Members of Congress say they are concerned about the exploding budget deficit, though not so concerned, it seems, to stop all the spending that’s actually causing the deficit explosion—up to about 24.7 percent of gross domestic product (GDP).

President Obama’s solution has been to appoint, by executive order—because the Senate wouldn’t pass it—a bipartisan group to explore what the government can do to reign in the spending.

It’s like an alcoholic convening a meeting of other heavy drinkers to discuss how the alcoholic can cut back on his drinking—and having the meeting at a bar at happy hour.

Of course, everyone knows the committee will recommend some minor spending cuts and some major tax increases. The tax increases would pass and the spending cuts would be postponed until later—because spendaholics don’t really want to cut spending, they just want to say that they do.

Now Reps. Mike Pence (R-IN) and Jeb Hensarling (R-TX) have stepped up to the plate with a better way. Call it an intervention.

They propose a constitutional amendment to cap government spending at 20 percent of GDP, which has been the historical average since World War II. The cap could be ignored during war, and a two-thirds vote of Congress could override it.

Why they chose a constitutional amendment as opposed to legislation isn’t clear, but probably because it is more permanent. Democrats pushed pay-as-you-go (or paygo) legislation only a month ago, requiring Congress to find offsets to pay for any new spending measures. And then promptly ignored their new paygo rule by spending $10 billion three weeks later without a “pay for” to offset the cost.

So even though a constitutional amendment would be very hard to pass, maybe it’s the only way to get Congress to live by the rules it imposes on itself.

Pence-Hensarling is about controlling government spending. It’s simple and effective, which is why Congress and this administration will likely do whatever they can to dodge it.

As they order another round for everyone—on the House.

One of the things I love most about my friend Barbara Alby is her "I know something that you don't know look" -- which hasn't changed in the nearly twenty years that I have known her. When I sat down briefly with Barbara last weekend at the California Republican Assembly's 75th Anniversary Convention in Buena Park, and asked her about her campaign for Board of Equalization, she gave me "the look" when I asked her about her ballot designation. She told me that it was "a surprise" but that her choice for ballot designation would be very important to her campaign (along with her published statement in the ballot pamphlet).

As always, Barbara has a gift for understatement.

During the CRA Convention, it was obvious that State Senator George Runner was out-hustling her for what concluded in his endorsement by the CRA for his candidacy. Runner had a full campaign operation working the event. In contrast, with a peace of mind about her that was enviable Barbara was in what I would call a "happy place" quietly chatting with the many convention delegates).

It turns out that Barbara was actually working hard to subdue what should have been a Cheshire Cat grin -- as she obviously knew that a game-changing event would be taking place soon that would dramatically impact the race for the "Republican" Board of Equalization seat currently held by conservative Bill Leonard.

The proverbial "other shoe" dropped this morning with the almost casual announcement in the Sacramento Bee's Capitol Alert Blog "AM Alert" that Governor Schwarzenegger will be tapping Leonard to be his new head of the State Consumer Services Agency, a position which has been empty since GOPer Fred Aguiar was promoted to Deputy Chief of Staff and Senior Advisor to the Governor last November.

Of course, my first thought, selfishly, was what impact Leonard's new role would have on his capacity here with us as a FlashReport blogger. Will the intractably conservative Leonard now be a cheerleader for Arnold Schwarzenegger? I guess we'll see!

That having been said, under the State Constitution when a Board of Equalization seat becomes vacant, the BOE Member's Chief Deputy becomes the Acting BOE Member. You'll never guess who the Chief Deputy is for Bill Leonard -- that's right, Barbara Alby!

There is a significant electoral advantage to having the designation of "Acting Board of Equalization Member" next to your name on the ballot -- something that neither former Assemblyman-turned-BOE Aide Alan Nakanishi nor State Senator George Runner will be able to place next to their names.

The outcome of the BOE contest is far from determined, and a lot of factors go into what results in a win in such a vast district (a quarter of the state's population, and geographically even larger). But this news certainly buoys the candidacy of Barbara Alby.

It's probably also worthy of note that you can expect that for the time that Alby is the Acting BOE Member (and beyond?), there will be a strong taxpayer advocate in the office, like we've had with Bill Leonard.

The debate over health care has been going on for a long time now. It’s easy to lose sight of where we started. So I’d just like to remind people today of what this debate was supposed to be about. It was supposed to be about cost.

