Will it halt or even slow down the rapid growth of the deficit? No. Does it address any of the systemic problems with the current budget process? No. Does it impact any major spending program in any meaningful way? No. Does it account for any more than a tiny fraction of the current deficit? No. Is the proposal any more than a nakedly political, symbolic gesture timed for the State of the Union Address? No.

Should the Republicans therefore condemn the proposal? NO!

Even this symbolic gesture should be encouraged. It’s a step in the right direction, and even tiny steps are positive steps if they’re in the right direction. If enacted, it will demonstrate that the direction is a positive one, and will infuriate the left nonetheless. It’s one campaign promise (Obama opposed freezes during the debates) that we’d love to see the president break.

Last night, the president reminded us that “I inherited a 1.3 trillon dollar deficit.”

Okay, let’s review. In 2007 (the year the Democrats took over control of Congress), the deficit was $170 billion (having steadily declined from a high of $378 billion in 2003).

The following year, the Democrat-controlled Congress nearly tripled the deficit to $459 billion.

This year’s deficit is projected to more than triple again to $1.75 trillion. Most of this is Obama’s “stimulus” and omnibus spending bill.

So what part of this is “inherited”?

The primary causes of GM’s failure can and have been attributed to two major factors: government regulation and union intransigence. In short, government and the UAW.

Now that GM has filed for bankruptcy, the new owners will be: the government and the UAW.

What’s wrong with this picture?

Jim Kramer, Paul Volcker, David Brooks, Christopher Buckley, Andrew Sullivan, Silicon Valley, …, and all other moderates, conservatives, pragmatists, etc., who wanted us to believe that Barack Obama wasn’t as far to the left as his opponents portrayed him to be, and was going to bring competence back to the White House, are beginning to have buyer’s remorse.

You would think, if not hope, that with the economy teetering on the brink, partly as a result of misguided government housing policies, that the government would recognize its past market-distorting errors, and devise a remedy whose primary beneficiaries would be:

A. First-time buyers and renters who saved their money, sat out the bubble, and now want to take advantage of falling prices to finally achieve their goal of owning a home.

B. Irresponsible and/or greedy buyers who tried to profit quickly from the bubble and secured liar loans, zero-downs, teaser ARMs, or huge seconds to pay down extravagant consumer debts but are now under water.

Sadly, in a politically hasty moment, the government chose a hair-of-the-dog remedy that benefits primarily B.

And in a surreal media atmosphere, the mainstream media describes this pathetically weak but costly plan as “bold” while the market continues its slide.

Brian Riedl has some valid questions here.

Here’s the quote in case the link goes away:

 The $800 billion economic “stimulus” bill may be more appropriately called the “Obama debt plan.” It will, after all, dump $6,700 per household of new debt into the laps of our children and grandchildren.

Whether it will actually stimulate the economy is another matter. So perhaps politicians can first answer a few questions from the back of the classroom:

1) President-elect Obama claims that spending approximately $800 billion will create 3.675 million new jobs. That comes to $217,000 per job. This doesn’t sound like a very good value, especially with the national average salary around $40,000. Wouldn’t it be cheaper to just mail each of these workers a $40,000 check?

2) Politicians say deficit spending will expand the economy (as if President Bush’s $300 billion budget deficits brought economic nirvana). If that were true, then the current $1.2 trillion deficit — the largest in history — would already be rescuing the economy. It’s obviously not. So why would $800 billion more of the same suddenly end the recession?

3) We’re told that government spending will add new spending power to the economy. But Congress doesn’t have a vault of money waiting to be distributed: Every dollar lawmakers “inject” into the economy must first be taxed or borrowed out of the economy. If government borrows the money from American investors, investment spending drops accordingly. If it’s borrowed from foreigners, net exports drop accordingly. How does borrowing $800 billion from one group of people and giving that $800 billion to another group of people make us wealthier?

4) Some answer the previous question by saying that transferring income from savers to spenders keeps more money circulating through the economy. That made some sense in the 1930s when people hid their savings in mattresses because they didn’t trust the banks. But today, people use their savings to pay down debt, invest, or put it in banks — in each case, making the purchasing power available to others wishing to borrow. Thus, savings circulate through the investment spending side of the economy. How does transferring money out of investment help?

5) Policymakers are basing the “stimulus” bill on economic models that wrongly assume every $1 of government spending increases the economy by approximately $1.60. Is it really that simple? By that logic, debt-ridden, big-government countries like Italy, France, and Germany should be wealthier than America. And why stop at $800 billion? Such logic suggests unlimited prosperity could be guaranteed by the government borrowing and spending $800 trillion. Should America be basing such costly decisions on these types of economic models?

6) Lawmakers tell us every $1 billion in highway “stimulus” can be spent creating 34,779 new construction jobs. But Congress must first borrow that $1 billion out of the private economy. Won’t the private sector then lose the same number of jobs?

7) During the 1930s, New Deal lawmakers doubled federal spending — and unemployment remained above 20 percent until World War II. More recently, Japan responded to a 1990 recession by passing 10 “stimulus” bills over 8 years (building the largest national debt in the industrialized world) — and their economy remained stagnant. Why do lawmakers believe the same failed approach will succeed for the U.S. today?

8. The economy sank because people over-borrowed for houses they couldn’t afford, and financial institutions over-borrowed for investments they badly misjudged. Washington’s solution is to borrow $800 billion that it cannot afford. How will adding $800 billion to the national debt (which will also raise interest rates) solve a recession created by imprudent borrowing? And who will bail out the American taxpayer when the bill comes due?

