August 2012

The Obama Economic Debacle

By John R. Hendrickson

The national economy is on the verge of sinking back into recession. Unemployment continues to remain high at 8.2 percent and policy uncertainty is a heavy albatross on the economy. Businesses and individuals are not certain what will happen in regard to the massive increase in regulatory activity, the impact of the Patient Protection and Affordable Care Act, and the current fiscal situation with out of control spending marked by a massive national debt, annual deficits, and looming tax increases. The policies of President Barack Obama and Democrats in Congress have failed to bring the nation into recovery after the Great Recession and their policies have created a disastrous debacle.

Grover Norquist, President of Americans for Tax Reform (ATR) and John R. Lott, Jr., a noted economist and public policy scholar, who also is the author of More Guns, Less Crime and The Bias Against Guns, among other works, have recently co-authored Debacle: Obama’s War on Jobs and Growth and What We Can Do Now to Regain Our Future. Norquist and Lott have written a powerful account on the failed economic policies of President Obama and their disastrous impact on the economy. Debacle examines the financial crisis, the $825 billion stimulus program, the regulatory policies of the Administration, and impact of these policies on the economy.[1] The authors argue that “we have endured the worst economic recovery since the Great Depression.”[2]

Debacle provides a thorough analysis of the economic and regulatory policies of the Administration. It also contrasts President Obama’s “recovery” with President Ronald Reagan’s economic recovery, which led to a period of economic expansion. The consequence of the Obama Administration’s economic policies has not just been the prolonged high unemployment, but a massive and dangerous increase in government spending. As Norquist and Lott write:

The $825 billion stimulus and other jobs bills have clearly racked up a hefty debt that will have to be paid by future generations. Despite the high price tag, it has — just like so many other government programs and regulations — failed to improve the economy. True, we can blame previous policies, especially George W. Bush’s policies, for some of our debt problems, but the increase under Obama is worlds apart in magnitude.[3]

The federal government is currently spending about 25 percent of gross domestic product (GDP) and the federal budget is over $3 trillion. The national debt is also $16 trillion and rising and the government is running annual trillion dollar deficits. This does not include the troubled entitlement programs of Social Security, Medicare, and Medicaid, which face trillions in unfunded mandates.

All of this spending has not improved the economy and has only brought the nation to a fiscal crisis, which threatens the future economic security of the nation. “Americans really need to ask themselves a question: Have people really noticed their lives so greatly improved by increased government spending that it is worth all this new debt?” asked Norquist and Lott.[4]

Larry Kudlow, an economist and former Reagan administration official, recently wrote that “Obama does not understand that his government-centered model is doing vastly more harm than good.”[5]  As Kudlow wrote:

That’s why, three-and-a-half years in, he’s got slumping numbers on jobs, retail sales, manufacturing, and home sales, and a GDP rate that could be one percent or less. We may be on the front end of another recession without going through a real recovery.[6]

The fragile economy is also being confronted by a significant tax increase that will occur in January 2013 unless the President and Congress act to prevent a $500 billion tax hike, which has become known as taxmageddon.

Writing in the Wall Street Journal economist Arthur Laffer and financial analyst Ford M. Scudder argued that “the United States faces an economic collapse thanks to massive tax increases on January 1, and continued deficit spending.”[7] This tax increase is based upon several factors including the expiration of the Bush Tax Cuts and taxes caused by the Affordable Care Act. As Laffer and Scudder explain:

The breadth of what will hit the country is extraordinary. The top federal rate on personal income will increase to 39.6 percent from 35 percent, with an additional 0.9 percent increase in the payroll tax for Medicare. The highest federal rate on dividends will increase to 43.4 percent from 15 percent, and the tax rate on capital gains will increase to 23.8 percent from 15 percent. The rates on capital income are rising because of the expiration of the Bush tax cuts, and a 3.8% tax on investment income for the highest earners enacted as part of ObamaCare. As happens almost every year, there is a large scheduled expansion of the Alternative Minimum Tax (AMT) to ever-lower levels of income. The highest estate tax rate is scheduled to rise to 55% from 35%, with the lifetime individual exemption dropping to $1 million from $5 million. Meanwhile, tax rates will rise in many states. In all, federal tax increases total almost $500 billion (over 3% of GDP) per year on a static-revenue basis. And that’s not counting the $1 trillion, 10-year increase in excess spending over tax receipts in the ObamaCare legislation. Given that many of the new taxes are rate increases at the margin, they will affect incentives to earn additional income. Thus it is a certainty that we face a lower level of output in 2013.[8]

