Germany and Hungary Are Switching to Reaganomics-->Why Can't We?

President Obama is quickly approaching the moment when he will have to emulate President George HW Bush, who told us to read his lips, "No New Taxes." Barack Obama promised us that he wouldn't raise taxes on families with income of less than $250,000, he is already hinting that the pledge will soon have to fall. Problem with that broken pledge, is that Christina Romer, a top  Obama's top economic adviser did a major study that proved for every 1% increase in taxes, the US Gross Domestic Product falls by at least 2%. As we are already in an economic slowdown that is not a wise choice.

But there is another Idea, maybe we adopt the strategy that Germany and Hungary are about to adopt, Reaganomics...tax cuts. That is IF the President truly cares about the economy rather than just implementing his socialist agenda:

Taxes Or Growth? By INVESTOR'S BUSINESS DAILY

The White House now refuses to rule out raising taxes on the middle class. Meanwhile, a top finance official in the previous Democratic White House suggests a tax hike is all but inevitable. Are we being set up?

It sure looks that way. And if it happens, you can mark it down: The economy will slow to a crawl and may even relapse into a deep recession. This is a complete reversal of what was promised.

"In an economy like this," President Obama said at last summer's Democratic National Convention, "the last thing we should do is raise taxes on the middle class." That, he said, included 95% of all families. He promised flat out that he wouldn't raise taxes on families with income of less than $250,000.

How times have changed. On Monday, White House spokesman Robert Gibbs, asked point-blank several times if the president's vow was still good, would say only that "we are going to let the process work its way through."

"Process"? Middle class, watch out.

Actually, the last thing we should do is raise taxes on any class — lower, middle or upper. Tax hikes in a recession are plain crazy. They will inevitably crimp economic activity, slow retail sales, kill jobs and leave the government starved of revenues.

A major study in 2007 looking at recent U.S. economic history found that when the government raises taxes by 1%, U.S. GDP falls by roughly 2% to 3%. As we've noted before, the only surprising thing about this study is its author: Christina Romer, President Obama's top economic adviser.

Is he still listening to her? The sweeping ambition of the White House's plans to expand government will require massive tax hikes. This is no longer in doubt, if it ever was.

Just look at the tab run up so far — and some of the costs that we might soon have to pay. All told, we'll spend $13 trillion more than we'll take in through 2019. How will we pay for it all?

The Congressional Budget Office recently estimated that U.S. taxes as a share of GDP would have to rise 49% by 2035 to pay for just the spending already budgeted. And these taxes will hit all Americans, not just the "rich." This is a recipe for economic disaster.

"We'll have to raise taxes soon," wrote President Clinton's former deputy Treasury secretary, Roger Altman, in a Wall Street Journal opinion piece this week that sounded suspiciously like a trial balloon for Democrats in Congress and the White House.

There's a far better answer to our economic ills.

At the same time the U.S. is pondering economic suicide through massive tax hikes, other countries are learning not from Obamanomics but from Reaganomics: They're pondering tax cuts.

Germany's Angela Merkel wants to cut taxes, despite her country's big deficit. "How can we ensure Germany emerges stronger once the crisis is over and the cards have been reshuffled in the world? The answer is we need growth," she said this week.

Even Hungary's socialist government says the same thing. It's pushing supply-side tax cuts in 2010 to stimulate its economy.

Our guess is Germany and Hungary will show more life in the next year than the U.S., unless the U.S. wakes up.

Usually at this point in the business cycle, the U.S. is the locomotive that pulls the rest of the world out of its slump. This time, the world is looking to China to get the job done. In the U.S., the rest of the world sees only a growth-killing mix of higher taxes, soaring spending, surging debt, rising inflation and growing regulation.

We could reverse this. Instead of tax hikes, we need broad-based tax cuts for families and business. But we have to act right away. After all, why let a crisis go to waste?