“This debate was supposed to be about bringing the cost of health care down — about keeping health care costs from bankrupting families and government. So if you’re looking for a reason as to why Americans overwhelmingly oppose this bill, and why Democrats are having such a hard time rounding up votes within their own party for this bill, it’s because no one believes this bill will lower the cost of health care. It’s that simple.

“Now, when you hear people talk about the cost of health care, they’re usually referring to three things: the overall health care expenses Americans will have to shoulder if this bill passes; overall spending by the federal government on health care if this bill passes; and the amount of money people will have to spend on their health insurance premiums if this bill passes. On all three counts, the bill that the White House and its allies in Congress want us to vote for would drive costs up.

“The administration’s own scorekeeper at the Centers for Medicare and Medicaid Services says overall health spending will go up by more than $200 billion under this bill.

“The independent Congressional Budget Office says federal spending on health care will increase by about $200 billion over the next 10 years.

“And CBO also says health insurance premiums for millions of families across the country will go up 10-13 percent as a result of all the new government mandates contained in this bill — and continue to rise at the current unsustainable rate for nearly everyone else, despite more than $2 trillion dollars in new government spending.

“Another thing Americans are rightly concerned about is the debt. It’s out of control. Some say this bill lowers the debt. But let me remind my colleagues that the extenders bill we’ll be voting on today will add more to the debt than even the White House claims its health spending bill will save.

“So if cost is what you’re concerned about, then you can’t vote for this bill. It’s that simple. Americans have it figured out. And that’s why they’re asking themselves why anyone in Congress would even think about voting for this bill. This shouldn’t even be a tough call.

“Let’s start over and work together on step-by-step solutions that focus on cost, that actually lower costs, not the other way around. Let’s put together a bill Americans will support.”

“For more than a year now, Democrats in Washington have been focused — some might even say fixated — on making dramatic changes to the American health care system as we know it.

“Now, it’s an open debate as to whether spending so much time and energy on this issue was in the best interests of the public at a time of record unemployment and a need to address jobs and the economy.

“But what’s not open to debate is that the plan they came up with was fundamentally flawed — that it focused too much on expanding the size and cost of government and not enough on the core problem with our health care system, which is cost.

“This is why Americans have been telling Democrats in Washington to scrap their plan and start over. And this is why so many Americans are so frustrated with government right now. The administration says we need to pass its health spending bill to show Americans that government still works. Americans are saying just the opposite. They’re saying that the first thing Washington can do to show it’s working is to listen to what the public is saying — to scrap this bill and to start over.

“Unfortunately, Democrat leaders in Congress aren’t interested. They’re still clinging to the same-old bill and the same-old process Americans rejected last year. They’re more determined than ever to jam their bill through Congress by any means necessary.

“So, over the next few weeks, we’re going to see a replay of the same kind of arm-twisting and deal-making we saw in the run-up to Christmas. I say we’re going to see it — but in reality we won’t see any of it. We’ll have to read about all the deals and the arm-twisting only after the final bill hits the floor, because all of this arm-twisting and deal-making is going on behind closed doors. And it’s already started.

“Somehow the administration seems to think all this arm-twisting and deal-making will prove to the American people that government works. I should think that Americans will draw the opposite conclusion. Americans don’t like this bill any more today than they did three months ago. They don’t like the frantic backroom deal-making any more now than they did then.

“In the midst of all this, it’s understandable that a lot of Democrats are on the fence about whether to vote for this bill, about whether to vote for this process. But the reasons they’re giving for being on the fence really don’t square with reality — and they’re not going to fly with the public.

“Some say they like the current bill because they say it reduces costs. It doesn’t. The administration’s own experts say the bill increases health spending by $222 billion more than if we took no action. In other words, this bill would bend the cost curve up, not down.

“Others say they like the current bill because they say it reduces the deficit. But even if you grant that highly speculative premise, the one bill that the Senate will be voting on tomorrow would wipe away every dime of those projected savings with one stroke of the President’s pen. If you believe that the health bill will save $100 billion, then you have to also acknowledge that the bill the Senate will pass this week increases it by $100 billion.

“So, far from moving in a more fiscally responsible direction, the health spending bill that the White House now wants Congress to pass before Easter would move us in a less fiscally-responsible direction. And this undercuts the entire point of reform.