9) Temporary tax rebates were implemented in 1975, 2001, and 2008, and most economists agree they failed to help the economy. Long-term marginal tax rate reductions implemented in 1982 and 2003 both substantially increased economic growth. So why are lawmakers planning another round of temporary tax rebates, followed by an increase in tax rates?

10) Mayors have pledged to spend stimulus funds on items such as a mob museum in Nevada, a polar bear exhibit in Rhode Island, and curbing prostitution in Dayton, Ohio. As National Review asked, how come one Bridge to Nowhere is a national embarrassment and 1,000 Bridges to Nowhere are a “stimulus?” Given the 11,000 annual earmarks, why should taxpayers trust politicians to spend this money better than they would spend it themselves?

Sort of explains why the stock market is not liking the stimulus plan.

Barack Obama proved he must be a socialist, because he doesn’t know the difference between sharing and taking. 

On Wednesday at a rally in downtown Raleigh, he thought he could ridicule John McCain’s accusation that his tax plan is redistributionist:

McCain has “called me a socialist for wanting to roll back the Bush tax cuts for the wealthiest Americans so we can finally give tax relief to the middle class,” Obama said. “I don’t know what’s next. By the end of the week he’ll be accusing me of being a secret communist because I shared my toys in kindergarten.”

Sharing your toys doesn’t make you communist, but the opposite. It makes you compassionate. Or at least it may mean you’re rational, if the playmate you shared with has a toy you’d like to play with in return. The essential of a free market. 

But if his kindergarten teacher had taken some of Barack’s toys away from him and distributed them to other children, then his teacher would be a socialist. Socialists don’t like markets because they operate outside the state, using resources the state would like under its control.

And if Barack had cried about his toys being taken away, and his teacher punished him for “not sharing,” that would make his teacher a communist. “Secret” communists use the term compassion when they mean compulsion.

So which is he? A secret socialist or a secret communist? I hope we don’t have to find out.

Some studies have suggested that Obama’s polls are benefiting from the market meltdown.

Other studies have shown an inverse correlation between Obama’s poll numbers and the Dow index – suggesting an “Obama Discount” which reflects investors’ pessimism toward the economy under an Obama administration. Today’s steep decline the day after the NBC/WSJ Poll showing a widening edge for Obama would support this theory.

Interesting. Since these theories do not contradict, they could both be valid. And if both are valid, then one could synergize the other, causing steeper declines.

The title of this post may seem an oxymoron, but it describes an actual situation, and is the center of the two candidates’ tax proposals.

Obama says that his plan would “cut” taxes for 95% of Americans, or those earning less than $250,000  (adjusted gross income, presumably, but they haven’t specified.)

McCain supporters (but not him or his campaign, oddly) say that 40% of earners don’t pay federal income taxes at all, so how do you “cut” from zero? Well, by receiving credits, they reply.

Credits? But aren’t credits really income redistribution, or more precisely, welfare? The Obamen prefer to use the terms already in the tax code, which don’t include such socialist descriptors as “redistribution” or ”welfare”, which are not the purpose of the income tax, and disquieting concepts to everyone but the hard left, who are perfectly happy using the tax code to achieve social ends, and not just to raise revenue.

Thus, during the VP debates, Joe Biden flatly objected to the term “redistribution” used by Sarah Palin. But what else would you call it? Do we need another “lipstick on a pig” metaphor? Maybe she should have said “spread the wealth” as Obama did in response to Joe the Plumber.

The tax code already has an earned income tax credit (EITC) provision, which accomplished the same purpose proposed by Obama, except for a far smaller number of filers than now proposed. Presumably, Obama’s plan would greatly expand the EITC, and “pay” for it by making the code more steeply progressive than it already is. (So much for tax reform.)

(Incidentally, Milton Friedman proposed a “negative income tax” decades ago as a replacement for welfare. It’s hard to conceive of him endorsing Obama’s expansion of this concept into refundable credits for 10 million filers.)

Early opponents of the EITC feared it would expand to earners above the poverty level and into the lower middle class, just as opponents of the Alternative Minimum Tax (AMT), intended to prevent the highest income earners from taking advantage of deductions, feared would affect upper middle class earners.

In both cases, the fears were correct. The nearly 40% of earners who pay no federal income tax will become beneficiaries of an equivalent to the EITC under Obama’s plan. And at the top end, four million filers wil be subject to the AMT. 

But to a more important point — will the new expanded class of “untaxed” taxpayers really benefit? Consider:

(1) To “pay” for the new credits, Obama will increase taxes on those who earn more than $250,000. Since many small businesses are in this class (since they file taxes as individuals), the McCain campaign has pointed out that targeting the “rich” and corporations will actually weaken the job-creating engine of the economy and not bring in the revenue needed.

(3) Readers of this blog know that corporations don’t pay taxes — people do. To a business, taxes are a cost which must be borne by the owners (or shareholders), the employees, and the customers.

(4) Everybody, regardless of income, relies on businesses for all of their basic needs. It’s estimated that 60 cents of every dollar spent goes toward taxes in one form or another.

In light of the above, how does Obama’s plan cut taxes for anyone? Answer: the plan can only raise costs for everyone, as well as eliminate jobs at those businesess which will become insolvent under the extra costs for new health care mandates and increased taxes.