Barry Grows a Pair
Categories: Economy, Featured, Politics, Tax Policy
President Obama introduces his deficit-reduction plan
Mr. Obama tries a combative stance on for size
Who knows what might have caused the president to shift gears? Perhaps it was because he was twice rebuffed by the permatan Speaker of the House, the right honorable John Boehner of Virginia, during the course of the budget talks in July. Perhaps it was Mr. Boehner’s very public smack down, the next month, of Mr. Obama’s request to present his jobs bill to a joint session of congress on the 7th of September.
That last one surely must have stung. Especially as the proposed date was unceremoniously pushed forward because it happened to clash with a scheduled debate of the current crop of GOP presidential candidates, leaving Mr. Obama to squeeze his speech in just before the first game of the NFL season and jostle for the addled brains of football fans pumped for the opener.
Possibly too, it was because after three years spent vainly courting the favor of independents with the promise of an elusive compromise the president has at last understood that, paradoxically, there’s nothing that this one day fish next day fowl group admires more that a politician ready to stand firm behind his clearly stated beliefs, something his opponents have had no problem doing from the outset.
In point of fact, both the GOP and all of the fifteen men and one woman vying for the president’s job have been united in their opposition to any increase in taxes, of any sort and on anyone, irrespective of prevailing circumstances, whatever the avowed purpose, whether to cut the deficit or to assist those driven into poverty by the Great Recession. In case anyone doubted their resolve, all the Republican presidential aspirants have also signed the no-tax pledge put forward by anti-tax guru Grover Norquist.
So, it might have been the dawning realization, long awaited by his supporters, that the Republicans had no abiding desire to join him in the Oval office for a kumbayah sing-along that caused Mr. Obama to grow a pair. And the elephant in the room that the president had failed to engage forcefully up to now, namely tax increase, is just the one issue that both unites his challengers and divides him from them categorically.
His change of attitude, from conciliation to confrontation, was also surely aided by the reports that began to circulate in the wake of the debt ceiling debate which suggested that House Republicans sensing that Mr. Obama was in trouble, as evidenced by his faltering poll numbers, felt no inclination as a matter of strategy to grant him any easy victories before next year’s elections.
To this we must finally add the surging sentiment on the left that his will to compromise had too often resulted in actual capitulation and that as a result he was setting to lose the hearts of his Democratic base after having, to a dangerous extent, lost their minds. Already rumbles were afoot and voices could be heard calling for a Democratic challenge in 2012.
Mr. Obama may have grasped that while he may never persuade enough moderates and independents to win re-election he shouldn’t even bother running at all if he failed to motivate his strongest supporters.
With the introduction of his deficit-reduction plan on Monday, following closely on the heels of last week’s jobs proposal, Mr. Obama seems finally to have traced the firm line in the sand that his ardent backers, and not a few of his persistent doubters yours truly included, have waited for him to draw.
In brief, along with the expiration of the Bush tax cuts, a reduction in military spending and modest cuts to entitlement programs, Mr. Obama has called for a new minimum tax rate for those earning above a million a year. Specifically, he proposes to raise taxes to the tune of $1.5 trillion. This would in principle allow for a reduction in the federal deficits of $3 trillion over a decade. Social Security would not be touched.
This substantial increase in revenue would largely be born by the top 2%, or less than 450,000 of the wealthiest Americans, through a shift upwards of the marginal rate at which capital gains and so-called carried interests are taxed. These stood at 28% under President Reagan in 1986, were first ratcheted down to 20% by Bill Clinton with the Taxpayer Relief Act of 1997, and further decreased under President G.W. Bush in 2003 to their current 15% level.
The aim of the Obama plan is to bring up the tax share of money managers whose enormous wealth is largely derived from dividends and capital gains in line what middle-class households pay as a share of their salaries and wages.
In so doing, the president is taking not just a page but, in effect, the whole book from Warren Buffett who has repeatedly and again quite recently requested that, in the interest of fairness, he should be taxed at the same rate as his no doubt equally hardworking but enormously less rich secretary who is taxed on her wages.
The president has acknowledged his debt to the Oracle of Omaha, titling his tax proposal the Buffett Rule.
An essential debate
As I have argued previously, the debate about taxes, specifically about who to tax, how much and why is one that we as a nation must have. It is in the short term a debate about the ways to address the mushrooming deficit. But it is also, looking further down a line, a debate about the widening inequality of income and its potentially harmful effects on our democracy.
And it won’t be much of a debate if the left side persists in fruitless wishy-washiness with diluted Republican ideas. This lack of a strongly defined position is evidently a weakness the conservative opposition can hardly be tarred with. Instead, it is incumbent on each side to present its arguments clearly, consistently, and without mystification so as to allow an informed electorate to vote on the matter. No less than the future course of these United States is at stake.
