Larry Kudlow in a Money and Politics column for CNBC titled, "Obama Declares War on Investors, Entrepreneurs, Businesses, And More," gives his opinion on the impact of the new Obama administration's budget and rhetoric on investment. He uses overtly political phrases that I would not use, such as "left-wing social vision" and "big-government onslaught, but much of the analysis is reasonable, well thought out, and defendable by economic research. He begins by declaring that the president's budget demonstrates a desire to tax people who are likely to invest, and that this is in conflict with his stated desires to rescue the economy.
Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.
Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.
Certainly Mr. Obama believes that his policy will help the economy grow, but Kudlow is correct in focusing on individual incentives to invest, and those are weakened by proposals made by the Obama administration. Without citing specific research he does correctly observe that countries with a small government sectors tend to grow faster than those with large government sectors.
Kudlow traces how Obama policy would "tax" the middle-and lower classes.
And as far as middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.
If the Obama administration is correct, and carbon dioxide emissions will result in huge costs to society, then the cap-and-trade proposal or a Pigovian tax would be logical policies to implement. But even if they are correct, the policy will successfully in drive up the prices of carbon based energy, the cheapest form of energy. Because this policy is not equally implemented world-wide, it will have a small impact on carbon fuel use but a big impact on the competitiveness of our industrial sector.
Finally, Kudlow sees beyond party lines, associating Johnson administration policies with those of the Nixon administration, and Reagan administration with those of the Clinton administration. Powerful economic trends overwhelm party platforms.
Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught and move the GOP back to first principles.
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Kudlow seems to have put words to the many nagging doubts I have about the direction government policies are taking. It seems to me that these taxes on the blue collar workers are the last thing one would want to attempt in a time when there are few enough people willing to invest in the stock market. With less disposable income changing hands in the free market and more going into the welcoming arms of the bureacracy, this kind of policy could put strain on the demand curve for stocks, prompting a self-supporting leftward slide.
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