Peter Ferrara

In his weekly radio address on April 14, President Obama displayed his lifelong commitment to an ideological extremism of pure theory unhinged from reality. That failure of leadership is why America is in a scary downward slide that will not stop until fundamental change is made at the top.

The weekly radio address was on Obama's so-called Buffett Rule, which would double the top tax rates on investment income such as capital gains and dividends. The most revealing statement was this: "Now, this is not just about fairness. This is also about growth. It's about being able to make the investments we need to strengthen our economy and create jobs. And it's about whether we as a country are willing to pay for those investments."

So this is Obama's growth model. Double the top tax rates on investment income, to get the money to increase government spending (in case you haven't noticed, "investments" is the Orwellian term Obama uses to refer to government spending), which is what really drives economic growth in Obama's mind.

If you raise taxes on something you get less of it. That's a fundamental principal of economic logic. That is why when the government wanted to discourage smoking, it sharply raised taxes on cigarettes.

Similarly, when you raise taxes, especially tax rates, on investment income, you will get less capital investment creating the investment income to tax. But capital investment is the lifeblood of capitalism. Capital investment, financing factories, stores, and other businesses, is what creates jobs. Capital investment, financing tools such as computerized steam shovels instead of hand shovels or bare hands for digging, is what makes Americans the most productive, and therefore, the most highly paid, workers enjoying the highest standard of living in the world.

Capital investment is what increases the demand for labor, which is what bids up wages. Capital investment increases the productivity of labor, which produces the cash to pay workers higher wages. When workers are more productive, businesses want to hire more of them, bidding up wages further.

Some government spending contributes to economic growth. Education creates human capital, which also makes workers more productive. But America already spends more on education than any other country in the world, and has for a long time.


Peter Ferrara

Peter Ferrara is General Counsel for the American Civil Rights Union, a Senior Fellow at the Carleson Center for Public Policy and a senior fellow at the National Center for Policy Analysis.