Obama’s new “grand bargain” avoids real tax reform and increases spending

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From the Associated Press, reporting on the President’s speech yesterday:

Seeking to ease Washington gridlock, President Barack Obama on Tuesday challenged Republicans to accept a new fiscal deal to cut corporate tax rates in exchange for more government spending on jobs programs.

The offer was immediately panned by GOP lawmakers, who accused the president of repacking proposals he already supports and making no concessions to the opposing party.

The Associated Press reports Senator John McCain (R-AZ) shot down the idea, as did Speaker Boehner and numerous other Republicans.

What’s so bad about the President’s idea? First, his speech billed the tax component as a way “to give businesses a better deal.”  In reality, this plan is a back door tax increase on corporations. While the top marginal rate is lowered from 35% to 28% and loopholes are eliminated, the government is going to extract more money from businesses in the end.

While lowering rates and eliminating loopholes is good for the economy, it should be done in a revenue neutral manner – meaning the federal government’s income from a tax reform plan does not change. In fact, the President’s plan is largely a trade-off for slight economic efficiency in exchange for his big government agenda.

Furthermore, this tax increase will not be felt by the corporations the President is targeting. Its burden will largely fall on stockholders (union pension funds and other “Average Joe” investments and investors), customers, and/or employees. After all, businesses are not tax payers. They are tax collectors.

Finally, he wants to increase spending to help the economy. This sounds vaguely familiar to recent policies under this Administration and the prior one:

 The Bush stimulus of $168 billion in February 2008
 The Obama stimulus of $787
 The September 2010 stimulus, which was several hundred billion dollars in size
 Tens of billions in unemployment benefits

These are just the big-budget items, and do not include non-stimulus green energy subsidies, increased food stamp money, or any other smaller funds that have gone out the door in the last six years that were/are supposed to help better our anemic economy. Furthermore, the Federal Reserve spent $16 trillion in loans and spending between 2008 and 2011, to various domestic and foreign companies, banks, and other entities.

The open spigot shows no signs of closing. Government spending across all levels of American government was at record highs in 2011, and barely below that in 2012:

It’s a really good sign that Republicans knocked down the President’s stale plan. Here’s hoping they come up with one that actually would do well for the American economy – starting with real tax reform, large and real spending cuts, and reducing the regulatory burden on all Americans.