Tuesday, February 24, 2009

Obama To Increase Taxes In A Recession

Earlier this morning, the SF Examiner posted an article discussing Obama’s plans to raise taxes on individuals and businesses, to reduce the size of the Federal budget. A snippet of the post can be read below, but the full text can be found here.

President Obama announced today that he will reduce the size of the federal budget, cutting $513 billion in his first term by increasing taxes on individuals and business who make over $250,000 and by slashing spending on the wars in Iraq and Afghanistan. He cited concern over a burgeoning federal deficit that he himself helped to create with a $787 billion stimulus package, admitting that large deficits will make it hard for the economy to grow over time.

The announcement may have been ill-timed. So far, the stock market has shown little confidence in the administration's handling of the economy and is poised for another down day on Monday. Raising taxes while cutting government spending reduces liquidity that can be used to create investment. Businesses will immediately adjust their plans to compensate for reduced demand and investment capital. As Alan Greenspan said today at the Economic Club of New York, a fiscal stimulus plan that only increases GDP through temporary government spending will fail unless it "primes the pump" and increases demand. If the stimulus package does not work, permanent tax increases could put more strain on economic activity.

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