It's Still the Economy, Stupid!

Donald Lambro
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Posted: Jul 29, 2011 12:01 AM

WASHINGTON -- The American economy, for some inexplicable reason, has been pushed to the sidelines in the fierce debate over a fiscal crisis that threatens to shut down much of the government.

The House and Senate's war of words has largely been about dangerously high deficits, debts and spending levels that could push our government to the brink of insolvency.

But the declining health of our economy should be at the core of this debate, because its weakness under the administration's anti-growth policies is one of the chief reasons for the astronomical rise in the deficits and debt. How we deal with this crisis will determine the future health of our economy for generations to come.

To be sure, Republicans have tried to keep the focus of the debt-ceiling battle on future economic growth and job creation, but more often than not the debate has turned on spending statistics and which special-interest programs are going to be cut and how deeply.

For the White House and the Democrats on Capitol Hill, this fight is all about preserving as much of big government as they possibly can get away with.

You rarely hear President Obama defining the budget discussion in terms of getting the economy moving again, because that would only remind Americans that Obamanomics has been an abysmal failure.

Instead, he and his allies have shamelessly played the fear card, often framing the issue in terms of Social Security checks not going out and Medicare payments halted.

But the outcome of this fight is all about our economy and whether our country will be the everlasting land of opportunity where jobs are plentiful, businesses thrive, retirement funds grow, and the suffocating burden of deficits and debt are lifted from the backs of the American people and their enterprises.

The private sector is weak to a significant extent because deficits and debts have dried up investment and capital for individuals and businesses, and increased pressure to raise taxes that are already squeezing family budgets and businesses large and small -- forcing layoffs and paralyzing future hiring.

Notably, the two parties in this debate have been offering widely disparate solutions to the mess we have gotten ourselves into.

President Obama and the Democrats are calling for higher taxes on businesses and people earning over $200,000 a year (many of them small-business entrepreneurs who may employ a few workers but can hardly be considered rich).

Will that help the economy grow and produce jobs? Obama and the Democrats do not make that argument, or at least not effectively. Instead, they say they need more money to run the government, and wealthier people are not "paying their fair share," as Obama put it Monday in his speech to the nation.

Actually, according to the Congressional Budget Office, wealthier Americans are paying more than their fair share. The top 20 percent of income earners pay 86 percent of the federal income tax burden, CBO says. How much more should their share be raised? Obama doesn't say.

Republicans, on the other hand, believe that the way to get our economy growing again is by lowering the tax burden on everyone, businesses and people. And they would do that by ending a number of tax breaks and loopholes, which would boost overall tax revenues while lowering the tax rates across the board for everyone.

President Reagan did that in 1986, with the help of two Democrats -- Rep. Richard Gephardt of Missouri and Sen. Bill Bradley of New Jersey -- reducing the top income tax rate to 28 percent. The economy grew.

The same idea was proposed last year by Obama's presidential commission on the deficit. He has yet to embrace the idea. Instead, he's calling for raising the top tax rate to nearly 40 percent, even with the economy flat on its back.

President George W. Bush, whom Obama blames for all of the country's economic woes, cut taxes, too, in 2001 and 2003, taking 10 million low-income families off the tax rolls, bringing the top rate down to 35 percent. By 2007, the year before the recession, Bush's budget deficit was $161 billion, a tenth of today's deficit, and unemployment was a low 4.7 percent.

Meantime, the Obama economy is weakening with every passing week. The bleak headline in Thursday's Washington Post: "Reports confirm the U.S. economy is decelerating." The subhead: "Recovery had stalled even before anxiety over debt dominated the news."

The Commerce Department Wednesday reported that durable goods orders dropped by 2.1 percent, although forecasters expected a gain. Business investment, excluding defense and aircraft sectors, fell 0.4 percent. The Federal Reserve's latest report of business activities around the country says growth has "moderated" in most places. Six Fed districts "reported a slowdown in activity" and the job market "remained soft" in most districts.

This is no time to be raising taxes or defaulting on our debts. Congressional leaders in both parties need to more clearly focus the budget debate on the economy to build support for both cutting spending and raising the debt ceiling.

Our economy is getting progressively weaker, and the lives and fortunes of millions of Americans are hanging in the balance.