“The administration recognizes the weakness of its argument. That’s why it’s trying to create a sense of inevitability about this bill. Once again, it’s imposing an artificial deadline to put pressure on members. It’s talking about how we’re in the middle of the final chapter of this debate. The administration wants members to believe they’re characters in a screenplay, and that the ending of this play is already written. This is an illusion. House members aren’t buying these arguments any more. In fact, many of them are already walking off the set. And my guess is that a lot more of them are about to.

“They know that we may be nearing the final act for this bill and the legislative process, but that it’s just the beginning for those who support it. Americans don’t want this bill. They’re telling us to start over. The only people who don’t seem to be getting the message are Democrat leaders in Washington. But they can be sure of this: if they cut their deal, if they somehow convince enough members of Congress to come on board, they’ll get the message then. The public will let them know how they feel about this bill.”

“Most Americans breathed a sigh of relief in January when it looked like the Democrats’ partisan plan for health care was done for. Most people saw the outcome of the Massachusetts Senate race as an opportunity to start over on what they wanted: a step-by-step plan that would target cost without raising taxes or insurance premiums, without cutting Medicare, and without using taxpayer dollars to cover the cost of abortions.

“Unfortunately, the proponents of this plan are still determined to force this distorted vision of health care reform on a public that’s overwhelmingly opposed to it. And so this afternoon the President will outline yet another version of the Democrat health care plan we’ve been hearing about all year. The sales pitch may be new, but the bill isn’t.

“We got a preview of the administration’s new sales pitch yesterday in a letter from the President in which he said he’s now willing to incorporate a few Republican ideas into the Democrats’ bill. But this isn’t what the American people are asking for.

“Americans don’t want us to tack a few good ideas onto a bill that reshapes one sixth of the economy, vastly expands the role of government, and which raises taxes and cuts Medicare to pay for it all. They want us to scrap the underlying bill altogether and start over with step-by-step reforms that target cost and expand access.

“This whole exercise is unfortunate and completely unnecessary. It’s also a disservice to the American people. The fact is, the longer Democrats cling to their own flawed vision of reform, the longer Americans will have to wait for the reforms they really want.

“Last week’s health care summit could have served as the basis for a series of step by step reforms that both parties could support and which the general public would embrace. Unfortunately, Democrats in Washington have decided to press ahead on the same kind of massive bill they were pushing before the summit. Even worse, they now seem willing to go to any length necessary to force this bill through Congress.

“Well, Americans don’t know how else to say it: they don’t want this massive bill. They want commonsense, bipartisan reforms that lower costs, and then they want us to refocus our energy on creating jobs and the economy. They’ve had enough of this year-long effort to get a win for the Democratic Party at any price to the American people. Americans have paid a big enough price already in the time we’ve lost focusing on this bill.

“They don’t want it, and they won’t tolerate any more back room deals or legislative schemes to force it through Congress on a partisan basis. History is clear: Big legislation always requires big majorities. And this latest scheme to lure Democrats into switching their votes in the House by agreeing to use Reconciliation in the Senate will be met with outrage.

“So we respectfully encourage the administration to consider a new approach to reform, one that doesn’t cut Medicare to fund a trillion dollar takeover of the health care system or impose job-killing taxes in the middle of a recession, and one that will win the support of broad majorities in both parties. We encourage the administration to join Republicans and Democrats in Congress in listening to what the American people have been telling us for more than a year now.

“And at the risk of being redundant, here’s what they’re saying: Americans are telling us to scrap the bills they have already rejected and start over with commonsense, step-by-step reforms we can all agree on. Now is not the time to repeat the same mistakes that brought us here. It’s time to listen to the people, and to start over.”

Last week Senator Reid scrapped a “bipartisan jobs bill,” estimated to cost about $85 billion over 10 years, for a dramatically scaled-down $15 billion bill.

Since the Bush administration’s 2008 jobs bill, referred to at the time as a stimulus bill, didn’t create any jobs, and the Obama administration’s 2009 jobs bill, also referred to as a stimulus package, didn’t create any jobs, we have little hope that the current jobs bill will do any good either.

And if a jobs bill just spends money without creating jobs, then the less money we spend on the jobs bill the better--and no money would probably be best. That’s why Reid gets a cheer.

But Reid loses a cheer because of the way he spends the money.

