Obudgeting 101

The best commentary I heard on President Obama’s State of the Union address came from two of my favorite ladies. First, from my wife, who marveled at the preposterousness of Mr. Obama’s start date for his newfound fiscal restraint:

“…this [spending] freeze won’t take effect until next year [2011] when the economy is stronger.  That’s how budgeting works.”

Somebody call Dave Ramsey! Evidently, we need spending self-control only when it feels good, not when it hurts.

Note to self from commander in chief: Next time you’re at the bottom of the pool, don’t start swimming toward the surface immediately. First, catch your breath (metaphorically speaking). Let your muscles regroup. Then begin your ascent. Hmmm.

The second piece of State of the Union commentary came from Peggy Noonan, accomplished author and former special assistant to President Ronald Reagan. Ms. Noonan adroitly pointed out that Mr. Obama’s speech argued against itself. The president shot himself in the foot despite D.C.’s handgun ban!

On one hand, he continued his mantras that more and bigger government offer the salve for ailing Americans: The government should provide jobs, health care, financial investment information, etc. In a nutshell, Washington is the answer.

On the other hand, President Obama belabored the brokenness of Washington, how gridlocked, how self-serving the capital is. So, let’s get this straight: Washington is the answer but the answer is broken? The logic couldn’t be more faulty.

This faulty logic beholds why Senator Scott Brown won and nationalized health care didn’t.

People know that Washington’s inability to rein in existing quality of life entitlement programs and other profligate spending has left us with daunting debt levels. (One-third of President Obama’s current $4 trillion budget request will go on the national credit card.) The people weren’t about to give politicians power to push us completely into bankruptcy or exorbitant taxes.

Some have described the Washington stalemate this way: Democrats can’t say no to a spending program and Republicans can’t say yes to a tax increase. To unfurl the logjam, the former must acquiesce to the latter. It’s reality. When families or businesses simply can not increase their income, they must decrease their expenses.

The serendipity of this strategy is that lower taxes will ultimately drive higher revenue (google Laffer’s Curve). Higher taxes didn’t drive federal surpluses from 1998-2001. A roaring economy fueled by venture capital investment did.

What motivated the venture capital investment? A 1997 capital gains tax cut signed into law by Bill Clinton, not the first Democratic president to promote lower taxes.

John F. Kennedy, the most quoted president in the Senator Brown’s Massachusetts campaign, observed in 1962:

“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”


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