Heritage Expert Blasts Obama's Economic 'Gimmickry'

Friday, 10 Sep 2010 10:01 PM

By David A. Patten

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The Obama administration is using "gimmickry over and over again" to try boost the economy and in doing so is actually weakening it, Heritage Foundation economist and fiscal-policy expert J.D. Foster said Friday.

Foster told Newsmax the "policy gimmickry" is actually discouraging business expansion.

"They're short-term gimmicks," Foster said of the administration's slew of recent new stimulus proposals. "They don't work."

During a Friday news conference, President Barack Obama pointed at a different reason for the faltering economy, which now suffers from a 9.6 percent unemployment rate that appears to be climbing: He blamed a decade of failed GOP economic policies.

In keeping with his sharper tone as the midterm elections draw near, Obama charged that a "partisan minority" of Republicans were "holding middle-class tax relief hostage."

He reiterated his call for another $50 billion of stimulus spending on roads and other infrastructure projects, pushed a proposal to extend tax credits for business research and development, and he asked Congress to allow businesses to write off all investments in factories, equipment, and other capital investments made through 2011.

None of these measures will come up for consideration before the November midterms, pundits say.

Obama also charged that Republicans are blocking the extension of the Bush tax cuts for middle-class families, because they also want the tax cuts extended for families earning $250,000 a year or more.

Obama said Republicans should agree to extend the middle class tax breaks now and worry about extending tax breaks for wealthier Americans later. But many economists say those earning at least $250,000 have a disproportionate impact on job creation.

The president portrayed Republican opposition to his policies as unreasonable and politically motivated, and urged Republicans to help pass the $30 billion small-business loan bill that is hung up in the Senate.

"I understand there's an election coming up," Obama said. "But the American people didn't send us here to think about our jobs. They sent us here to think about theirs."

Republicans counter that Democratic leaders have refused to consider key amendments they have offered to the bill.

Obama's latest policy proposals don't appear to be gaining much traction with the public. A Rasmussen poll Friday showed 61 percent of voters say cutting federal spending and deficits would do more to grow the economy than the president's proposal for another $50 billion in stimulus.

J.D. Foster, the Heritage Foundation economist and fiscal-policy expert, told Newsmax the voters are right.

He slammed Obama's economic team has relied on what he called "policy gimmickry" -- short-term incentives that draw consumption forward but confuse markets and ultimately leave them worse off than they were before.

Examples of Obama's temporary incentives include cash-for-clunkers (auto sales plummeted after the incentives expired), and the first-time homebuyer's tax credit (in July, home sales dropped to their lowest level since record-keeping began 1962).

Another example, Foster said, is Obama's proposal to allow companies to write off capital investments they make between now and 2011. It's unclear precisely how they would impact the economy, especially beyond their expiration in 2011, therefore aggravating the uncertain business climate, Foster said.

"If you look at what happened with the first-time home buyers tax credit in real estate, it's a perfect example," he says. "One of the things the real estate market needed is to figure out what the correct prices are for houses in different communities. You bring the tax credit in and bump up consumption, home purchase incentives do work. But what you do is slow the process of price discovery.

"Then the tax credit expires," says Foster. "Buyers and sellers don't know what the prices in communities ought to be. So, transactions don't happen, because you can't come to an agreement."

Foster maintains that the net impact of the first-time homebuyers tax credit was to weaken the housing sector, because it added to the uncertainty.

"And that kind of gimmickry over and over and over again ultimately is weakening the economy," says Foster. "What we need is to get back to fundamentals. Start to get spending under control. Don't raise taxes. If you have room for the kind of tax policy that will improve the economic environment, that's great. But right now more importantly is just attending the fundamentals."

Foster also took issue with Obama's contention that economists generally agree giving a tax break to wealthy families is ineffective because they're less likely to spend it on consumption.

"Obama needs to find a better class of economists to be talking to," Foster said. "He remains stuck in this sort of Keynesian framework, where the only way to look at tax cuts is whether someone spends it or saves it -- which is a perfect example of why his policies constantly fail.

"The issue isn't whether someone is going to consume or save the money they earn," says Foster. "The issue is whether they're going to want to earn more money. It's the incentive effects of the tax provisions that are relevant."

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