In order for businesses to start the hiring process, they need to see stability in the economy and in government policy. And they need to face a relatively low long-term tax burden, which means they have more revenue to reinvest in capital goods and innovation, and in people, meaning more jobs.

Temporary and targeted tax breaks, or worse yet, rebate checks, do not promote long term economic growth.

Businesses generally respond like households. An employee may be happy to get a $500 one-time federal rebate check, but it probably won’t spur him to commit to car payments for the next four years. To do that, the employee needs to see sustained additional income—through a raise, a spouse going to work, or a permanent tax reduction.

The Reid bill has none of that.

Reid’s $5,000 payroll tax credit is temporary and targeted to people who have been unemployed more than 60 days. It just will not induce many employers to hire additional workers.

Reid also loses a cheer for keeping the infrastructure provision, the kind of projects that were part of the last jobs, er, stimulus bills.

Yes, there were provisions in the bigger bill that will still have to be addressed: like the temporary fix to scheduled cuts to doctors’ Medicare reimbursements. But better to face those challenges one at a time honestly and transparently, rather than hiding them in a “jobs bill.”

LOUISVILLE, KY - U.S. Senate Republican Leader Mitch McConnell made the following statement on Thursday regarding the President’s deficit commission:

“The American people are deeply concerned by the amount of money politicians in Washington have been spending and they want us to get a handle on spending without raising taxes. After trillions in new and proposed spending, Americans know our problem is not that we tax too little, but that Washington spends too much—that should be the focus of this commission.”

In this era of instant gratification and short attention spans, it is easy to think of one year ago as “ancient history.” However it is important to remember that is was only 12 months ago that the California Legislature slammed taxpayers with a $12.6 billion tax increase -- about $1,200 annually for the average family, because -- if given the chance, they will do it again.

Before last year’s massive tax increase, Californians were paying the highest sales, income and car taxes in the nation. Now, if you have a job, a child, drive a car or buy gas, you pay much more.

But even after inflicting this extraordinary harm to taxpayers and to the California economy, lawmakers weren’t done. Reaching into their bag of tricks, they placed Proposition 1A on a special election ballot touting it as budget reform, while trying to hide from voters that passage would trigger another $16 billion in taxes. There was no mention of taxes in the ballot title and summary or support arguments, all of which were drafted by legislators. Backed by a $28 million dollar advertizing blitz funded by special interests, including some government employee unions, the fix appeared to be in.

However, alert voters saw through this chicanery and rejected Proposition 1A last May with a resounding 66% of the vote. In many respects, this victory for taxpayers has had a profound impact on Sacramento’s political culture. A budget revision was approved four months later that included no new taxes, and thus far, legislative Republicans and the Governor appear to be holding the line against even higher taxes in 2010. Still there are no guarantees and, as we saw last year, the change of just a handful votes could mean taxpayers get slammed again. It is only fear of the wrath of taxpayers that prevents some of these lawmakers from choosing the easy “solution” to budget problems by agreeing to new taxes.

Looking to the future and the budget and tax options the Legislature may choose, it is worthwhile to examine what was accomplished by last year’s “St. Valentine’s Day Massacre” tax increase. Have we solved our $20 billion deficit? Did we get significant and permanent reductions in state payroll? Have we suspended or repealed AB 32 and other regulations in order to provide a more hospitable climate for business and allow the private sector to provide more jobs in a state that has one of the highest unemployment rates in the nation? The answer on all counts is no.

There are important lessons to be learned from last year’s record tax increase and the subsequent rejection by voters of even higher levies.

Although most under the Capitol dome seem slow to catch on, taxpayers understand that government cannot tax us into prosperity. The only way to eliminate the ongoing $20 billion deficits is to recognize that government needs to lower taxes, limit spending and get out of the way so that the private sector can create jobs and the prosperity that, not coincidentally, will also boost government revenues.

The Sacramento Bee is reporting the California Teachers Association is busy qualifying a measure to repeal about $1.7 billion dollars in tax benefits for corporations currently in place, or about to go into effect in the next budget year. First and foremost, for the record, repealing these benefits is a bad idea. Right now we need to be freeing up the capital of corporations so that they can grow, thrive, and create private sector jobs.

