The Cutting Edge

Armstrong Williams

President Obama has a large number of programs on his domestic agenda.  These programs include the economic recovery (formerly known as a stimulus), restructuring the financial and banking system, health care reform, distressed home owners, green environmental programs, redistribution of income from the wealthy to the middle class, education funding, infrastructure investment in highways and public transportation, promoting stem cell research, energy independence, unwinding abortion protections for medical personnel choosing not to participate in abortions, and the employees free choice act to furthering unionization through a card check. 

Given the state of the economy, the President’s principle objective should be to revive our sick economy. Make a distinction between "reviving the economy" and investing in capital programs and infrastructure for the future. Investing in the future is important; but reviving the economy is more important at this juncture.  Unemployment is already approaching 8 percent. Do we want to see unemployment increase to double digits? The president should focus his agenda on those programs that stimulate the economy. If the President’s objective is to revive the economy, many of the president’s proposed programs are a diversion and do not efficiently achieve that objective.  Let us analyze several of these programs.

The economic recovery act includes a tax provision which reduces the deduction on charitable donations from 35 percent to 28 percent on wealthy tax payers. This will result in lower donations to private charitable organizations. Not only will this measure cripple the charitable mission of many organizations, it also reduces employment in the charitable sector of the economy. OMB Director Peter Orszag says the government will make up for the reduction in charitable donations by giving money directly to charitable organizations. 

According to Orszag "Contained in the recovery act, there's $100 million to support nonprofits and charities as we get through this period of economic difficulty." Will the government allocate funds to religious organizations that suffer a decline in charitable giving? I would be surprised.  This means that instead of the individual who made the money deciding what charitable organization to support, the politicians and bureaucrats in Washington will decide.  

The economic recovery act includes provisions to spend about $500 billion on various economic programs. This money will be taken from the private sector and spent by the government. The politicians and bureaucrats in Washington will determine how that money will be spent.  Even without dwelling on the pork and inefficiency in government spending, wouldn’t that money (about $1,700 per person) be more efficiently spent by distributing it directly to the American people and taxpayers?  It certainly would be a great stimulus to the economy if every American had an extra $1,700 to spend. Only 15 percent to 20 percent of that money will be spent by the government within a year. I suggest that the American people can spend it faster. Do the American people need the politicians to tell us how to spend our money? 

The president has stated that the economic recovery act will result in the creation of 3.5 million jobs.  About two-thirds of jobs created in the US are created by small businesses. Most of the successful small businesses that create jobs are owned by individuals considered wealthy by President Obama. Instead of being rewarded for creating value and new jobs, these productive individuals and businesses are being penalized in 2010 with higher taxes.

Recent history has shown that reduced marginal tax ra tes result in higher tax revenues because of increased taxable income.  Could the government save $500 billion by creating tax incentives for these individuals to invest in their businesses and create jobs in the private sector? Probably, but then our politicians and bureaucrats, most of whom have never been res ponsible for a payroll, know how to create jobs better than successful business people in the private sector. 

The president has also proposed that the government should determine that certain large businesses and financial institutions should be subsidized by the government so that they do not fail.  If General Motors was a smaller non-union manufacturing company, it would have been in Chapter XI by now. If Citibank were a smaller bank, the banking regulators would have put it in receivership. Once again, the government knows better than the private market what companies should survive and which should fail.  Does this create a “moral hazard” where companies that are too large to fail may engage in risky behavior without suffering the adverse consequences of such behavior? 

What about the mortgage bailout program? It's aim is to reduce the mortgage payments of troubled borrowers.  Who determine should who is a deserving troubled borrower? The government of course decides which troubled homeowners will go through foreclosure and who will not.  These troubled borrowers are subsidized by holders of mortgages who are forced to accept reduced payment terms by bankruptcy judges.  They are also subsidized by responsible mortgage paying taxpayers who will foot the bill of $200 billion as an investment in Fannie Mae and Freddie Mac. Once again, the government is creating a “moral hazard” by bailing out over-extended homeowners. 

It seems that there is something in the president’s agenda for each constituency of the Democratic Party. There is some focus on stimulating the economy now but that appears to be a smoke screen for something else. The real agenda appears to be shi fting power and responsibility from individuals and the private sector to the government. Let us not mince words any further. The president would like to shift our society from a laissez faire capitalist society to a European-style welfare state or even preferably a socialist state.

Conservative talk-show host Armstrong Williams is broadcast daily on XM Satellite Power 169. He can be reached at www.armstrongwilliams.com