The mid-term elections were a rejection of President Obama’s big-government agenda, but those results don’t necessarily mean better policy. We should not forget, after all, that Democrats rammed through Obamacare even after losing the special election to replace Ted Kennedy in Massachusetts (much to my dismay, my prediction from last January was correct).
Similarly, GOP control of the House of Representatives does not automatically mean less government and more freedom. Heck, it doesn’t even guarantee that things won’t continue to move in the wrong direction. Here are five possible bad policies for 2011, most of which the Obama White House can implement by using executive power.
1. A back-door bailout of the states from the Federal Reserve – The new GOP Congress presumably wouldn’t be foolish enough to bail out profligate states such as California and Illinois, but that does not mean the battle is won. Ben Bernanke already has demonstrated that he is willing to curry favor with the White House by debasing the value of the dollar, so what’s to stop him from engineering a back-door bailout by having the Federal Reserve buy state bonds? The European Central Bank already is using this tactic to bail out Europe’s welfare states, so a precedent already exists for this type of misguided policy. To make matters worse, there’s nothing Congress can do – barring legislation that Obama presumably would veto – to stop the Fed from this awful policy.
2. A front-door bailout of Europe by the United States – Welfare states in Europe are teetering on the edge of insolvency. Decades of big government have crippled economic growth and generated mountains of debt. Ireland and Greece already have been bailed out, and Portugal and Spain are probably next on the list, to be followed by countries such as Italy and Belgium. So why should American taxpayers worry about European bailouts? The unfortunate answer is that American taxpayers will pick up a big chunk of the tab if the International Monetary Fund is involved. Indeed, this horse already has escaped the barn. The United States provides the largest amount of subsidies to the International Monetary Fund, and the IMF took part in the bailouts of Greece and Ireland. The Senate did vote against having American taxpayers take part in the bailout of Greece, but that turned out to be a symbolic exercise. Sadly, that’s probably what we can expect if and when there are bailouts of the bigger European welfare states.
3. Republicans getting duped by Obama and supporting a VAT – The Wall Street Journal is reporting that the Obama Administration is contemplating a reduction in the corporate income tax. This sounds like a great idea, particularly since America’s punitive corporate tax rate is undermining competitiveness and hindering job creation. But what happens if Obama demands that Congress approve a value-added tax to “pay for” the lower corporate tax rate? This would be a terrible deal, sort of like a football team trading a great young quarterback for a 35-year old lineman. The VAT would give statists a money machine that they need to turn the United States into a French-style welfare state. This type of national sales tax would only be acceptable if the personal and corporate income taxes were abolished – and the Constitution was amended to make sure the federal government never again could tax what we earn and produce. But that’s not the deal Obama would offer. My fingers are crossed that Obama doesn’t offer to swap a lower corporate income tax for a VAT, particularly since we already know that some Republicans are susceptible to the VAT.
4. Regulatory imposition of global warming policy – This actually is an issue we needed to start worrying about before this year. The Obama Administration already is in the process of trying to use regulatory edicts to impose Kyoto-style restrictions on energy use, and 2011 may be a pivotal year for this issue. This issue is troubling because of the potential impact on economic growth, but it also represents an assault on the rule of law since the White House and the Environmental Protection Agency are engaging in regulatory overreach because they did not have enough support to get so-called climate change legislation through Congress. The new GOP majority presumably will try to use the “power of the purse” to limit the EPA’s power grab, and the outcome of that fight could have dramatic implications for job creation and competitiveness.
5. U.N. control of the Internet – The Federal Communications Commission just engaged in an unprecedented power grab as part of its “Net Neutrality” initiative, so we already have bad news for both Internet consumers and America’s telecommunications industry. But it may get worse. The bureaucrats at the United Nations, conspiring with autocratic governments, have created an Internet Governance Forum in hopes of grabbing power over the online world. This has caused considerable angst, leading Vint Cerf, one of inventors of the Internet (sorry, Al Gore) to warn: “We don’t believe governments should be allowed to grant themselves a monopoly on Internet governance. The current bottoms-up, open approach works — protecting users from vested interests and enabling rapid innovation. Let’s fight to keep it that way.” International bureaucracies are very skilled at incrementally increasing their authority, so this won’t be a one-year fight. Stopping this power grab will require persistent oversight and a willingness to reject compromises that inevitably give bureaucracies more power and simply set the stage for further demands.
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] is not repealed (not that I ever thought that was possible) and there is no restriction on the EPA’s unilateral assertion that is has regulatory power to implement radical Kyoto-style global warming […]
[…] Dan Mitchell […]
[…] Dan Mitchell […]
I bookmarked this page, because I expect each and every one of these things to happen.
[…] caps on greenhouse gas emission. According to reports, the Federal Reserve may be preparing for a back-door bailout of profligate states such as California and Illinois without Congressional approval. The IMF is […]
US economy needs to create jobs and grow our way out of its difficult financial situation. A cut/elimination of the corporate income tax will do this and create jobs at a very low cost. But replacing the CIT with a VAT will only keep US/Global multinationals from putting their new jobs and operations in low tax cost countries. Look at Canada. They just moved their CIT from 18% to 16.5% two days ago and will take it to 15% in 2012. Their reason for doing so is to promote economic growth and job creation. Congress should take a field trip to Ottawa and listen.
As for the US Government investing in States/Munis, that would be a tragic mistake. The kids need to stand on their own and fix their sandboxes first. Come clean on the Pension Benefit Obligations and use discount rate assumptions that are reasonable (like corporate pension plans). Once the 2010 State pension plan financials are in the books, the majority of plans will be standing at 40-50% funding levels using 5-6% discount rates. If it was a corporate plan, the PBGC would be shutting the doors and assuming control at any figure in the 40’s.
We need growth now. http://www.eliminatecorporateincometax.com
Tim the Totalitarian:
Your comment is pure misinformation and obfuscation. Pure leftard propaganda loaded with lies. You fools will all be remembered as traitors, and your Communo-Fascist usurper in the White House and thieving Communo-Fascist traitors in the Senate shall be remembered much the way that the old Democrats of the Confederacy are now.
Your article is pure misinformation and obfuscation. Pure right wing propaganda loaded with lies. You suckers will still be powerless, as dems still hold the presidency and the senate.
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