Now, that having been said, the bulk of the tax benefits that are targeted by the CTA are, in my opinion, ill-gotten gains from the February 2009 budget deal where taxpayers got slammed with $16 billion dollars of income, sales and car taxes, as well as loss of some of the dependent tax credit, and also the same deal spawned a ballot measure that would have doubled the length of those tax increases. Somehow as part of the deal, while taxes went up on the people of California, big-business got a bunch a tax breaks. And, go figure, the "business community" rallied around the deal, which in my opinion, stunk. It was corporations looking out for their own best interests and walking away from a coalition to oppose higher taxes on anyone, individuals or businesses.

Let me quickly add a bit of praise for the Howard Jarvis Taxpayers Association who led the coalition - sans big business - to stop the part of the tax increases put before the voters.

That said, unfortunately the CTA did not sponsor a measure that would have repealed the business tax benefits and taken that money to instead lower the sales, income or car tax to "right the wrong" that was done last year. Instead, the CTA wants to end the benefits and take that "savings" (it's not really savings since ending the benefits will cost the state revenue in lost jobs) and spend it in ways that are in line with the CTA's ONLY two goals: increasing the salary and benefits for its members, and growing the number of members they have.

Welcome to the politics of Sacramento -- and add one more ballot measure to the long list we're likely to see this November. Another measure to oppose.

At the invitation of the Republicans, President Obama spoke at the Republican retreat last Friday. During the following Q & A, Rep. Jeb Hensarling of Texas rose to ask the final question: "You are soon to submit a new budget, Mr. President. Will that new budget, like your old budget, triple the national debt and continue to take us down the path of increasing the cost of government to almost 25 percent of our economy."

Rep. Hensarling's statements regarding President Obama's budget last year, supported by almost every Democrat, including those supposedly fiscal conservative "Blue Dog" Democrats, were completely accurate, taken directly from the analysis of the Congressional Budget Office (CBO). That 25% of our economy refers only to the cost of the federal government. State and local government adds over 50% more, increasing the total cost of government in America to almost 40% of GDP already.

But President Obama responded as if the question were completely illegitimate, saying, "I've just got to take this last question as an example of how it's very hard to have the kind of bipartisan work that we're going to do, because the whole question was structured as a talking point for running a campaign."

On Monday, President Obama publicly submitted his new budget. That budget forthrightly answers Rep. Hensarling's question, even though President Obama would not in the light of a national TV broadcast. President Obama's own budget confesses that it would more than triple the national debt from $5.8 trillion at the end of 2008 to $18.6 trillion by 2020.

Indeed, it would almost double the national debt in just four years from 2008, to $11.5 trillion in 2012. The budget also confesses that under President Obama's first three years, 2009-2011, the federal government will borrow over $4.2 trillion. As the Wall Street Journal reported last week, "That is more than the entire accumulated national debt for the first 225 years of U.S. history."

During the glorious 2008 campaign for hope and change, then candidate Obama harshly criticized George Bush for running $3.3 trillion in deficits over his eight years in office. But President Obama's new budget confesses that he will run up that much in deficits in just two years and three months. Moreover, as Brian Riedl of the Heritage Foundation reported on Monday, "President Obama would run up more debt over his eight years than all other Presidents in American history -- from George Washington to George Bush -- combined."

But at the Republican retreat, when he was on national television, President Obama refused to take responsibility for any of this. Further responding to Rep. Hensarling, who had said, "what were the old annual deficits under Republicans became the monthly deficits under Democrats," President Obama said that "had nothing to do with anything we had done." He went on to repeat basically what he had said during his State of the Union Address earlier in the week, "By the time I took office, we had a one year deficit of over $1 trillion and projected deficits of $8 trillion over the next decade. Most of this was the result of not paying for two wars, two tax cuts, and an expensive prescription drug program."

Heritage's Riedl corrected President Obama on Monday, saying, "This is simply not true. The policies mentioned by President Obama were implemented in the early 2000s. Yet even with all those policies in place, the 2007 budget deficit stood at only $162 billion."

President Obama's budget admits a federal deficit for 2010 of $1.6 trillion, ten times as much as that 2007 deficit of $162 billion, which was the deficit for the last budget adopted by Republican Congressional majorities. This was where Hensarling got his statement that the annual deficits under the Republicans had become the monthly deficits under the Democrats, to which President Obama wrongly responded, "that's factually just not true, and you know it's not true."

