You would think that with one of the weakest economic recoveries on record, President Obama would be desperately searching for ways to promote economic growth. It is, after all, an election year. Most pundit and pollsters agree that it’s the economy stupid.
But instead, Obama used his State of the Union speech to rail on about fairness, inequality, and redistribution. The Obama strategy is simple: Tax the rich because they don’t pay enough.
The problem is, they do pay enough. According to the Tax Foundation, Americans making $1 million or more pay a 25 percent average tax rate. People in the $50,000 to $100,000 income category -- call it the middle class -- pay 7 to 8 percent.
But no, Obama’s one big idea in his Tuesday-night speech was a 30 percent minimum tax on millionaires. This, by the way, is really a hike in the capital-gains tax. And this Obama penalty is aimed squarely at his likely election opponent, Mitt Romney. Talk about taxing success. Talk about taxing growth.
The capital-gains tax is the single most important economy-wide tax on wealth, risk-taking, and investment. It’s a tax on seed corn. What a brilliant idea, Mr. President.
I remember the late Jack Kemp always saying you can’t have successful capitalism without capital. But that wasn’t in the president’s State of the Union.
It’s not as though the economy is prepared to a take another tax hit. The fourth-quarter GDP report adjusted for inflation came in at a mediocre 2.8 percent. Wall Street promptly sold off on the news.
And we’re now ten quarters into the tepid Obama recovery, with its average quarterly growth rate of 2.4 percent annually.
Deep recessions are supposed to breed strong snap-back recoveries. But it’s not happening -- even after an $800 billion government-spending package, a $2 trillion Federal Reserve balance-sheet expansion, a zero Fed interest rate (for three years and counting), and a whole bunch of temporary targeted tax cuts.
It’s the whole Keynesian bag of tricks, but it’s still a very subpar recovery.
Way back when, Ronald Reagan used the supply-side model, and rejected big-government Keynesianism. He permanently lowered marginal tax rates, deregulated the economy, went to a strong King Dollar that collapsed oil and gold prices, and limited domestic spending (as a share of GDP). After ten quarters of recovery, the Reagan growth rate was 6 percent.
Compare that to Obama’s 2.4 percent. Or compare Obama’s 2.4 percent to the 4.6 percent post-WWII average recovery rate after ten quarters. The average is twice as good as Obama. But Obama is only roughly a third of Reagan. That tells you something.