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The Four Horsemen of Economic Apocalypse

The Four Horsemen of Economic Apocalypse

By Dick Armey - August 27, 2008

Like most conservatives, I look at the looming November election with a certain sense of gloom. While Senator McCain has a good shot at taking the White House, Democrats look certain to expand their majorities in both the House and Senate by considerable margins.

As the Democratic Party gathers in Denver this week, it will lay out an aggressive policy agenda worthy of Franklin Delano Roosevelt. The 111th Congress has the potential to pass legislation of the magnitude of the New Deal and Great Society; indeed, we may face a historic turning point in our economy in the wake of the 2008 election. Examining the legislative proposals laid out by Democrats for a potential Obama presidency, I see the four horsemen of the economic apocalypse gathering on our horizon.

The first horseman will bring higher taxation, which, as students of Economics 101 learn, destroys incentives to save and invest, reducing economic growth. When Ronald Reagan was elected president, one of his top priorities was to fight the stagflation and economic lethargy that dominated the 1970s. Legislatively, this plan became the Economic Recovery Tax Act of 1981, an across the board 25 percent tax cut, and the 1986 Tax Reform Act. Together, these bills lowered the top marginal tax rate from 70 percent in 1980 down to 28 percent by 1988.

The long term effect of the tax cuts is clear, with a surge in activity and investment in the private sector that ended the lethargy of the 1970s and unleashed three decades of record growth. Between 1980 and 1988, inflation dropped form the double digit levels to bellow 5 percent and unemployment levels tumbled from over 10 percent to 4.5 percent

The economic benefits of the tax cuts were summarized by President Clinton's Council of Economic Advisers in its 1994 Economic Report: "It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth."

By letting the tax cuts of 2001 and 2003 expire, Congress will foist a crippling $280 billion tax hike on the American economy. As if that tax hike is not enough, President Obama's 'solution' to the impending bankruptcy of Social Security is simple: raise payroll taxes. This proposed payroll tax hike would cost employers and employees $1 trillion over ten years. At a time when the economy is still reeling from the housing market meltdown, hundreds of billions of dollars in new taxes will pummel American families and businesses.

Higher income taxes are only part of the story. American companies currently face the highest tax rates in the industrialized world--hardly an incentive to expand in the United States. Rather than tackling this taxation crisis, the 111th Congress will be busy passing a windfall profit tax on successful companies and increasing payroll taxes across the board. In an era when tax rates are falling across the globe, American families will bear a greater tax burden while American businesses will find it more difficult to compete.

The second horseman, seen lurking Capitol Hill for nearly a decade, is energy regulation. In the past Congress has rejected energy restrictions like Al Gore's Btu tax, the Kyoto Protocol, and, more recently, the Warner-Lieberman cap and trade program because of the devastating effects on energy prices and the economy. But cap and trade energy restrictions will certainly be back in the 111th Congress. Should they pass, the government will be in the position of rationing energy through a complicated system of carbon 'allowances,' creating not a free market for carbon but an artificial market where politicians decide which industries live or die as revenues and carbon permits from a cap and trade program would be doled out as environmental pork.

The effect on energy prices will be devastating, to say the least. Research by the Heritage Foundation estimated that the costs of a cap and trade program could reach $4.8 trillion by 2030. While consumers would not pay a direct tax, they will pay for cap and trade legislation through higher electric and gas prices, as well as more for goods that are energy intensive such as food, cars, airfare, and manufactured goods. The National Association of Manufactures and the American Council for Capital Formation estimate that if cap and trade legislation became law, in six years gas prices would rise an additional 13 to 50 percent, electricity rates would jump 13 percent, and natural gas prices would climb 20 percent. By 2014, higher energy costs would translate into 850,000 lost jobs. The Congressional Budget Office says even a mild, 15 percent reduction in emissions will cost the average family $1300 more per year in household energy costs.

Union bosses have their own horseman and have invested heavily in seeing his success. The SEIU union alone has committed to spending $90 million to support the Democrats. We can expect the third horsemen to unleash a new wave of union building legislation in the 111th Congress, beginning with "card check," a plan to boost sagging union membership by eliminating the secret ballot when it comes to the important decision of whether workers want to unionize.

The effect will be felt in all sectors of the economy, from hotels to retail to manufacturing. American businesses would lose their dynamism and ability to react quickly to changing market conditions, threatening jobs and weakening the economy. Introducing new rigidities in America's labor markets does little to help our competitiveness in an increasingly global marketplace.

The fourth horseman first began to ride during the 1930s under President Roosevelt, and came of age during the Great Society. This horseman is government-run health care, and a new Congress provides the perfect opportunity to expand. Rather than harnessing the market and empowering individuals, expect to see policies that expand the role of government in the health care system, with more bureaucrats, more price controls, and more taxes to pay for it all.

Our health care system is facing a crisis of spiraling costs, but what is lost in the rush to socialize medicine is that the federal government is already the largest buyer and provider of health care services. Much of the higher cost is driven by government mandates, as well as an expensive regulatory mandates open to abuse under the current system. Not to mention the Medicare Trustees Report estimates that Medicare alone has an unfunded liability of $48 trillion.

Our economy rewards entrepreneurship and investment, allowing all Americans to benefit. The policies of the four horsemen share a top down, command-and-control philosophy that is out of step with global economic trends and costly for America's taxpayers and consumers. In fact, the four horsemen have the potential kill the goose that laid the golden egg, shackling an economy that has allowed generations of Americans to prosper.

Is this the legacy, high taxes and a stagnant economy, we want to leave our children?

Former House Majority Leader Dick Armey is chairman of FreedomWorks in Washington, D.C.

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