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Taxulationism: The Obstacle to Economic Recovery

The opinions expressed by columnists are their own and do not necessarily represent the views of

In the decades that followed World War II, Keynesian theory was the widely accepted economic tenet of the day. As such, it was believed that recession and inflation could not occur simultaneously—it simply didn’t make sense.  But in the 1970s, during the dark days of Jimmy Carter, economic growth stalled and inflation skyrocketed. The world needed a word to describe this new economic condition. “Stagflation”—a portmanteau of stagnation and inflation—fit the bill, and the word caught on.

I bring this up because, about a year-and-a-half ago, my old friend and colleague Alan Rohrbach and I were talking about the anti-business policy coming out of Washington. We realized that there was no word to describe what had been unleashed on the American people by our fellow Chicagoan. So we decided to come up with one. That’s how “Taxulationism” was born.

Taxulationism = taxes + overregulation + trade protectionism. Three of the four so-called prosperity killers, as defined by Art Laffer. (The fourth is inflation—which has evolved as a byproduct.) Not the most melodious word in the world, but it does serve as a way to encapsulate the systematic erection of barriers to job creation and economic growth that has taken place under President Obama’s leadership.

We’d tabled the word for a while—the November 2010 election stared the pendulum swing of American political thought back in the right direction, and the end of the secular bear market felt almost like the green shoots of a recovery. But after the summer we’ve had, the president’s American Jobs Act and the so-called Buffett Tax that’s going to help pay for it, Taxulationism is back and more relevant than ever.

Let’s break this word down, shall we?

Earlier I mentioned the dark days of Jimmy Carter. Having lived through that era, I saw first-hand the ways an inefficient tax policy could stymie growth—and the ways that efficient tax policy under his successor, Ronald Reagan, could unleash the American entrepreneurial spirit. So last week, when the president announced his plan to raise taxes on the rich because Warren Buffett’s secretary supposedly paid a higher rate than the Oracle of Omaha himself, I cringed. 

The Buffett Tax is a prime example of the total lack of understanding this administration has for the way jobs are actually created. I’ll be the first to get behind tax reform, but the liberal elite in Washington have it all wrong. They remain convinced that it’s government, not the private sector, that will fix unemployment.

In addition to this latest scheme to raise taxes, the president also got wrong when it came to the Bush tax cuts. Why not make them permanent instead of letting them expire in 2013? What business would start hiring when they know the biggest tax hike in history is a little more than a calendar year away?

Regulation is eating away at every industry in America. Not only regulation, but the way regulators are being used. Look at the NLRB in South Carolina. Or the EPA in Texas. Or the SEC on Wall Street and ObamaCare on Main Street. How about the DOJ, standing in the way of the AT&T/T-Mobile merger? How many jobs will that create?

The president’s henchmen are on the front lines, pandering to his union-labor constituency and bringing the anti-business mentality that permeates Washington to the places in this country where the rubber hits the road. It’s not even a question anymore whether they’ll go after another industry—it’s a question of which one and how soon. 

If you don’t believe me, just look at his latest crusade against the homebuilding sector, which the Labor Department is now cracking down on because of the way they handle independent contractors. Let’s take a second to think about what that industry’s been through in the last few years. What person in his right mind could think this will get them to start hiring?

Protectionism used to mean tariffs, but that concept has morphed. Today, it takes many forms, but they’re no less damaging to the growth of the economy.

As part of his American Jobs Act, the president mentioned that he would pass free-trade agreements with Panama, Columbia and South Korea. What he neglected to mention is that those agreements have been sitting on his desk for nearly three years—but remained at the bottom of the pile, of course, thanks to the influence of organized labor. By the White House’s own estimate, those agreements would create some 250,000 jobs. But since they’re not union jobs, I guess they’re not good enough.

That wasn’t the only thing he neglected to mention. In that same bill is a Buy American provision that bars the use of public funds for infrastructure improvement unless the raw materials are sourced domestically. That sounds great on the surface—until you consider the way it disrupts the supply chain for U.S. manufacturers, especially the ones who source their materials from Canada, our best friend and closest trading partner. Canadian International Trade Minister Ed Fast said it pretty well in his response to the provision. “In this fragile economic recovery, we know history has shown protectionist measures stall growth and kill jobs.” The Canadians see it. Why can’t the liberal elite in Washington?

Taxes + overregulation + trade protectionism. Taxulationism is reckless policy that benefits a select few among the president’s constituency, but it comes at the expense of our nation’s credibility. And until we can reduce the deficit, fix the broken tax system in a way that makes sense, find some semblance of regulatory certainty and fully participate in the global economy, the carnage will only continue. 

Government should be a safety net, not the creator of a welfare state. Unfortunately for me, my children and possibly even my grandchildren, that’s not the way my fellow Chicagoan sees it.
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