Barack Obama: His Economic Blind Spot

The idea of cutting taxes seems to be off the table.

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Barack Obama has said he'll do "whatever it takes" to boost the economy. But I think what Obama really means is that he'll do "pretty much whatever it takes." Could you imagine him, for instance, pushing this economic recovery plan formulated by Nobel Prize-winning economist Robert Mundell, revealed in a must-read post on Larry Kudlow's must-read blog.

As Kudlow describes it, Mundell would "like to see a complete corporate tax holiday for one year. He then favors corporate tax reform that would drop the current top rate from 35 percent to 15 or 20 percent. He believes this would generate badly needed business investment and job-creation to fight recession." (Mundell would also like a stable dollar.)

But given that Obama even seems to be waffling on not raising income and investment taxes until the Bush tax cuts expire at the end of 2010, a big corporate tax cut seems unlikely. Also, a new blog post by Robert Reich neatly sums up liberal thinking on tax cuts and probably provides a window into Obama's world view: "Conservative supply-siders, meanwhile, will call for income-tax cuts rather than government spending, claiming that people with more money in their pockets will get the economy moving again more readily than can government. They're wrong, too. Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend."

No, the reason you would want to cut taxes, be it on labor, corporations or investment, is to create long-term incentives for growth (savings and investment) and create confidence among individuals and companies. I think that is how you should grade any economic idea right now: Does it build confidence?  A lack of confidence is what's killing the economy right now ...


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