George H.W. Bush, a “compassionate” conservative, was swept out of office for violating his “read my lips: no new taxes” pledge. In a form of political road-rage, an angry electorate turned to an obscure former governor of Arkansas who eventually rewarded them with—guess what—new taxes! Candidate Obama’s tax message was a riff on Bush I, promising a tax break for “95% of Americans.” Having already elected him, Americans can forego the lip reading stage but ought to read the fine print on the first of many revenue-raising proposals coming out of the new administration. These measures, of course, will be taken in order to finance the astronomical levels of federal spending envisioned by the new president. In light of his “95%” vow, what a shock to find that the primary means of filling revenue gaps will be, yes indeed, new taxes.
Back in February the administration unveiled its preliminary plan to overhaul the nation’s healthcare system. At that time the administration claimed it had identified $634 billion of existing government revenue streams over the next ten years that could be used to pay for about half of the “reserve fund” connected with the healthcare overhaul. (The entire ten-year cost of the program will be well more than a trillion dollars. Under the new administration, we ought to get accustomed to discussing programs, budgets and deficits in the trillions rather than billions. Repeat after me: t-r-i-l-l-i-o-n-s.) From this fund the government will issue subsidies to purchasers of health insurance, an interim stage in the Obama administration’s ultimate goal of nationalizing the entire healthcare segment of the economy. (This is actually a key part of Mr. Obama’s more general “spread the wealth” objective, so that eventually the government can provide universal Canadian-style mediocre healthcare. Think of it as the lowest-common-denominator solution to the healthcare “crisis.”)
Under the administration’s February plan, the healthcare fix-up would be financed through a combination of a reduction in government payments to various healthcare providers along with specified tax increases. Lo and behold, the authors of the plan have suddenly discovered that the assumptions they made about the revenue contribution of the payment cuts and tax increases weren’t quite accurate, resulting in a nearly $60 billion gap that now has to be bridged. The solution, of course, is some creative new taxes. These will include making the current confiscatory estate tax even more Draconian, something few thought was possible, and tightening some IRS corporate reporting rules, thereby squeezing some extra dollars out of companies already subject to the some of the highest corporate tax rates in the world. However, according to the Wall Street Journal, this will account for only $35 billion of the shortfall. The administration promises to reveal its plans to raise the balance after the weekend.
This is in keeping with what is certain to become a pattern of incremental disclosure. It is a clever way to gradually segue into a full tax-increase mode—which eventually must include all taxpayers—without calling too much attention to it. Castor oil, after all, should be administered in small doses. So announce a bold new initiative along with an alleged plan to finance it, let the purported benefits sink in and then layer on the actual new taxes required to pay for it in gentle increments. This kind of cynical thinking is sure to take into account the gullibility of an electorate that has been promised the moon with no idea of how, or who, will pay for it. The idea is to create the assumption that someone else, perhaps that “rich” 5% singled out by Mr. Obama, will underwrite the other 95%, the beneficiaries of this miraculous revocation of the ancient rule that there is no free lunch.
This ambitious administration plans to grow the federal government to unprecedented levels through gigantic spending increases that will result in an exponential explosion of the federal deficit. Not a single credible explanation has emerged, even from the vaunted Obama team of economic advisors including Larry Summers and Paul Volcker (who at such a late stage in his career inexplicably appears determined to taint his nearly saintly reputation through his association with this insanity), of how all of this will be paid for. Not one administration official has explained why this spending orgy is not certain to encumber future generations with a dreadful financial burden. No one has stepped forward to make a convincing case that Mr. Obama’s thinking doesn’t violate every fundamental principle of simple economics. We have yet to hear why this adventure will not bankrupt the nation.
But don’t expect a fawning press to ask these difficult questions, as obvious as they seem. Like some administration officials who ought to know better, members of the general media have imbibed the Kool-Aid in a total suspension of disbelief, and will continue to sing hymns to this administration of change.
However, just like gravity, the laws of economics are insurmountable. In the end, the corrosive consequences of oppressive taxation and the grim reality of governmental central planning will weigh heavily on a suddenly-wiser American people as it awakens from its trancelike infatuation. At that point, it will turn on a dime against the purveyors of these economic fairytales, provided there is a single dime left.