This tax increase will result not only in further economic decline, but most certainly will continue the national decline. “The blunt reality is that we cannot have a prosperous economy when government is overspending, raising tax rates, printing too much money,” among other policies that are harming the economy.[9] President Obama’s policies have also led to a significant dependency on government aid as demonstrated by the significant increase in food stamps and the Administration’s current efforts to undermine welfare reform. As Kudlow wrote “roughly half of U.S. households are receiving federal-transfer payment assistance. This is a European-style model, not an American one.”[10]

Thankfully the solutions to these economic problems exist, but the difficulty will be getting policymakers to have the moral courage to implement policies that are rooted in traditional constitutional limited government. In Debacle Norquist and Lott offer serious limited government solutions. “The simple answer is for the government to spend less, tax less, borrow less, and regulate less,” wrote the authors.[11] In addition Norquist and Lott remind us that “our own history and common sense show us what can be done. We have done it before.”[12] For example the Presidential administrations of Warren G. Harding, Calvin Coolidge, and Ronald Reagan all utilized limited government policies in solving serious economic problems.

The policy blueprint that Norquist and Lott explain in Debacle is based upon what the above mentioned Presidential administrations have done in order to create economic prosperity. The blueprint is:

  • Never raise taxes
  • Keep the focus on spending and not the deficit
  • Reform the federal tax code
  • Kill the death tax
  • Tax only consumed income
  • Tax income at one rate
  • Reform the corporate income tax
  • No value-added tax
  • Reform government to reduce spending
  • Reform Social Security
  • Reduce the regulatory burden.[13]

Norquist and Lott outline additional policy ideas as well, but the above mentioned are not only necessary, but vital for a restored American economy. The authors also discuss the two political coalitions within the United States. The “Leave Us Alone” coalition and the “Takings” coalition are an accurate description of the current political division within the United States.[14]

The “Leave Us Alone” coalition is based upon voters who may not always agree on every issue, but they share the common goal of limited government. The authors explain “more gun owners also leads to lower taxes, school choice, and less regulation.”[15] In other words people can rally together under a common cause of limited government to achieve their policy goals whether that is protecting the Second Amendment or fighting for school choice. The “Leave Us Alone” coalition is very similar to the Reagan coalition which contained both Republicans and Democrats who rallied to Reagan’s political message of restoring constitutional limited government. It is also represented by today’s Tea Party movement.

In opposition to the “Leave Us Alone” coalition is the “Takings” coalition as symbolized by President Barack Obama and the Democrat Party. As the authors explain:

Those who have combined into the left are the various wings of the Takings coalition — which view the proper role of the government as taking money, power, and freedom from some and giving it to the government to control — work as one movement.[16]

The discussion over these two groups in Debacle is significant, because this debate over the economy is not just about policy ideas, but it is a larger philosophical debate between two very different political groups. In order for the American economy to avoid further decline policymakers must begin to push for limited government policy solutions. This also means that the “Leave Us Alone” coalition must win this fight because the future of the nation is at risk.

Grover Norquist and John Lott have written a significant book which details this economic crisis, why President Obama’s policies have failed, and the seriousness and crucial need to return back to constitutional policies and principles.

John R. Hendrickson is a Research Analyst at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] Grover G. Norquist and John R. Lott, Jr., Debacle: Obama’s War on Jobs and Growth and What We Can Do Now to Regain Our Future, Wiley, Hoboken, New Jersey, 2012, p. 36.

[2] Ibid., p. 202.

[3] Ibid., p. 110.

[4] Ibid., p. 111.

[5] Larry Kudlow, “Reagan praised entrepreneurs into recovery,” National Review Online, July 19, 2012, <> accessed on July 20, 2012.

[6] Ibid.

[7] Arthur B. Laffer and Ford M. Scudder, “The tax cliff is a growth killer,” July 15, 2012, The Wall Street Journal, <> accessed on July 16, 2012.

[8] Ibid.

[9] Ibid.

[10] Kudlow.

[11] Debacle, p. 159.

[12] Ibid.

[13] Ibid., p. 159-200.

[14] Ibid., p. 159-166.

[15] Ibid., p. 164.

[16] Ibid., p. 165.