GDP drops sharply — not a time to raise taxes

Yikes! In the last quarter 2008, according to the Commerce Department release today, U.S. GDP growth was minus 6.2 percent – far deeper than analysts expected.

Sounds like some of the expectations for GDP in President Obama’s$3.6 trillion 2010 Budget may need to be revised if this negative growth persists. For 2009, the 2010 budget assumed a 1.2 percent growth in GDP; for 2010, 1.1 percent, before a rise to 1.5 percent in 2011.

Doesn’t sound like the time to slap 3,800,000 taxpayers – the top 2 percent – with higher taxes. Not when lots of those “individuals” are really small businesses responsible for most job growth. According to the Wall Street Journal:

Mr. Obama is of course counting on an economic recovery. And he’s also assuming along with the new liberal economic consensus that taxes don’t matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation’s primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively “small business” is defined. These owners will find a way to declare less taxable income.

Plus, as my colleague Iain Murray pointed out, the budget’s cap-an-trade system for carbon emissions will “tax” everybody who uses fossil fuel energy – to the tune of “$510, $660, $870, $1125, and $1635” for each income quintile, respectively.

Sounds like an anti-stimulus budget to me.