The American Interest
Analysis by Walter Russell Mead & Staff
How the Government Is Killing the Recovery

“Where are the customers? Where is their money?” a Wal-Mart executive emailed after a dismal January. As February dragged on, another chimed in:

“In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal-Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.”

So where are the customers and their money? The answer appears to be that a focused and targeted U.S. government scheme to wreck the economy is working.

Washington insiders don’t see it this way, but steps taken together by the ultra-dysfunctional leaderships in both parties led to the following three factors, each of which has direct and serious consequences for an economy whose growth had “unexpectedly” slowed to a crawl in the fourth quarter of 2012:

1. The payroll tax increase. Payroll taxes (the withholding taxes which are all the direct federal taxes many low income people pay) went up by two percentage points, from 4.2 to 6.2 percent, when the temporary cut adopted during the recession was allowed to expire. That was a big mistake. This was a tax cut that directly helped low income people by putting more cash in their pockets.

2. Sequestration. The sequestration standoff has paralyzed investors and businesses all over the country. When businesses don’t know what’s over the horizon, it makes all the sense in the world for them to delay new investment. And both small and large businesses are doing exactly that.

3. Delayed tax refunds. Meanwhile, the confusion over the new tax changes was so great that the IRS has had to delay refunds to millions of taxpayers. Let’s note that this is a form of forced lending to the government that doesn’t pay interest on the money owed—because, well, it’s the government and there’s nothing you can do.

Put these three things together and you have a mess. Add in the fourth horseman of our economic apocalypse—the uncertainty hanging over the whole economy as everybody nervously tries to figure out just how big a mess Obamacare is going to be and how much it will impact their business or family finances—and you’ve poured a bucket of ice water on the fires of whatever economic recovery we had stoked.

Hopefully the economy will struggle through and create more jobs and more wealth despite the way that Washington is holding it back. But nobody should confuse what is being done today in Washington with leadership or economic statesmanship (and this includes both parties’ actions). If these people had more power, they would hurt us even worse.

Published on February 18, 2013 8:36 am