Canada and the U.S. are experimenting with two radically different responses to the great recession of 2008-09. The Obama administration has opted for a massive increase in government spending and government debt. It enacted a colossal stimulus package, followed by a topped-up supplemental budget for the second half of the 2009 fiscal year and an even more extravagant budget for 2010.
U.S. federal budget deficits are exceeding a trillion dollars a year; over the next 10 years, the country will accept more debt relative to national income than at any time since the end of Second World War — and that’s before counting the cost of the President’s ambitious health care plans. (Obama insists his plans will save money but nobody believes it — not even the Democrats’ own Congressional Budget Office.)
Recovery has to come to the U.S. eventually. But everybody expects that recovery to be sluggish, especially since the post-recession U.S. economy will have to shoulder heavy new taxes; the Bush tax cuts expire in 2010. The top federal income tax rate will return to 39.6%. Taxes on dividends and capital gains will rise. Middle-income families will lose half their per-child tax credits.
And more tax increases seem certain to follow. The version of health reform making its way through the House of Representatives includes a payroll tax of up to 8% on businesses that do not offer health insurance to their employees. A surtax on high-income individuals would raise the top combined federal-state income tax rate past 50% in California, New York and other high-tax jurisdictions.
Only about 10% of the Obama stimulus money has been spent. The Democratic Congress that wrote the plan timed most of the spending to occur in 2010 — 15 months after the onset of the recession, but just in time to ensure lots of ribbon cuttings leading up to the November 2010 congressional elections.
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