Economic prospects continue to grow gloomier as the Commerce Department on Friday revised the second-quarter growth rate substantially downward from the initial estimate of 2.4 percent to a mere 1.6 percent. Just to stay on an even keel in terms of job creation, the growth rate needs to be at least 3 percent. It has averaged only 2.9 percent for the past four quarters. Virtually every key economic indicator is pointing in either the wrong direction or is barely leaning to the positive side. Unemployment remains officially at 9.5 percent and is likely to head upward in the near future. If you are counting people who are either underemployed or have given up looking, the unemployment number nears a Great Depression level of 20 percent.
The really bad news, however, is that things are going to get worse before they get better unless President Obama and the Democratic Congress reverse course and abandon their plan to impose a huge tax increase on Jan. 1, 2011. That's the day the 2001 and 2003 Bush tax cuts are scheduled to expire. Tax rates on all five income brackets, not just those paid by “the rich,” will increase by 2 to 4 percentage points, thereby blowing a $921 billion hole in the nation's ailing economy. Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi have sent federal spending skyrocketing, from 20 percent of the gross domestic product to 25 percent. The coming tax increase will drive the cost of government even further into the stratosphere, which will deprive the private sector of nearly a trillion dollars that could have gone to job creation.
Obama and the Democrats argue that extending the Bush tax rates would “cost” the government revenue needed to cut the federal deficit. But the deficit is primarily their doing and is projected to average in excess of $1 trillion annually for the next decade. The way to reduce deficits is to cut federal spending and leave the Bush tax rates in place to generate additional government revenue. As Heritage Foundation economist J.D. Foster points out, when they were implemented, the Bush tax cuts increased government revenues by sparking new growth in the economy. “The 2008-2009 recession reduced tax receipts dramatically once again, yet Obama administration figures indicate that even absent any tax increases federal receipts would reach $3.7 trillion by 2016, more than a trillion dollars above their previous highs,” Foster said.
As detailed in this space on Friday, Obama and congressional Democrats are also moving to enact onerous new tax increases on the energy industry. Those increases will come on top of the job-killing Gulf of Mexico drilling moratorium they've already imposed on the industry, which is projected to cost another 23,000 energy jobs.
So, hold on to your hats, folks, because it looks like Great Recession, Round Two is headed this way.