Republicans Continue to Hurt the Economy by Trying to Buy Votes

The Economy is issue #1 for most Americans. Rightfully so, it is the engine that drives our country. So let’s check some facts before you decide who to vote for this November.

Which party is better for the stock market? If you look at the data the stock market it does a statistically significant 9% better per year under a Democratic Administration. In fact, it does 16% better in an equally weighted portfolio (i.e. small businesses do particularly well). Not only that, volatility is down too [1]. The GDP does better also; it averages a 4.4% increase per year under a Democrat vs. 2.8% for a Republican [2].

But ok, let us ignore those facts and say it is just some strange coincidence. After all, Republican’s are the ones that always promise the biggest tax cuts. And tax cuts are always the best the thing for the economy right? Not necessarily. Tax cuts will give small short-term boost to the economy. But, if they are not matched by significant cuts in government spending they will do more harm than good. You see, taxes are part of a bigger picture including national spending and debt.

It seems pretty simple:

Income – Expenses = Profit (or Loss)

But many seem to neglect one of the most basic formulas in business. In this case we are talking about it related to government:

Tax Revenue – Spending = Surplus (or Deficit)

So ask yourself, what should the tax rate be? “Lower!”? Well, how low? Eliminate all taxes? When you think about it you realize that there is more to consider. Sure, no taxes would be great, but you don’t need a PhD to realize that would cause our country to collapse due to a hyper-inflation and a worthless dollar.

Yes, Republicans have correctly received credit for the largest tax cuts. However, if tax cuts are not accompanied by a cut in spending the deficit will increase and that increase in our national debt will lead to inflation and a drop in the value of the dollar. Our national debt climbs toward $10 Trillion (as of 4/18 it is $9,372,485,723,263.83 and increasing by $1.68 Billion per day), almost a fifth of $51 Trillion of market capitalization of all of the world’s stock markets.

The dollar has not been backed by gold since 1971. The government’s word and its ability to pay are what back the value now. Is it really a surprise that the market has begun to doubt the dollar as our debt has climbed so high? Would you not feel less comfortable about loaning money to someone that is $10 Trillion is debt?

Inflation (Things cost more money) should be an equally apparent side-effect of an irresponsible tax policy. “Inflation is a phenomenon caused by the increase of money supply relative to the growth of production capacity for goods and services.” A tax break gives more money back to the people (Hooray! Free money!). But an obvious side effect is increasing the money supply, which in turn leads to inflation, all things equal. Of course “all things equal” almost never happens; the Federal Reserve adjusts interest rates to counter inflation. But that adjustment lowers our defenses against a recession and results in the negative side effects being spread across multiple areas of our economy.

The economy is inter-connected. If the government takes an action on the economy it has an effect elsewhere, there is no single-entry accounting. Gas prices too high? Have the government impose price controls. What happens? Gas shortages. Economy not doing as good as you think it should, want more money? Have the government give everyone a tax-break, free money all around! But it has its costs doesn’t it? Our national debt goes higher, the dollar loses value and inflation climbs higher. Your money is now worth less.

Now the problem here is not the tax cuts. The problem is that we have tax cuts without spending cuts. Despite the image they try to create, Republicans have been the ones that have been doing the big spending. Republican’s have averaged a 12.1% increase in government spending vs. 9.9% for Democrats [3]. And in 2002 PAYGO (pay-as-you-go rules is where all new spending bills must include an equal spending cut else where, or increase in revenue) was disbanded by the Republican led Congress in order to pass Bush’s tax cut and Medicare spending increases.

Republican’s irresponsible policies have resulted in a 36.4% increase in the national debt under the average Republican administration, compared to only a 4.2% increase under Democrats [3]. So it should not be a surprise that Economists support Democrats 2.5 to 1, making them a core part of Democratic Party [4]. You can try to write off the stock market and GDP as that the government has no control over it. But you cannot deny that the party in power has direct control over government spending and our national debt. And in those tasks Republicans have clearly failed.

So let’s review the facts:

Try to explain it however you want, but the facts show that Democrats have a better record with the economy. Tax cuts are great, but they must be combined with spending cuts otherwise they are will hurt the economy. Republicans are trying to buy votes with tax cuts but they will only hurt the economy.

As for this election, I make it no secret that my choice is Obama. He is the only candidate that has proposed a policy of responsible tax cuts. He is the only one that has voted for PAYGO every year in the Senate.

Look, my point is not to try to “turn you into a Democrat,” quite the opposite. I am a proud independent, and I think everyone should be. Don't just blindly follow Democrat or Republican label. Look up the facts yourself.

[1] The Journal of Finance: http://personal.anderson.ucla.edu/pedro.santa-clara/Politics.pdf
[2] U.S. Dept of Commerce – Bureau of Economic Analysis: http://www.bea.gov/National/Index.htm via http://www.outsidersdc.com/000/11996748902.htm
[3] Budget of the United States Government – History: http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf via http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms
[4] Survey of Members of the American Economic Association by Santa Clara University Dept of Economics: http://springerlink.metapress.com/content/w4q363786573275h/ via http://en.wikipedia.org/wiki/Democratic_Party_(United_States)#Economists


Cliffs: Tax cuts are good, but only if they are backed by spending cuts. Republicans have reigned over slower growth in the Stock Market and GDP, and higher government spending increases and much, much higher government debt increases.