Midterm election confirms it’s time to reverse policies to buoy economic growth

The midterm elections offered an historic statement on where public policy and the economy had gone in the previous two-plus years: that is, in the wrong direction.

The faulty economics of increased taxes, more regulation, so-called government-led “stimulus,” unprecedented explosions in government spending and debt and a massive government intrusion into the health care marketplace were exposed and rejected by solid majorities of the voters.

Unfortunately, President Barack Obama — who led the charge for these misguided, costly measures — seems to have missed the loud, unmistakable message delivered via the ballot box.

During his post-election press conference, the president declared, “Over the last two years, we’ve made progress. But, clearly, too many Americans haven’t felt that progress yet, and they told us that yesterday.” He added that what “the American people don’t want from us, especially here in Washington, is to spend the next two years refighting the political battles of the last two.”

The president has indicated no backtracking from his big government health care agenda, or, quite frankly, from much of the rest of his agenda. For example, he certainly did not back down from his push to have the Environmental Protection Agency regulate carbon dioxide emissions despite the election results and his own acknowledgment that cap-and-trade will not pass the next Congress. Indeed, there was no recognition that policymaking was off base in any way, but for indicating that his policies had not worked fast enough or that people didn’t understand them.

Even in an instance where the administration points to the president being willing to negotiate — on the 2001 and 2003 tax cuts due to expire at the end of this year, for example — it’s hardly a case of bad policy being reversed. Rather, it’s simply a case of the White House trying to delay misguided policymaking.

The Huffington Post reported that top Obama adviser David Axelrod said the president would go along with a temporary continuation of the 2001 and 2003 tax relief measures.

While any temporary extension would be better than a massive tax increase kicking in at the start of 2011, entrepreneurs, investors, businesses and the economy in general need certainty that destructive tax increases are off the agenda altogether. A temporary extension would have limited effects on the economy. To fully unleash the entrepreneurship and investment we need to get the economy back on track for robust economic growth and job creation, then, at the very least, the 2001 and 2003 tax cuts must be made permanent.

Ideally, much more is needed. For example, federal spending and related debt, must be dramatically reined in to diminish threats of future tax hikes.

But pro-growth tax relief also is necessary to enhance incentives for risk taking and thereby pull the U.S. economy out of its current morass. That includes, for example, eliminating capital gains taxes or at least indexing gains for inflation and providing the option to all businesses to expense capital expenditures. That also includes reducing corporate and personal income tax rates to boost the bottom lines of entrepreneurs and businesses and enhance U.S. competitiveness.

Raymond Keating
Raymond Keating

Unfortunately, the president, while saying after the midterm elections he remains open to all ideas that will boost the economy and jobs, is unlikely to shift far from his big-government ideology. Therefore, it appears that he will remain an obstacle to policy changes that would brighten the outlook for entrepreneurship, investment, the economy and job creation.

Raymond Keating is chief economist for the Small Business & Entrepreneurship Council, an advocacy, research and training organization based in Washington, D.C., and established to protect small business and promote entrepreneurship. Reach Keating through the website at www.sbecouncil.org.