In last week’s press conference, President Barack Obama talked about Treasury Secretary Tim Geithner’s Public-Private Investment Program (PPIP) and about his own budget proposal before Congress. “The most critical part of our strategy is to ensure that we do not return to an economic cycle of bubble and bust in this country,” he said. “We know that an economy built on reckless speculation, inflated home prices, and maxed-out credit cards does not create lasting wealth.”
Such concerns are understandable, but it’s very troubling to see the president seeking to gather more government power to manage Wall Street and to make Geithner de facto CEO of financial firms. Efforts to chip away at the free market will dramatically harm long-term economic growth.
The president discussed his $3.6 trillion budget proposal and asserted that “the budget I submitted to Congress will build our economic recovery on a stronger foundation so that we don’t face another crisis like this 10 or 20 years from now.” These two initiatives offer further evidence that he’s promoting bigger government to solve our nations’ problems. Yet government doesn’t create wealth; it takes wealth and power through regulations and taxation.
Geithner’s Power Grab
The PPIP plan would use federal funds to aid the purchase of so-called toxic assets, Wall Street instruments that currently aren’t being traded because of a lack of confidence. These toxic assets would be purchased by public-private investment groups, which would bid for the right to purchase them. The term “public-private” means that you, the taxpayer, are on the hook for any potential losses in these sales.
Two of my Heritage Foundation colleagues, James Gattuso and David John, argue that the public is rightly skeptical of government interventions. There is no eminent threat of collapse to merit these extreme measures, they note, adding: “On the whole, financial markets are impaired but functioning. Indeed, many of these ‘toxic’ assets are still performing despite problems in housing and other markets. Given the dangers of market intervention of this kind — not only to taxpayers in the form of massive costs but potentially to the financial markets themselves — actions such as the PPIP program should be a last resort.”
Another plan being promoted in Congress would grant the Treasury Secretary unprecedented powers to allow the seizure of non-bank financial companies if government officials believe the failure of a company would damage the economy. These new powers, as outlined by the administration, are dangerously broad. There is, of course, a real issue here regarding insolvency of large complex financial institutions. A bankruptcy or bankruptcy-like process that allows these institutions to be wound down more easily may be needed. But that process needs to be carefully crafted, and not give officials power to simply seize private institutions at their discretion.
The Anti-Stimulus Energy Tax
Many of the provisions in President Obama’s budget are receiving an increasingly cool reception in Congress. The innocuous-sounding “climate revenues” line item has been singled out for scorn by some members. These economically devastating taxes will come from a $350 billion annual energy tax on American families and businesses. Obama and his supporters are trying desperately to frame this tax as a way to save the environment, but many in Congress will use this new funding source to pay for pet projects and new earmarks.
Last week, Sen. Bill Nelson (D-Fla.) said that taxes collected from carbon rationing should be used to reduce the deficit. “You’re going to have to speed up the revenues coming in from such things as possibly a cigarette tax, possibly — as the cap-and-trade — going into climate control,” he said. This fight to save the environment from global warming has morphed into a way to raise revenues to reduce the deficit incurred by the president’s spending spree.
Similarly, Senate Budget Committee Chairman Kent Conrad stated his intent to strike the president’s Make Work Pay entitlement tax refund, saying, “we show what our [budget] numbers would accommodate, and they would not accommodate Making Work Pay [tax credit].” According to Obama’s budget outline, the “climate revenues” were going to be used to pay for promised tax cuts.
Sens. Reid, Nelson and Conrad did the public a real service by admitting this isn’t a debate about reducing carbon emissions (which, even using accepted scientific models, would effect an imperceptible change in global temperatures) but about high taxes and more government spending.