The ghost of Ronald Reagan is about to haunt President Obama. If Mitt Romney has any political savvy at all, he will begin channeling the late president and introduce his ghost into the economic debate forthwith.
Back in July 1980, when Reagan was challenging President Jimmy Carter, the unemployment rate in America was 7.8% – close to what it is now. But the inflation rate was over 13% and that was eroding American wealth at a frightening clip. Ronald Reagan seized on the economic turmoil to hammer Carter as an incompetent, and that won the election for the former actor and governor of California.
After Reagan moved into the White House, he walked the walk. He convinced Congress to drop the federal income tax rate for the wealthiest Americans from an incredible 70% to 28%. Reagan also held the line on federal hiring. During his eight years in office, just 12,000 federal workers were added to the payroll. By contrast, Jimmy Carter hired 100,000 federal employees in four years.
As history unfolded, the American economy roared back during the Reagan era making him a hero to free-marketers and small government devotees. His legacy was built on robust capitalism and effective opposition to the communist world.
In 2012, America is not bedeviled by inflation but is stuck in the economic mud. Under President Obama, government spending has reached record levels and in three years Mr. Obama has added about 130,000 federal workers to the payroll – more than TEN TIMES what Reagan added in five fewer years. It is breathtaking.
And now Mr. Obama wants to jack up tax rates on the affluent all over the place. Income, capital gains, and dividends would all be taxed at a significantly higher rate if Congress goes along with the president. Again, this is the exact opposite of what Ronald Reagan did.
What Mr. Obama hopes to accomplish is hard to ascertain. The feds would derive about $85 billion in extra revenue a year if the President's proposed tax hike is passed. But listen to this: the feds spend $85 billion every eight and a half days, according to the Treasury Department. Talk about putting your finger in a leaking dike.
Of course, the downside of raising taxes on the wealthy is that it might constrict investment and consumer spending further, thereby harming the already fragile economy. Is that risk really worth eight and a half days of revenue?
And so the ghost of Ronald Reagan hovers: just waiting for a Romney seance in order to make his presence felt. We do indeed live in scary times.