This column by Former Speaker of the House Newt Gingrich and ACRU General Counsel and Director of Policy for the Carleson Center for Public Policy Peter Ferrara was published March 16, 2011 in The Wall Street Journal.
By the end of last year, President Obama was faced with the utter failure of his economic policies. The unemployment rate in mid-December was 9.8%, marking the 16th straight month it was at 9.5% or above-the longest run since the Great Depression.
Particularly hard hit are African-Americans, among whom the unemployment rate has persisted at 15% or above. Among Hispanics the rate has persisted at double digits too. Teen unemployment during the period was around 25%.
Since World War II, the average recession has been 10 months in duration, with the following recovery stronger the deeper the recession. Based on this record, the U.S. economy should have been in its second year of booming growth by December 2010. Instead, an all-time record 44 million were struggling in poverty-one in seven Americans-with over 40 million on food stamps.
Why? During his first two years in office, Mr. Obama persistently threatened the economy with increases in the top tax rates of virtually every major federal tax on the nation’s employers and investors.
If the president had his way, the two top income tax rates would have increased by nearly 20% this year, counting his proposed phaseouts of deductions and exemptions. The capital gains tax would increase by nearly 60%, counting the new ObamaCare tax on investment income in 2013. The tax rate on dividends would nearly triple, counting the new ObamaCare tax as well. The Medicare payroll tax would increase by over 60% for the targeted income earners.
But after the stunning Democratic losses in the midterm elections, Mr. Obama finally agreed to extend the 2001 and 2003 tax cuts for two years, for everyone. And that has allowed the breathing room for the long-overdue recovery to begin to sprout. Unemployment declined last month to 8.9%.
We still have a long way to go. The labor-force participation rate, 64.2%, remains stuck at its lowest level in 25 years. Far too many Americans have simply given up looking for work and dropped out of the labor force.
The economy has received a reprieve rather than a permanent stay of execution. Mr. Obama, if he is re-elected, still pledges to let the 2001 and 2003 tax cuts expire for the targeted taxpayers in 2013-when the new ObamaCare tax increases become effective as well. This means that the rates of virtually every major federal tax will be increased on precisely those who create new jobs and invest in the economy. That would only throw the economy back into the ditch and possibly bring about another recession. And it would send the president’s current $1.65 trillion deficit skyrocketing.
Indeed, if the Fed has to reverse its loose monetary policies to avert rising inflation, the contractionary impact of higher interest rates and a slower increase in the money supply, combined with higher taxes, could lead to a horrendous downturn. Working people, not the rich, would be hurt the most, losing jobs and wages as a result.
To avoid that, this year the House Republican majority should pass a permanent extension of the Bush tax cuts. Even that is just a beginning. To touch off a boom-and secure a prosperous future for all Americans-what’s really needed are additional, sweeping rate cuts on both individual and corporate income.