The Insanity of Additional Government Spending

As we prepare to hear the next State of the Union speech, we are hearing that Obama is going to push for more spending. The idea that government spending is necessary in order to keep an economy going is a Keynesian theory that hasn’t proven worthwhile in the last four years. At the same time, business growth has been sluggish to non-existence because of – not in spite of – current government policy.

How can this be? Businesses won’t invest if a) they can’t get a good rate of return due to regulation; b) they can’t get a good rate of return because of high taxes; and/or c) they encounter threats of wealth redistribution from the successful to the less/(un) successful. Because of these prevalent circumstances, people with new ideas who would normally be moving the economy are hesitant or unable to do so. Likewise, investors such as venture capitalists and angel investors are all sitting back and waiting to see what further strangulations and fiscal/tax demands this administration can impose, in lieu of actual fiduciary responsibility.

Obama’s repeated calls to clean up the “unfair loopholes” in the tax code are merely revenue raisers disguised in inflammatory class warfare rhetoric. No one denies that the tax code needs simplification. However, the end goal for Obama is additional revenue for the government, while a genuine tax reform is typically revenue neutral. And then our government will spend the revenue in the way the government (not you or I) deems best.

For example, during the IRC reforms of 1986, first the margins were lowered and then credits/deductions/loopholes were removed to simplify existing tax inequalities and balance government revenue. This approach is overall stimulative because the lower marginal rates gives the taxpayers and investors more of their money to invest and put back into the economy.

In contrast, Obama just raised the rates during the Fiscal Cliff negotiations, and his discussions since then have indicated he would like to continue to raise more. His idea of tax reform – of “closing loopholes” — is not an economic booster or a way to protect the middle-class; it is an out-and-out spending maneuver – because the revenue raised from lessening the ability of a taxpayer to reduce his taxable income goes straight from his pockets to government coffers.

This approach is another tax increase masquerading as “fairness”. Higher taxes are considered necessary to Obama because he cannot control his rapacious spending. The reason we have not had a budget in nearly four years is because Obama cannot commit to paper on what he is spending our taxpayer money. We know the spending is there, however, because the trillion dollar deficits — more than double any other predecessor of Obama – have occurred each of the four years of Obama’s first term. Deficits occur when spending exceeds revenue. Trillion dollar deficits mean extraordinary spending.

The fiscal reality of our nation, four years after the economic downturn and the first term of Obama, has resulted in little to no substantive economic improvement. Our unemployment hovers near 8 percent and the economy actually contracted last quarter. The spending spree experiment has failed to produce a plethora of jobs; in fact, the amount of jobs being created has barely – if at all – kept pace with natural population growth. And in all of our history, we’ve not once had a recession before now where job growth didn’t keep that pace — until now.

Spending more, as Obama will propose during his next State of the Union address, is now an act of desperation. Many of his other spending schemes (Solyndra? Electric cars?) have failed miserably with our money. But rather than attempt a different approach, Obama has decided he wants to keep on spending with different ideas/packages/proposals in order to cover up his failure to significantly resolve the economic downturn with his first-term fiscal policies. All this does, however, is prolong the economic crisis. Our businesses are struggling. Job creation is stagnant. Our deficits and debt ceiling are on the brink of disaster.

Isn’t the definition of insanity doing the same thing over and over again while expecting different results?

Crossposted at alanjoelny.com