Bad Economic Omens Since The Election
Since the election, the stock market has fallen substantially. The S&P 500 has fallen over 5 percent. The prospect of “Taxmageddon” (massive tax increases scheduled for the beginning of 2013), coupled with rising government spending that will crowd out private investment over the long run, is not a good omen. “Welfare is now the largest item in the federal budget, and under Barack Obama’s budget – the one that didn’t get any votes, but may nevertheless be a blueprint for the next four years – it is slated to grow another 30% in Obama’s second term.”
While some middle-class tax cuts enacted under Bush may be extended, new taxes included in Obamacare (like its tax on investment income and Medicare tax increase for the upper middle class) will go into effect in 2013 and tax rates will rise on upper-income households. These tax increases, however, will be a drop in the bucket compared to America’s trillion-dollar deficit. (Even if all the Bush tax cuts for everyone were canceled — not just for the rich — such a tax increase would raise only $380 billion, eliminating only a little over a third of the deficit. To get the deficit under control, we need to cut skyrocketing welfare spending, eliminate agricultural subsidies, trim unnecessarily high Pentagon spending, and reduce wasteful education spending.)
Jobless claims went up 78,000 the week after the election, with Ohio and Pennsylvania hardest hit; “the number of people seeking unemployment benefits” rose “to a seasonally adjusted 439,000 last week, the highest level in 18 months.” The Obama administration delayed releasing alarming food stamp figures until after the election. They showed a record 47.1 million people on food stamps, a new all-time record, and the monthly increase of 420,947 was the biggest monthly increase in a year. Exploding food stamp use reflects a lingering bad economy (high unemployment is masked by discouraged workers leaving the work force and thus not being counted as unemployed in official unemployment figures, and by skyrocketing numbers of able-bodied people going onto Social Security Disability), loosened eligibility requirements (the federal government effectively rewards states for qualifying non-poor people for food stamps), and rising fraud that now amounts to billions of dollars (the Obama administration has cracked down on states that have attempted to fight mushrooming fraud).
Thrifty people with investments will be particularly hard hit by tax increases backed by Obama. For example, “the tax on dividends will skyrocket from 15 percent to 43.4 percent” for many investors. America already has higher capital gains taxes and taxes on investment income than most countries, and the U.S. tax code is already more progressive than the tax codes of Germany, Belgium, or the United Kingdom, which heavily tax consumption through value-added taxes. This attack on thrifty people (and government bailouts for irresponsible people with decent incomes who did not save any money despite having a relatively high income) will discourage saving, investment, and economic growth in the future. America’s savings rate is already much lower than it was a generation ago.
Most of the automatic budget cuts provided for by current law — the so-called sequestration — will probably never happen (although such cuts are badly needed to balance the budget). Congress and the president will probably rescind most of them, since too many special interests oppose the cuts. Budget cuts often fail to get implemented. A classic example are the cuts to doctors’ Medicare reimbursements that Congress passed in the late 1990s (in order to claim it was reducing spending), but which it has since temporarily rescinded each year since then. (The fact that these imaginary cuts are rescinded each year did not stop Congress from cynically taking credit for these cuts yet again when it passed Obamacare, in order to falsely claim that Obamacare would reduce the deficit.)
If the automatic budget cuts did happen, the economy would temporarily shrink a little as a result, then grow faster ever thereafter, just as Canada’s economy boomed after it slashed government spending in the 1990s, and America experienced an “economic boom” after the federal government slashed spending in 1946. Conversely, even spending purportedly designed to stimulate the economy tends to shrink it in the long run — such as the $800 stimulus package, which the Congressional Budget Office says will have a “net negative effect” on GDP over the long term.
President Obama has continually violated his 2008 campaign pledge of a “net spending cut” by pushing for massive spending increases. Welfare spending will rise further due to Obamacare reducing levels of employment. Employers such as hotels, restaurants, and retailers are now cutting full-time workers and replacing them with part-time workers (which artificially makes the unemployment rate look lower than it really is) to avoid costly Obamacare mandates that apply to employers of full-time employees. Many other companies announced layoffs shortly after the election. “A day after Barack Obama earned a second term in the White House, Papa John’s founder and CEO John Schnatter said the president’s signature health care reform law would increase his business costs and possibly result in employees’ hours being cut.”