It's Obama's Math that Doesn't Add Up

Donald Lambro

12/7/2012 12:01:00 AM - Donald Lambro
President Obama often boils down the issues around his plan to raise income taxes by saying it's all about the "math," a subject he doesn't seem to know much about.

No doubt the White House would argue the point, but the uncomfortable fact remains that after four years in office, the unemployment rate remains painfully high and economic growth is slowing down. Clearly, the president's math isn't working well, and neither are 23 million Americans who want full-time jobs.

But even a cursory analysis of the mathematical issues at the center of the battle over the "fiscal cliff" raises some fundamental numbers Obama doesn't acknowledge.

One has to do with the political makeup of the House of Representatives, the other with the dreary growth rate of the recession-leaning Obama economy.

The immovable mathematical reality in the House is that Republicans control it by a pretty decisive margin: 241 to 191, with two vacancies to be decided.

In the early jockeying over a compromise to break the impasse, the numbers suggest Obama's proposal doesn't stand a snowball's chance in hell in what the Founding Fathers called the people's chamber.

House Speaker John Boehner of Ohio has repeatedly told the president his plan to raise the 28 percent income tax rate to 36 percent and the 35 percent top rate to 39.6 percent "cannot pass the House."

Obama has convinced a majority of the voters that the GOP irrationally refuses to raise taxes on people who earn more than $200,000 in order to protect wealthy Americans.

But for Republicans, this isn't about class or protecting the rich (the top 25 percent of income earners already pay 87.3 percent of all income taxes), and it isn't about politics. It is all about growth economics -- something Obama and the national news media in general do not understand.

Lower tax rates in general result in stronger economic growth, increased investment, more business formation and more job opportunities. That results in tax revenue growth and reduces the deficits.

That's what happened under the Kennedy tax cuts in the 1960s, the Reagan tax cuts in the 1980s, and even in Bill Clinton's second term when the economy took off after he cut the capital gains tax rate, fueling the high-tech job boom.

The bitter political polarization that is self-evident in this battle is one we've fought many times in our history. Obama's retro-economic ideology comes right out of the Great Depression and the New Deal of the 1930s: higher taxes and government spending for public works jobs.

But it didn't work then, and it's not working now.

With the economy flat on its back and one-fourth of the nation out of work, and after everything else had failed to get the economy back on its feet, FDR sharply raised tax rates in 1937 in an effort to bring down budget deficits, the worst possible medicine for a job-starved economy. We didn't really begin climbing out of the Depression until World War II and a massive industrialization for the war effort.

The second math equation Obama doesn't understand, or even want to acknowledge, is the economy's weakened condition under his failed public works spending programs.

It is rarely mentioned in any of the reporting about the "fiscal cliff" debate, but at the end of 2010 Obama signed legislation to preserve and extend all of the Bush tax cuts for two more years -- including the top two rates he wants to raise now.

Even though he had won election on a vow to raise the income tax rates for the wealthiest Americans, he agreed to lay that idea aside because the economy was still not out of the woods, unemployment remained high, and even some in his party said "this is no time to be raising taxes."

Politics played a role in his decision, too. Republicans had decisively defeated the Democrats in the midterm elections, taking control of the House and making major gains in the Senate.

But the economy was the underlying reason not to raise taxes at that point. Obama's $800 billion stimulus wasn't working, claims of "a recovery summer" turned out to be an unfulfilled dream, and he had run out of ideas how to create jobs.

Now, with his re-election under his belt, Obama is trying again, even though the economy isn't much better than it was at the end of 2010. In fact, in many ways it is weaker. The economic growth rate was running around 3 percent in 2010 as Obama borrowed and spent as if there was no tomorrow, but it's slowed since then in a number of critical respects.

Job creation, never robust to begin with, has clearly weakened as the economy has crept to an average annual growth rate of little more than 2 percent over the past four years. Economists are now forecasting the economy has further slowed to a snail's-pace 1.5 percent growth rate in the fourth quarter.

"Labor force participation is lower today than when Obama took office and the recovery began, and factoring in discouraged adults and others working part-time that would prefer full-time work, the unemployment rate is 14.6 percent," says University of Maryland business economist Peter Morici.

But the economy's declining health is irrelevant at this point to Obama and his top economic advisers, who are yielding no substantive ground on raising taxes on small-business employers, investors and other high-income sectors who contribute to our economy.

Absent an agreement to do just that, he is "absolutely" ready to take the economy over the fiscal cliff, Treasury Secretary Timothy Geithner told CNBC on Wednesday.

However, calmer heads are telling the White House and Democrats on Capitol Hill that they should consider what higher taxes would do to the economy's precarious health.

"Democrats have to think about what matters more -- getting people employed sooner or immediately raising rates," said economist and Obama supporter Joseph Gagnon at the Peterson Institute for International Economics to The Washington Post. "Are they willing to have hundreds of thousands more people linger in unemployment just out of a desire to punish the rich?"

Apparently Obama is willing to do just that, no matter how weak the economy becomes under his presidency or how much pain he inflicts on America's workers.