Inside Politics

TAX TROUBLE

“The barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery,” Martin Feldstein writes in the Wall Street Journal.

“Historians and economists who’ve studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997,” said Mr. Feldstein, a Harvard economist and former chairman of the Council of Economic Advisers in the Reagan administration.

“The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.

“Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately, and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.

“The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. Official budget calculations disguise the resulting fiscal drag by treating Mr. Obama’s proposal to cancel the 2011 income tax increases for taxpayers with incomes below $250,000 as if they are real tax cuts. The plan to modify the Alternative Minimum Tax to avoid increases for some taxpayers is also treated as a tax cut.

“But those are false tax cuts in which no one’s tax bill actually declines. In contrast, the proposed tax increases are very real.”

BOOMERANG

“Many Democrats in Congress have pushed for release of documents and the holding of hearings on waterboarding and other interrogation methods,” William A. Jacobson writes at www.legalinsurrection.blogspot.com.

“Putting aside for now whether the release of such information should take place, it appears that Obama started the ball rolling down hill by releasing the interrogation memos. Barring active intervention by Obama, there will be some further level of document release, congressional investigations and public hearings,” said Mr. Jacobson, a law professor at Cornell.

“This presents a problem mostly for Democrats. Republicans who were briefed on the interrogation methods at least will be consistent, for the most part, in maintaining that the methods were lawful and useful. No Republican is going to be harmed politically by the revelations because most Americans support these methods against people like Khalid Shaikh Mohammed. If leaks of a Justice Department report are to be believed, there will be no prosecutions. Republicans are safe politically and legally.

“For Democrats, however, the damage could be significant. Nancy Pelosi already has lost a great deal of credibility from her changing stories. Dozens of other Democrats, including such senior senators as Jay Rockefeller, apparently also were briefed on the interrogation methods and either were silent, approved or encouraged the policy.

“The irony is that a full-blown investigation and hearings will turn mostly on what the Democrats knew, and when they knew it. …

“Where this seems to be heading is: (1) Republicans claim Democrats are damaging national security, thereby setting Democrats up for blame when there is a terrorist attack; (2) Republicans claim the mantle of putting the safety of the country ahead of politics; (3) Democrats claim the mantle of putting politics ahead of the safety of the country; (4) Democrats end up exposing Democratic Party leaders to be untruthful, misleading, deceptive and/or too smart by half; (5) the CIA fights as it always has for its institutional interests in a battle politicians mostly lose; and (6) Democrats turn on each other.”

IMPRESSIVE

Story Continues →