PRESIDENT Barack Obama and other liberals insist tax increases don't harm the economy, but government spending cuts do. Real-world results are proving them wrong. Although the arbitrary nature of sequester cuts will create disruption in some parts of the economy (mostly the defense industry), they're unlikely to create more havoc than Obama's tax increases.
The expiration of the payroll tax break, largely an afterthought in the fiscal cliff deal that included more than $600 billion in total tax increases, provides evidence. When that deal was signed into law, the president and his allies said not to worry, the tax hikes only hit the “rich” who could afford it and wouldn't change any hiring or investment decisions as a result.
But the fiscal cliff deal ultimately increased tax payments for 77 percent of households. Now Walmart, Burger King and Kraft Foods Group have all lowered forecasts because they anticipate reduced consumer spending thanks to the change in payroll tax rate. That extra 2 percent payroll tax is expected to shift $110 billion away from consumers, according to estimates by Citigroup. There's no reason to think the other tax increases in the fiscal cliff deal will be any less consequential.
Now, under automatic budget cuts imposed by the sequestration, $85 billion is scheduled to be cut from this year's $3.5 trillion federal budget. Obama insists the $85 billion cuts “will hurt our economy” and “add hundreds of thousands of Americans to the unemployment rolls.”
So the president apparently thinks removing $110 billion from the private sector through a higher payroll tax (and over $600 billion in total tax increases) won't harm the economy, but a smaller $85 billion spending cut will lead to economic Armageddon? How does that make sense? Even with the sequester, the federal government will still spend more in 2013 than in 2012.
Obama's plan to prevent the sequester involves — you guessed it — more tax increases that he still insists don't harm the economy.
But contrary to Obama's claims, reduced government spending isn't necessarily economically destructive. Consider what's happened in Oklahoma. According to the Oklahoma Policy Institute, total state government expenditures, adjusted for population growth and inflation, were $4,378 per person in 2012, just one dollar more than the $4,377 expended in 2008 — and $283 per person less than what was spent in 2010.
If reduced or stagnant government spending hurt the economy, then Oklahoma should be feeling the impact. Instead, the state is outperforming most of the nation. As Gov. Mary Fallin noted this month, more than 62,400 net new jobs have been created in Oklahoma since January 2011, the fourth-highest growth rate in the United States.
Unemployment in Oklahoma has fallen 30 percent and our unemployment rate remains one of the lowest in the country. Oklahoma's median household income increased by a best-in-the-nation $4,000 in 2011. And the state's Rainy Day Fund now holds about $600 million, a near record.
Contrast Oklahoma's economy with the national economy during Obama's presidency, and you see a stark difference. Under Obama, federal debt has increased by more than $5 trillion, unemployment has remained near 8 percent for years, and national median household income has declined $4,300.
The lesson here is clear: Hammering the private sector with tax increases is economically destructive; reasonable reductions in government spending are not.