The Obama Tax Hikes: Another Step Toward a European Welfare State

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Posted: Aug 06, 2010 10:30 AM

Guest post from the Heritage Foundation

Last night, the Senate voted 61-39 in favor of a $26 billion bailout for states and government unions financed in part by an $11 billion tax hike that will kill American jobs at U.S. companies that compete overseas. Worse, before that final vote was taken, the Senate also defeated two amendments by Sen. Jim DeMint (R-SC), both by 58-42 votes, that would have prevented the largest tax hike in American history. And earlier this month, Vice President Joe Biden told ABC News that the only thing wrong with President Barack Obama’s first $862 billion economic stimulus was that it didn’t borrow and spend enough.

The message to the U.S. economy’s job creators from this Administration and Congress is clear: You can expect higher spending, higher taxes and higher deficits for years to come. The verdict on this approach is in. Today the Labor Department’s Bureau of Labor and Statistics released its monthly jobs report showing the economy shed 131,000 jobs in July as 143,000 temporary census workers lost their government jobs. With the private sector only managing to add 71,000 jobs and averaging only 51,000 jobs over the past three months, the private economy appears stuck in first gear. Despite the job losses, the nation’s unemployment rate didn’t budge from 9.5% because another 181,000 discouraged workers left the workforce. All told the U.S. economy has now lost 2.4 million jobs since President Barack Obama signed his stimulus bill, and his administration is 7.6 million jobs short of what he promised the American economy would support by 2010.

Faced with this failure, the Obama administration wants to double down on its tax and spend policies by hiking taxes on America’s job creators. Research on the last seven recessions shows that small businesses generate about two out of every three new jobs during recoveries. But the $3.2 trillion Obama Tax Hike in January will hit these businesses the hardest. As Heritage Foundation analyst Curtis Dubay has detailed, while only eight percent of small businesses pay the highest two tax rates, those businesses earn 72 percent of all small business income and pay 82 percent of all income taxes paid by small businesses. According to a study by the American Family Business Foundation, just stopping President Obama’s Death Tax hike alone would create 1.5 million jobs.

But lower taxes and a more dynamic private sector is not the direction that President Obama wants to take the country. Obama’s economic direction is obviously not popular among conservatives, and is now becoming less and less popular among independents and liberals. As Slate columnist David Weigel told National Review’s Dan Foster this week: “It is like the biggest failing of Obama, and I keep saying this, that he just can’t be honest about the fact that he wants America to be more like Europe. Obviously he does.” We couldn’t agree more. For two generations after post-war reconstruction, Europe and America have pursued different economic models, and accordingly, moved in different economic directions. The American model was low tax, low spending and small government. It favored growth, income and vibrancy. The European model is high tax, high spending and big government. It favored fairness, equality and stability. It also featured unemployment rates double those of the United States, often hovering around 10 percent. Now that is no longer the case. Under Obama’s economic leadership, U.S. unemployment rates are surpassing Europe’s.

Commenting on President Obama’s budget, Rep. Paul Ryan (R-WI) told National Review Online: “This budget presents a choice of two futures. … This budget is about more than specific programs or policies. It is really about the American idea, and whether we want to move towards a European-style welfare state.” Allowing the Obama Tax Hikes to occur will be one huge step down that road. Is that really the choice Americans want to make?