How Not to Stimulate the Economy

Lawrence Summers, President Obama's chief economic advisor, appeared on Meet the Press yesterday. Asked a question about the administration's plans for the Bush tax cuts, he all but declared that they would be repealed the minute the economy starts to make a recovery. "I don't think there's any question they have to be repealed. The country can't afford them for the long run…they can't be part of the long-run budget picture…they're not going to be with us for long…"

Dr. Summers is self-evidently a smart guy and knows a thing or two about economics, but there a couple of items wrong with these statements.

First, declarations from him and other Democrats that we can't "afford" the Bush tax cuts ring a bit hollow given all of the additional deficit spending they propose. The most immediate of these is the trillion dollar "stimulus," which is in fact not a stimulus but more like one big pork-barrel spending bill (unless you believe that spending taxpayer dollars on contraception and sod for the Jefferson Memorial isn't pork…). Beyond that there is the universal health care coverage they'd like to see enacted as well as other egregious forms of government expansion that young Americans and their children will involuntarily foot the bill for down the road.

Second, if the Obama Administration's ultimate aim is to boost confidence in the economy then promising to raise taxes at the first opportunity is counterproductive. In fact it will only shove the date of recovery further down the road as consumers and investors et al become dissuaded from investment and expenditure with the specter of looming tax hikes haunting them from straight ahead. When recovery does arrive, raising taxes will indicate that the administration has fallen into what Matthew Continetti has labeled the "stimulus trap," in which the government tries to recoup lost revenue from a recession by raising taxes; which then aggravates or creates anew another recession. Call it "double-dipping," as James Pethokoukis does.

Suffice to say, promising to raise taxes in the future is not the relief the American people need and is not the stimulus the economy requires. Given our current trajectory, it is unfortunately very likely that we're going to witness just how true this really is.