President Barack Obama faces a daunting political reality: the world he envisioned in the spring and summer of 2008, when he was formulating his political strategy and building his political alliances, has been replaced by a world in economic danger.
His $3.5 trillion budget might make sense if these were normal times, with a newly elected, very liberal Administration wanting to focus on reshaping America and redistributing wealth. However, these are not normal times. We are in the midst of the worst economic challenge in 80 years.
Japan’s gross domestic product dropped 13% in the fourth quarter. The Russians are so short of cash, they are signing a lopsided 20-year deal for oil sales to China in exchange for a $25 billion loan. Iceland is bankrupt. The World Bank predicted on March 8 that in 2009 the global economy will shrink for the first time since the 1940s.
Here in America, the unemployment numbers keep growing. Such icons of U.S. economic power as Citigroup, General Motors and General Electric are in trouble. The big-spending strategy employed by George W. Bush and now Obama has so far failed to turn around the economic decline. Congressional leaders are talking about the need for a second stimulus package. No one should underestimate the danger posed by these policy failures. Gigantic economic dislocations have gigantic noneconomic consequences. The Great Depression led to the rise of Nazi Germany and a militaristic Japan, the spread of communism and World War II.
In this environment, the only two relevant objectives are creating jobs and restoring financial institutions to functional stability. Yet the Obama budget has the potential to do exactly the opposite.
If the country’s No. 1 priority is to create jobs, then a hidden $1,300-per-family energy-tax increase in the guise of a cap-and-trade system is absolutely destructive. Herbert Hoover raised taxes in 1932, and it further crippled the economy. The war-on-wealth rhetoric and policies of this Administration and the Democratic Congress are making it difficult to stabilize the stock market and much harder to get successful people to invest in American jobs.
If we want to keep money in the U.S., then sending it overseas for oil and gas is counterproductive. Yet the Obama budget includes a 13% excise tax on offshore oil and gas production in the Gulf of Mexico, threatening the domestic oil and gas industry at a time when we should be encouraging it to return resources home to America. The various tax increases in the Obama budget combine to form as great a threat to economic growth as the Smoot-Hawley Tariff — in effect a huge tax increase on consumers — did in the 1930s. Obama needs to slow down, recognize how much the world has changed and work across party lines to develop a totally new budget to meet this new reality.
The outlines of such a budget can be found at AmericanSolutions.com. Our 12 American Solutions for Jobs and Prosperity include creating a temporary new tax credit to offset 50% of the payroll tax , cutting the business tax rate to 12.5% to match Ireland’s, and reducing the 25% marginal income tax rate to 15%, effectively establishing a flat tax rate of 15% for almost 9 out of 10 American workers. These steps would put more money into the hands of American businesses and consumers faster than any stimulus plan that has to disburse money through a centralized bureaucracy.
Our 12 solutions also include a strategy for energy abundance that would lower energy costs by exploring for more domestic oil and natural gas, as well as investing in sources of affordable energy for the future, including clean coal, renewable fuels, wind and nuclear. We also call for the abolition of capital-gains taxes, which would immediately add value to the personal portfolios of every American and bring relief to anyone saving to retire, buy a home or go to college. This is the type of vivid pro-growth, pro-savings and pro-investment strategy that’s needed to create jobs and restore stability to the financial markets. If President Obama used these 12 solutions as the basis for his 2010 budget, it would enjoy bipartisan support and set America on the path to recovery.
Former House Speaker Gingrich is chairman of American Solutions for Winning the Future
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