The Audacity Of Hype

by Pejman Yousefzadeh on March 2, 2009

Continuing the tradition he established back when he was Director of the Congressional Budget Office, Peter Orszag, the Director of the Office of Management and Budget has started a blog. I applaud this move if — if — it is meant to promote transparency. But while Orszag is a smart man and a formidable policy player, his blog appears to be more determined to spin than it is to enlighten.

Consider if you will, the area of tax policy. On his blog, Orszag is determined to fight off claims that the Obama Administration is raising taxes in a recession. Let’s take that claim on. Here, the Director claims that there will be no tax hikes in a recession, since the tax increases that occur will become effective on January 1, 2011, “at which point the economy should have recovered from the current downturn.” Presumably, it’s okay to raise taxes in this scenario, since a tax increase will not affect economic performance once the economy recovers.

The problem, however, is that the Director’s blog post does not tell the whole story. While the economy may be in recovery by January 1, 2011, an increasing number of economists and observers are stating that the chances of the United States suffering something akin to a mini-depression are increasing. Should a mini-depression, or especially severe recession come about, then we may very well be looking at a contracting economy into 2011. And even if the economy is in recovery by then, the recovery will likely be anemic compared to the forecasts the Administration has borrowed from the lovely and talented Ms. Rosy Scenario, who promises the Administration quite a lot more than she can likely deliver by way of economic growth.

Because the Obama Administration assumes in its budget that Ms. Rosy Scenario will come through in order to generate enough revenue to wipe out the massive deficits the Administration’s stimulus package and budget are creating, and because the Administration has set its budgetary priorities with the assumption that Rosy Scenario growth will come about, it has set itself up for a world of fiscal hurt if future economic growth is less than expected. Subpar growth will only serve to ensure that yawning Obama deficits are with us for years to come. We will have expanded government expenditures in order to achieve the policy priorities the Obama Administration wants to pursue and if Rosy Scenario fails — as just about all independent and unbiased economic experts expect her to — we will not have nearly the revenue generation needed to pay for our expenditures and to achieve the Administration’s stated goal of cutting the deficit in half at the end of four years.

Given that the chances of experiencing the kind of economic growth the Administration’s budget expects us to experience are exceedingly small at best, it is bizarre that the Administration is thinking of imposing any kind of tax hikes in the near future. 2011 is still close enough to the current severe recession/mini-depression that the impact of a tax increase on the very people who are already bearing the majority of the tax burden and whose work helps spur entrepreneurial activity (I know that the Obama Administration likes to wage class warfare against “the rich,” but life is a lot more complicated than mere class warfare nostrums would have you believe) will only serve to constrict economic growth even more than the current non-Rosy Scenario estimates predict for the coming years. And we are lucky if the Administration only constricts economic activity through its tax hikes; the implementation of increased taxes may well serve to cause the economy to go into a double-dip recession.

Thus far, the Obama Administration has failed in its efforts to promote transparency. It has either broken promises (such as the one to allow the public to view the details of legislation on the Internet before the President signs them into law), or it has contented itself with offering us fake transparency — such as with the blog of the OMB Director. Policy wonks should, of course, continue to examine Director Orszag’s writings to get a sense of the Administration’s fiscal priorities. But while one naturally expects that the Director’s writings won’t call shenanigans on the Administration of Barack Obama, one ought to expect as well that there will be a whole host of reasons to call shenanigans on Peter Orszag and his arguments concerning tax and fiscal policy.

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