But the truth is that President Obama's $1.6 trillion deficit for 2010 is the largest in world history, rising still more from last year's record $1.4 trillion deficit. And this record 2010 deficit assumes continued record low interest rates this year on our gargantuan national debt. If interest rates rise, then federal spending and deficits will explode still further due to interest costs on that debt. The Obama budget already projects that net interest spending will soar to $840 billion by 2020, more than four times current levels.

The "Spendaholic" Budget

The exploding federal deficits and debt are due to President Obama's spendaholic budgets, which increased federal spending in 2009 by 18% over 2008, and in 2010 by 25% from 2008. That was not George Bush and the Republicans who did that. That was President Obama's almost $1 trillion stimulus bill, the $400 billion supplemental spending bill a few weeks later, the new supplemental spending bill recently adopted, and the one-third increase in federal welfare spending over the first two years under President Obama.

Hensarling was proved right again by President Obama's budget, which blows up federal spending to a peacetime record of 25.4% of GDP. President Obama has consequently already increased the federal government by one-fourth in just two years since 2008, when federal spending was 20.7% of GDP. Brian Riedl of Heritage points out that by 2020, President Obama will have increased the federal government by one-half on a per family basis, writing, "Before the recession, federal spending totaled $24,000 per U.S, household. President Obama would hike it to $36,000 per household by 2020." And that is in real terms, after adjusting for inflation.

Riedl's exposé of this year's Obama budget shows most shockingly of all that the new budget increases spending, deficits, and debt even faster than last year's budget over the next 10 years. Riedl writes, "Over the 10 years in which both budgets overlap (FY2010-2019), this year's budget would spend an additional $1.7 trillion and run up an additional $2 trillion in budget deficits."

President Obama's Spending Freeze Trick

But wait a minute. Didn't President Obama just announce in his State of the Union address a three-year spending freeze that would save $250 billion in federal spending? That turns out to be based on a budget math trick.

The stimulus bill passed a year ago provided for a temporary spending surge of almost $800 billion. A few months before that, Congress provided a temporary spending jolt in $750 billion for the TARP financial industry bailouts. That amounts to $1.5 trillion in temporary spending increases that will not be recurring in future years.

That means a sharp reduction in federal spending over the next several years should already be baked into the budget cake, as that $1.5 trillion temporary spending spike passes. In this context, a "budget freeze" saving $250 billion actually provides room for a large permanent spending increase in future years. In other words, spending should already be coming down by $1.5 trillion over the next several years, as the temporary stimulus and TARP increases are not repeated.

CBO projects that federal spending overall will total $42.9 trillion over the next 10 years. President Obama's proposed budget freeze savings of $250 billion is only about one half of 1% of that total. The savings is so small because the freeze would apply to only 18% of the federal budget, only part of federal domestic discretionary spending, which Obama increased by 17.4% last year. Even worse, given the sharp hike in temporary spending over the last two years, President Obama should now be slashing total spending, not freezing it, let alone just freezing a small part of it.

Making You Pay

All this record spending, deficits, and debt means your taxes are going to record levels as well, leaving you with a lower standard of living, which President Obama thinks is currently excessive anyway.

This new budget already provides for more than $2 trillion in new taxes on the American people over the next decade. That includes higher taxes on 3.2 million small businesses and upper income taxpayers by an average of $300,000 over that 10 years.

Under this budget, the top marginal income tax rate will be increased next year by close to 20%. The capital gains tax rate will be increased by 33%, and the top tax rate on corporate dividends goes up by 164%. President Obama also proposes in this budget to abolish the deduction for charitable giving and for home mortgage interest for millions of Americans.

He also proposes to "slash the tax breaks for companies that ship our jobs overseas." What tax breaks are those you should ask. President Obama thinks American companies are enjoying an unfair tax break if their overseas earnings are not subject to double taxation, once overseas and again here at home. No foreign country does that to their own companies. As Ryan Ellis of Americans for Tax Reform tries to explain, "There's no reason that an American company with an Irish subsidiary cannot become an Irish company with an American subsidiary. America has a 39 percent 'all-in' corporate rate. Ireland's is 12.5 percent."

