FDR Memorial 2nd Term 1937-1941 (Photo credit: krossbow)

After campaigning hard for his new soak-the-rich tax increases, President Obama—er, I mean President Franklin D. Roosevelt—won reelection in 1936.  A solid Democratic Congress dutifully passed the tax hikes, which quickly led to what’s known as the “Roosevelt recession” of 1937.  If President Obama wins his reelection bid and gets his tax increases implemented, we will get the “Obama recession” of 2013.

The last recession has been officially over for more than three years, though it certainly doesn’t seem that way to millions of struggling and unemployed Americans; and the country is perilously close to falling back into another.

While the president boasts of steady, albeit slow, economic growth:

• The economy only added 96,000 jobs in August, down from 141,000 in July and a January-March average of 226,000 a month;

• Applications for unemployment benefits rose from 367,000 in August to 382,000 (though economists think some of that increase was due to Hurricane Isaac);

• Manufacturing declined for the third month in a row in August;

• And U.S. rail traffic, a leading economic indicator, was down 3.4 percent from the same period in 2011.

The economy is staggering under the load of Obama’s policies, making it increasingly likely we will soon slip into a double-dip recession.

The Federal Reserve Bank is so concerned that it jumped back into the economy with its third quantitative easing (QE3).  Indeed, the recent housing-market uptick may be a result of the Fed’s easy-money policies—which, ironically, arguably led to the housing bubble that initiated the 2007 recession.

But the Fed’s efforts to flood the economy with money—$2.3 trillion since 2008—won’t save us from another recession, and may actually exacerbate the problem, if companies and entrepreneurs refuse to invest in new opportunities, equipment and people.  That’s what happened in 1937 with Roosevelt’s reelection, and it will happen again if Obama is reelected.

There are at least three reasons why an Obama victory will almost surely lead to a recession in 2013:

(1) Obama’s version of the “Wealth Tax.”  As part of his reelection ploy, FDR proposed what he dubbed a “Wealth Tax.” As he explained to Congress in June 1935, “Our revenue laws have operated in many ways to the unfair advantage of the few, and they have done little to prevent the unjust concentration of wealth and economic power. … Social unrest and a deepening sense of unfairness are dangers to our national life which we must minimize by rigorous methods.”  [See here.]

Similarly, Obama wants to impose a number of new taxes on those he considers wealthy—individuals making more than $200,000 and families making more than $250,000.  Take the dividends tax, for example, which currently sits at 15 percent.  The president’s proposal will nearly triple that tax, to 43.4 percent, at a time when the Fed’s low-interest rate policy has driven investors toward dividend-paying stocks in the hope of getting some return on their money.  Think a tripling of the dividend tax, and a 33 percent increase of the capital gains tax from 15 percent to 20 percent, just might have detrimental impact on investing?

(2) The certainty of uncertainty.  The uncertainties created by the explosion of regulations, taxes and mandates (e.g., most employers must provide health insurance) will encourage businesses to remain hunkered down and sitting on their cash, unsure what challenges and costs they face when hiring and expanding.

But it’s not because employers are greedy or evil, which was the constant message emerging from speakers at the Democratic convention.  They are doing exactly what most families do in times of uncertainty.  If you know your job is shaky, or that you may see your income decline, you will likely postpone major or unnecessary purchases until the situation is clearer or more stable.  Obama’s policies have created massive uncertainties among employers—and employees, for that matter—who will sit on their hands, and cash, a little longer if he is reelected.

And note that this uncertainty discussion doesn’t include the additional uncertainty created by other factors, such as what Congress will do to address the government’s debt limit coming around year’s end.  It was this very battle that tanked the stock market in August of 2011 and led to a downgrading of the country’s credit rating.  Could the economy stand a similar downturn without turning negative?

(3) The government-spending binge. FDR ran up government spending from 6 percent to 9 percent of the economy, while Obama increased it from about 20 percent of GDP under George W. Bush to nearly 25 percent. [See this graph.]

To sustain that level of spending the government must dramatically increase the tax burden and/or borrow like a drunken liberal.  The president has done both—$5 trillion worth of new debt—and will do a lot more.  Both actions suck capital from markets and the private sector that is needed to boost real economic growth.

But that isn’t the worst of it.  Obama says he wants to “invest” in the U.S., by which he means confiscating trillions of dollars from the private sector to squander on “investments” the administration thinks are beneficial—especially to his political future.  Economists refer to this practice as “mal-investment,” because the government handouts are based on political motives rather than the profit motive.  It is a sign of the unusual times we live in when so many Americans think that buying votes with their own money is morally and economically superior to making a buck the old-fashioned way—by earning it.

FDR undertook all three approaches and it resulted in the Roosevelt recession of 1937.  If Obama is reelected and follows the same path, which is what he promises to do, it will lead to the Obama recession of 2013.

Would a Mitt Romney victory in November avoid a recession?  It’s hard to say, since too much economic damage may have already been done.  In fact, we could slip back into recession before inauguration day.

But if a President-elect Romney were to make it clear that he would cut government spending immediately, not raise taxes and curb or eliminate the Obama regulation-palooza, companies would begin to invest the trillions of dollars they are currently holding—because that’s what companies do when it makes business sense to do so.

While it might not be enough to save us from a recession, it would be minor compared to the economic hit we’ll take if a reelected Obama is able to get his agenda passed.