President Obama reminds me of the fellow who's off to save the world while he ignores the disaster in his own backyard. Instead of focusing on the urgent problems facing the country -- the credit crisis and the collapse of the housing market -- he's diverting scarce resources and attention to solving health care, reforming education, and stopping global climate change. Worse, his efforts to tackle these intractable issues involve fiscal policies that exacerbate the current financial crisis. He is not only driving the deficit up to unsustainable heights, his policies will amount to a huge tax on all Americans.
President Obama claims he's only going to raise taxes on the wealthiest Americans. But even if his tax-the-rich scheme didn't depress investment and slow growth -- which it will -- there are other ways government policies, in effect, tax individuals. Government also imposes tax increases indirectly on individuals through policies that encourage businesses to raise prices paid by everyone.
Most companies operate on relatively thin profit margins; the corporate average has been about 8.5 percent since 1980. Those margins stay relatively constant because capitalism works. If a company's profits get too high, a smart competitor comes in and starts a rival business that makes the same product for less, and the greedy company loses customers.
But what happens when government taxes all businesses -- or even a select group of companies? If the company's profits decline, the company might reasonably respond by laying off workers or reducing capital outlays to cut costs. That's not exactly what we'd like to see at a time of skyrocketing unemployment, declining construction, and decreasing manufacturing orders. The alternative for most businesses is simply to pass on the increased costs to the consumer.
That is exactly what will happen if President Obama's cap-and-trade policy on greenhouse emissions is enacted by Congress. The president wants to impose stricter pollution controls on carbon emissions and allow companies that can't meet those regulations to purchase the right to pollute more through a government auction, with the money flowing into the federal budget.
Linda Chavez is chairman of the Center for Equal Opportunity and author of Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics .
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