Editorial: Market losses vs. tax hikes: do the math

Thursday, August 11, 2011
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Standard & Poor’s math may have been a bit fuzzy, but its explanation about “political brinkmanship” in Washington driving its decision to cut the nation’s credit rating last Friday seemed entirely reasonable.

The problem wasn’t nearly so much our ability to pay — or to bring our massive borrowing more in line with our massive spending — as our willingness to do so in a responsible, predictable manner.

And now Republicans’ refusal to meet Democrats half or even quarter of the way on a compromise over taxes is costing people around the world — particularly the wealthy Americans the tea party faction of the Republican Party was trying to protect — far more in stock market losses: Including yesterday’s rout, the Dow Jones Industrial Average had dropped roughly 19 percent — about $2.6 trillion — from its late-spring highs. By contrast, the tax hikes Obama wanted to impose on the richest 2 percent to 3 percent of all Americans would have cost about $400 billion.

There certainly may have been other factors behind the stock market’s recent implosion — the feeble economic recovery at home, as well as debt concerns in several European countries, for example — but it seems fairly obvious that the drama over the U.S. debt ceiling, which after months didn’t get resolved very conclusively, was the biggest culprit.

And while some mainstream Republicans — Sen. Mitch McConnell, for example — tried forging a deal with President Obama that would have left the door open for modest tax hikes, those in the tea-party wing refused to go along.

So, could those hardliners be viewed as economic “terrorists,” as Vice President Joe Biden and other Democrats declared last week? It doesn’t seem like too much of an exaggeration, given how the first-week’s impact on the Dow from the 9/11 terrorist attacks was just 14.3 percent.

The right, which was far more tolerant of President George W. Bush’s borrow-and-spend policies, has made its point about the need for fiscal restraint. But it should have compromised with the president when he promised trillions in spending cuts, cuts so deep that they outraged his party’s left wing. By pushing the situation to the brink, it undermined the confidence that S&P — as well as big buyers of U.S. debt, like Japan and China — has always had in our ability and willingness to pay what we owe. That confidence needs to be restored before the damage to our economy can be repaired.

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August 11, 2011
5:40 a.m.

What a simply distorted view of why our country is facing economic woes. The Dems had 2.5 years to come up with a budget and failed to do so. The Dems also have control the WH, the Senate, and half of Congress...but I guess it is easier to blame those pesky terrorists, that have dared to mention that it is not good to spend more than you make, than it is for the President and the Dem party to accept responsibility.

August 11, 2011
8:06 a.m.
fjcjr says...

I recall the President asking all politicians to tone down the incendiary name calling in the wake of the Giffords shooting, but apparently that request does not apply to the Vice President or others on the left. I agree completley with the other comment, The Gazette's view of Washington and what needs to happen is very distorted. You cannot tax your way to prosperity.

August 11, 2011
3:18 p.m.
Newsworthy says...

Standard & Poor's downgraded the credit rating because someone would make money from that action. S&P is part of the financial industry that is partly to blame for our woes and any actions on their part should be viewed with skepticism.

I don't understand why the editor thinks higher taxes are part of the answer. So much tax money is wasted that it shouldn't be hard to find big cuts. If government leaders could get their heads back in daylight (if you know what I mean), they could create a real program to make jobs. Jobs will automatically reduce government spending and increase tax revenue, without increasing taxes. Closing loopholes so everyone pays a fair share is much better than taking money from people, just because they have more than someone else. Where will that stop?

If you want to kill capitalism and eliminate the incentive to succeed, just keeping taking money from successful people. Wait, the Soviet Union tried that; so did Cuba; so did Communist China; so did North Korea. I'm seeing a pattern and it doesn't include red, white and blue.

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