On the eve of the President’s State of the Union address, the New York Times gives an answer to this question in today’s paper, “Obama’s Puzzle: Economy Rarely Better, Approval Rarely Worse”. The charts below do show the basic trends all moving in the right direction. But is this good enough?
The unemployment rate is moving steadily downward but it is still a high 6.7% almost five years after the recession ended in June 2009. And this is with a labor participation rate of only 58.6%, which is historically very low.
The budget deficit is dropping but is still unsustainably high. In the five years, 2009 – 2013, deficits have totaled $6 trillion dollars. As soon as interest rates return to their historical average of 5%, interest on this $6 trillion in new debt alone will total $300 billion per year, forever! Furthermore, the Congressional Budget Office, the most credible source of budget information, predicts that the deficit is likely to resume an inexorable climb within a few years as baby boomers retire in ever greater numbers, rapidly driving up entitlement costs.
Economic growth was stronger than expected in the last quarter of 2013 and this is a good sign. But it has averaged only about 2% since the recession ended which is very low by historical standards, in a post recessionary period.
The point is, do we really need to settle for such mediocre performance: a stagnant economy, high unemployment and massively accumulating debt? Should we just declare that in a highly competitive global economy with an ever higher premium on information and technology, that we just can’t do any better than we already are? Isn’t there some way to make our economy grow faster in order to provide more and higher paying jobs?
I think that the answer to this last question is an emphatic yes! In fact, this is what my blog is all about. Just read some of the other recent posts and let me know if you disagree with what I am saying!
I find some of your ideas interesting, but we don’t need a separate wEalth tax since we already re-instituted the federal estate tax. If the fgovernment clearly needs more revenue, we can simply raise the estate tax the 1% or 2% that you’ve been suggesting or even more on very large estates, since it would only be imposed once in a lifetime.
Also, the tax rate on dividends can be increased without hurting wage earners. (More later as time permits).
What we need most is to balance the budget. Cutting spending, increasing tax revenue, whatever it takes. In fact I think that a (flexible) balanced budget amendment would solve this problem because Congress and the President would then have to work together and compromise to get the job done. But a BBA is probably a long way off. And I don’t think that we can realistically expect to achieve this goal by just cutting spending. And if we’re going to raise taxes we need to do it in the way which least affects economic growth. It needs to me that taking a very small percentage (1% or 2%) from the very wealthy each year would be the best way to raise tax revenue. Inheritance taxes, even at relatively high rates of 40% or so, just don’t raise that much money at the federal level. A small percentage wealth tax would however raise between $100 and $200 billion a year and give us the boost in revenue which, coupled with spending cuts, should enable us to get our country’s finances back in balance.