I Hate to Say It, But Obama May be Right on This One…

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First, let me provide some context for my article.

I very much dislike Obama.  I dislike Obama because his policies tend to be illogical and harmful to America.  I dislike Obama because of the people he has associated with and hired: People with disturbing histories.  In fact, this six part expose shows just how troubling it is that Americans actually voted for him.

Although Obama usually acts illogically (well, only illogically if one assumes he wants the best for America!), he sometimes does act logical.  I think it’s important for me to highlight some of these instances!

Something he’s done recently is plausibly logical:

He’s insisting that taxes be raised.
 

Today, Fox News reported the latest developments regarding the deficit and debt ceiling negotiations:

“According to sources, Obama said ‘enough is enough,’ arguing forcefully for revenue increases to achieve the deficit reduction sought by the GOP.

‘I’ve reached my limit. This may bring my presidency down, but I will not yield on this,’ Obama said, before walking out.”

“Despite several weeks of negotiations, the White House and Republicans leaders have not been able to strike a deal to rein in government spending while increasing the nation’s borrowing limit.

Democrats have insisted on raising new revenues in any deal that would include deep spending cuts. But Republicans are adamantly opposed to any tax increases, even if it is limited to closing tax loopholes for the wealthiest Americans.”

At this point, it’s plausible that tax revenue increases are a good idea (I’m not totally convinced, but one could easily argue that tax increases are a good idea.  And I’ll argue that below!)

Now, I certainly support spending cuts also!  In fact, there is a good chance I’d recommend that the spending cuts be larger than the tax cuts!

But this article isn’t about spending cuts.  I want to focus on examining tax increases.  I want to focus on the Republicans’ position of supporting no tax increases at all, and to focus on Obama’s response to that position.

Are you surprised to see me support tax increases?  After all, although I’m not partisan, most policies that I do support, that are logical, tend to be traditionally conservative.

Aren’t tax increases typically liberal?  Yes.

So, am I saying that it’s generally better to raise taxes and increase spending rather than cut taxes?

No!  Everything else being equal, there is no doubt it’s better to cut taxes rather than raise taxes, for one main reason:

People will always tend to handle their money better than the government will handle that money, because people have the incentive to:  It’s their own money!  The government does not have as much of an incentive to handle that money well, because it’s not their money.

So, everything else being equal, tax increases are not the best policy.

But during the current debt ceiling negotiations, everything else isn’t equal!

On their own, it’s actually possible that it would be better to achieve a surplus by entirely cutting spending instead of raising taxes at all!

But like I said, everything else isn’t equal!  There are existing circumstances that weren’t as much of a factor in the past:  The market’s perception and subsequent reaction to US fiscal action!

If it’s perceived that the US isn’t willing to raise tax revenue to pay down debt, the countries that lent money to America, notably China, might become nervous that the US might default on its debt.

As a result, they might start selling the product they received in return for having lent money to America:  US Treasuries.  That would lower the US dollar (which isn’t necessarily a bad thing), but the signal by China could cause panic in financial markets, causing investors to withdraw assets from the USA on a widespread basis.

But aren’t there any negatives associated with raising taxes?

Won’t raised personal and business taxes scare small businesses and big corporations from investing in America?  Won’t this result in some businesses leaving America?  Won’t this result in some foreign businesses choosing not to expand to America, to instead expand to a country other than America, somewhere tax rates are lower?

Yes, that likely would be an effect.

But I’m not convinced that the costs of raising taxes (including businesses being scared of investment) exceeds the benefits (one benefit is, again, avoidance of possible dumping of US treasuries and its effects).

Here’s why I’m not convinced:  When you scare off investment, you don’t scare off all businesses, just some.  But if a panic is incited by foreigners selling US Treasuries, there could be widespread panic and widespread withdrawal of assets from America.

Because such a situation is less predictable and potentially devastating, I think it’s likely better for the US to stick with the more predictable situation, raising taxes, even if there’s a chance it might not end up being the strategy that is the most financially successful for America.

As a side note, I’m not convinced that it would even be much, if at all, of a negative if businesses move investment from the USA!

Why?  Well, yes, it’s true that those businesses employ US workers.  But many of them also support foreign countries by purchasing their products from China instead of the USA!  By doing that, these businesses increase the trade deficit and shrink the wealth of America!

So, it’s actually possible that scaring away businesses might actually benefit the USA! (But only because of their current business model, purchasing items from abroad!)  And I bet I’m the first person you’ve ever read claim that (much less explain how!) it might be beneficial to scare aware business development!

One other factor to consider when deciding whether to raise taxes or decrease spending:  The reason it’s often illogical to raise taxes is because the government doesn’t have the incentive to spend it well.  Meaning, they collect the money but distribute it poorly, or even steal from it!

But when it comes to the current situation, there’s less potential for misspending of the money.  Because the money might not be spent at all!

Think about it.  It’s not like they would raise taxes and spend it on new government programs.  They would use it to pay off the national debt! (At least, that’s the hope!)  How can someone mishandle writing a check to another country?  Even the government can’t screw that up!

Now, it’s true that fiscal decisions are complicated.  I haven’t examined every single factor that influences fiscal decisions.  But I think I’ve presented the larger issues, the ones most likely to have the largest impact on the decision whether to cut spending or increase taxes!

Conclusion

This article didn’t examine spending cuts.  It’s very likely that very large spending cuts should be implemented.  When looking at tax increases only, here’s what I conclude: 

Although it’s not normally a good idea to raise taxes, there are many reasons why raising taxes may currently be a very good strategy.  The biggest reason may be this:

To avoid potential unpredictability, investor panic and widespread asset withdrawal that could result if foreigners perceive the lack of a tax increase as a negative.

Who would have thought that Obama, someone who is so negative and harmful to America, might actually advocate a strategy beneficial to America?

Who would have thought that Obama, a person who apparently doesn’t even understand the basics of how a country increases its wealth, would be capable of or willing to come up with a good idea?

Well, maybe I’m being too optimistic.  Sigh.  After all, it is true that tax increases are, everything else being equal, a bad idea.  Obama’s position is simply the default Democrat position.  Perhaps he was just lucky enough to be in the midst of the current debt situation, one which just might justify his tax increasing ways!

As this article pointed out, it might even be the case that the debt ceiling debate is all for show, with the intention of politicians being to default on the debt!

I will end with this:

For decades, Americans have been in debt.  That means they’ve spent the money on the good life, and haven’t paid for it!

With that in mind, is a tax increase necessarily a bad thing?  After all, doesn’t someone need to pay for what Americans have bought?

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