Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Tuesday, December 21, 2010

Tax cut “certainty” and economic growth

Keeping their campaigns for the Presidency uncontaminated by the compromisers in Washington, Sarah Palin and Mitt Romney have chosen to reject the Obama-McConnell $858 billion tax package because its income tax cuts are “temporary.”
Compared to all the terrible things that have been said about the fiscal policy of the US government this insult “temporary” is pretty feeble. It doesn’t touch “voodoo economics” of the Reagan era or, in fact, Romney’s observation last week that “we are already drowning in debt.”
By the end of next year, we may all look back fondly at a time when we could complain: I’m not certain the good news will last.
Indeed, it’s the level of certainty around right now may that may prove to be extravagant. Not a soul running for national office or on late night television questions the left-right consensus that taxes on middle class working families, small businesses, farmers and risk-takers can’t go up. All the while, average Americans consume fifty percent more in government services than they pay for.
 Democrat spokespersons suck it up and insist that the 5% tax cut they gave the rich can’t be permanent because it’s wrong. Their metric of statesmanship in these unparalleled times is Bill Clinton’s boom-time fiscal policy of the late 1990s. They imagine girding themselves to fight the same campaign in 2012.
This 5% debate about 2% of American tax payers, however, is trivial when put against the $4 trillion fiscal hole identified by the Bowles-Simpson Commission on fiscal responsibility. Wall Street has been thriving on temporary tax cuts. But it is taking note of the observation last week by Moody’s Investors Service Inc. that the widening federal deficit may soon jeopardize the United States credit rating. The uncertainty that would launch would even give Sarah Palin’s twitter a pause. Click on:

                        Countries with a 'triple-A' credit rating

  • Australia
  • Austria
  • Canada
  • Denmark
  • Finland
  • France
  • Germany
  • Luxembourg
  • Netherlands
  • New Zealand
  • Norway
  • Singapore
  • Sweden
  • Switzerland
  • United Kingdom
  • United States
Source: Moody's Investors Service
Along with governments financing themselves responsibly, a broad level of confidence in the social-economic environment is vital in a free market economy. However, that doesn’t stand or fall on a few tax points. And the fundamentals of a positive business climate are safely in place. The public’s commitment to free enterprise is as strong as ever. The world community continues to support freer trade. Both US national parties are committed to a private sector-based recovery. In fact, the Obama stimulus program (that was launched without a single Republican vote) has expanded private sector growth and allowed public sector employment to shrink. Click on:
There are no influential socialists in Washington or anywhere else in the US, except possibly in communes in upstate New York or in Glenn Beck focus groups.
One of the stark differences between the political climate of the Great Depression and the recent severe recession is the degree of public support today for policies to restore, not replace, the private sector.  The hindsight movement, the so-called Tea Party, complains that the bail-outs were unnecessary, not that Washington missed a chance to nationalize the commanding heights of the economy—exactly what was done in half of Europe in the 1930s.
What is now in question is not the resilience of markets but the spine of democratic politicians. Legislation on taxes and everything else is inherently temporary. However, failing to restore the US federal government’s fiscal credibility will lead to very long-term and pervasive pain. And there won’t necessarily be a count-down.

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