But it's not all taxes "on the rich," which is a sucker line for simpletons with the economic sophistication of pirates. There is an $800 billion cap and trade tax which will be paid by everyone who uses electricity, gasoline, natural gas, home heating oil, or any product or service made or transported using any of these items. There are also taxes on health insurance and "medical devices," which includes condoms, tampons, contact lenses, hearing aids, and blood glucose monitors to control diabetes. When he was campaigning in 2008, President Obama promised us over and over he would not raise taxes on those making less than $250,000 per year "in an form." Now that he is President, that is all forgotten.

But this is only the beginning. President Obama is also promising to appoint a "Deficit Commission," with the job to report back on how to clean up this unprecedented mess he is making, after this year's elections of course. And the way to clean it up is going to be precisely a record breaking tax increase on those very people making less than $250,000 a year, as he is already plundering everyone else. He will say the Republicans on the Commission made him do it.

Back to the Future

This is not a prescription for an economic boom and prosperity for working people. At best, it is a prescription for a return to the long-term economic stagnation of the 1970s. In particular, with the above tax rate increases, we are not going to get the private investment necessary to create jobs and higher wages over the long term.

But, not to worry, President Obama is going to rescue us by giving a temporary tax credit of up to $5,000 to small businesses for every worker they add in 2010, and for every dollar they increase wages faster than inflation, for workers making less than $100,000 per year.

Many people were fooled into voting for Obama in 2008 on the idea that he was a forward-looking agent of change who was going to bring new ideas and futuristic progress to America. But in office now he is just the opposite, focused on trying to bring back long ago tried and failed ideas from the past. Like the old-fashioned socialized medicine adopted by poorer countries deep into the last century, or the make work jobs programs of the 1930s, or the Synfuels boondoggles of Jimmy Carter in the 1970s.

And that is exactly what he is doing with his jobs tax credit. We had virtually the same Targeted Jobs Tax Credit under Jimmy Carter. It was abolished because it did not work. It was just like sending government checks to companies for workers they were going to hire and raises they were going to give anyway. What creates jobs is private savings and investment, not government spending.

This is the same thing that is wrong with the supposed tax cuts in the stimulus bill President Obama keeps bragging about. Tax credits economically are just like government welfare checks. They do not change the fundamental incentives governing the economy. What does that is reductions in tax rates, which allows producers to keep more of what they produce. That increases incentives to produce more, through more savings, investment, new jobs, business creation, business expansion, entrepreneurship, and work. That is what creates economic growth and prosperity. Talking about stimulating the economy with "tax cuts" that do not involve rate cuts, but rather tax credits, is illogical and uninformed.

Yet, that is exactly what we hear from the spokesmen for the new socialist, George Soros funded think tanks, like the Center for American Progress, home of the ultra-left Van Jones, among others. Christian Weller, Rip Van Winkle Senior Fellow at the "Center," repeatedly goes on television to deny that such incentives have anything to do with the economy. He says there is no evidence that they work, citing the 2003 cuts in the tax rates on capital gains and corporate dividends.

As Larry Kudlow and Steve Moore tried to explain to him in a recent TV appearance, he couldn't be more wrong. Before those 2003 rate cuts, business investment spending had declined for nine straight quarters, and was contracting at an annualized rate of 1.14% over the prior 14 quarters. After the 2003 tax cuts, non-residential fixed investment increased at a rate of 6.7% per quarter, and manufacturing output soared to its highest level in 20 years. From March, 2000 to October, 2002, the stock market declined by 52%, destroying $9.6 trillion of shareholder wealth. But soon after the 2003 tax cuts, close to $7 trillion in new stockholder wealth was created. The economy created 7.8 million new jobs and the unemployment rate fell from over 6% to 4.4%. Capital gains realizations tripled and corporate dividend payments soared. While government bureaucrats with the thinking of Mr. Weller officially estimated that the capital gains cuts would lose $5.4 billion in revenue during those years, capital gains revenues actually increased by $133 billion during that time, as compared to the pre-tax cut projections.

America is not going to return to long-term growth and prosperity until it returns to the Reaganomics that created the 25-year economic boom, the Golden Age of Prosperity, as Steve Forbes has called it, which Mr. Weller seems to have completely missed. The American people, however, already seem to get that. The only question is how much will they have to suffer until they can get new leaders who understand that as well.


Peter Ferrara is director of entitlement and budget policy at the Institute for Policy Innovation, a policy advisor to the Heartland Institute, and general counsel of the American Civil Rights Union. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard College and Harvard Law School.