which is a dagger to the heart of the economy.

Still more increased regulation is Obama’s proposal to increase the minimum wage. If increasing the minimum wage to $10.10 is a good idea with no harmful effects, then why not increase it to $110.10? The drawbacks of the lower increase are just a difference of degree.

To the extent that wages are raised by legal decree, without a concomitant increase in productivity, fewer workers will be employed, as employers will use less of any factor whose costs are increasing. But when the legal minimum wage is increased, the least skilled and productive simply do not get employed at all, and so are effectively banned from the labor force, reducing economic supply to match the reduced demand at the higher price. Even worse than economic Darwinism, this is economic cannibalism.

One of the first things the new Democratic Congress entering office in 2007 did was increase the minimum wage. That played out with teenage unemployment ultimately soaring to over 25%. Even in December, teenage unemployment under Obama was still 20%. Black teenage unemployment ultimately well over 40% was still 35.5% in December. Hispanic teenage unemployment was still 22.3%.

Wages can be raised to the sky without limit as long as productivity increases at the same pace. And how is productivity raised? By capital investment, providing workers with more productive tools. But capital investment has to come from the rich, as by definition it is the rich who have the most capital. If federal income taxes are going to be so heavily skewed against the rich, however, with the top 1% of income earners earning 14.9% of before tax income, but paying 39% of personal income taxes, and 49.5% of corporate income taxes, as the CBO reported in December, the result is going to be the capital flight we have suffered.=

That means the capital of the rich is creating jobs and raising wages in Brazil, or the Far East, or Eastern Europe. Overregulation further increasing business costs, and loose dollar monetary policies threatening the decline of the dollar, will only increase that capital flight further.

Another concrete proposal President Obama raised in the SOTU was “We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to goods stamped ‘Made in the USA.'” Such expanded free trade would lead to booming economic growth, jobs, rising wages and economic recovery. But not if the trade legislation is burdened with poison pill requirements to increase environmental and labor regulatory costs on the economy.

Or with poison pill favors for Obama cronies, such as government authority to restrict access to the Internet by users merely accused of copyright infringements by copyright owners, with no right to judicial appeal, and even government authority to take down sites accused of repeated infringement. Hollywood has long been seeking such potentially abusive government power for the politically friendly Obama Administration. Last Fall, Wikileaks published a draft of the Trans-Pacific Partnership trade agreement negotiated behind closed doors for the public, but with access by Obama friendly corporate lobbyists. That draft agreement references precisely such potentially abusive government authority over the Internet.

That reflects growing Democrat partnership with Hollywood cronies. Congressional Democrats are supporting legislation that would impose so-called royalty taxes on radio stations for the free music they play on air, with half the funds going to the big record companies as an institutionalized corporate bailout. Those radio stations already pay the song authors or other copyright owners under long institutionalized arrangements. The record companies promote their songs to be played by the stations, like book or otherwise published authors seek interviews on free media, for which they are not paid. But the record companies, free to negotiate their own deals with radio stations, now want the government to force the stations to pay them.

But Obama and the Democrats don’t seem serious about these free trade deals. While Republicans embraced such pro-growth policy, if the deals are not vehicles for more costly regulation, Senate Majority Leader Harry Reid publicly opposed any fast track trade authority. This was reminiscent of 2009-2010, when Obama posed publicly as a supporter of free trade, while hiding behind then House Speaker Nancy Pelosi, who killed any such deals, until Republicans took over the House in the 2010 elections.

So the pattern continues. President Obama paints pretty pictures with flowery pro-growth and populist rhetoric. But the results are consistently the opposite of his promises, whether due to duplicity or just incompetence.



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