On the assumption that is not yet one more Obama mirage, whereby an apparently firm stand is heralded with mighty sound and fury but then gets so whittled away that it ends up signifying nothing much, it seems that the president has picked a stance around which he can build his re-election bid. One, furthermore, that offers the voters a sharp contrast from his Republican challengers.
In the immediate wake of Mr. Obama’s announcement on Monday, some have expressed dismay that this president seems to have wandered from his self-imposed path as the Great Compromiser. This is disingenuous drivel at best. Others have suggested that Mr. Obama is merely rediscovering his old self. That’s not quite right either. Both views lamely shirk the serious questions which Mr. Obama’s proposals should elicit.
For instance, is tax reform, which would shutter loopholes and cancel deductions, a suitable and sufficiently remunerative alternative to an outright increase in the taxes the rich pay? Would such an alternative be “fair” to the middle-classes whose incomes, as the latest census reports show, have been stagnant for a generation while the wealth of the top percentile has ballooned beyond measure? What about a flat tax, an approach much beloved by billionaires for reasons not so hard to decipher?
Can the deficit be reigned in without increasing revenue? Can it be done solely by cutting or, in John Boehner’s priceless euphemism, “strengthening” entitlement programs like Medicare and Medicaid? A politician bidding for the highest job in the land should have the courage of his convictions and state his view boldly on these issues.
How much of Mr. Obama’s new found staunchness is just politics then? The question is driven by the assumption that politics is ipso factor about expediency trumping principle. This is not necessarily so. How much of Lincoln’s stand on slavery was just politics, for instance?
If a convincing case can indeed be made for a degree of political calculation in the president’s announcement, it is in his decision to shift upwards the threshold at which higher taxes would come into effect, from $250,000 to a million. In this, he has the support of a plurality in the polls.
Mr. Obama may well be a Clinton Democrat, to the eternal chagrin of the progressive wing of his party, but he is a Democrat. And Democrats, at least since FDR, have largely believed in redistribution downwards while Republicans, at least since Reagan, have emphatically not. It is high time for the party of Roosevelt to be true to their definition of fairness and present voters with a clear choice.
Politics as the continuation of war by other means
By which is meant of course “class warfare” which Mr. Obama’s Republican challengers have been prompt to accuse him of. This is a rusty saw, dragged out of the same clangy drawer as Grandma’s sausage stuffing recipe at Thanksgiving. Well, with the GOP at least there is rarely any doubt about which class war is actually about to be waged on. That would be the rich of course, even if conservatives prefer to laud them as “job creators”. We’ll have ample room to consider this elite force and their take on taxes in a forthcoming article.
To his credit, Grover Norquist, head of the Americans for Tax Reform group, patron saint of the anti-tax movement, part-time funny man and self described boring white bread Methodist rarely indulges in the rhetoric of class.
For Mr. Norquist, taxes are at bottom a simple but terminally messy act of taking money from Peter to pass it to on Paul. Taxation accomplishes nothing but redistribution. And a tax cut that is allowed to expire on schedule is of course a tax increase. As such, the federal government is merely the corruptible agent of redistribution. It should at best “leave us alone” although, in a pinch, it might be advisable to “drown it in the bathtub”.
The rest of the GOP field, starting with the chairman of the House Budget Committee Paul Ryan, the Robespierre of the Tea Party, has no compunction speaking of class prejudice. Neither does the lovely, slightly spooky Michelle Bachmann whose line of argument ropes in once again the saga of job creators under attack by an administration clueless to the ways out of the current recession. Her Valkyrian charm would be sadly wasted in the White House.
For the barrel-chested, gun toting, coyote killing Rick Perry, the president’s plan would penalize investment while discouraging charitable contributions, an issue that is presumably of capital importance to Texas for reasons that can be gleaned from the recent Census numbers on poverty in the state.
His main opponent, Mitt Romney of Massachusetts, also took Mr. Obama to task, arguing that the president’s new taxes would have a “crushing impact on economic growth”. In his words, “higher taxes” simply “mean fewer jobs”. If only it were that simple.
All these perspectives share a common focus on the supply side of the economic equation: coddle the producer of goods and services with lower tax rates and reduced regulations and he will reward you not just with a cornucopia of goods and services but also with all those new jobs required to make all those new products.
But businesses don’t operate or produce in a vacuum. Our present predicament has little to do with supply or even innovation – Apple keeps cranking out fabulous gadgets after all – and everything to do with a lack of demand.
The middleclass and a far from negligible chunk of the upper middle – those quarter million dollar earners that would no longer be subject to a tax increase under Obama’s updated Deficit-Reduction plan – lost a sizeable portion, in some case the majority part, of their main asset when the real estate market tanked. My friends on the Mainline of Philadelphia count their loss in the fractions of millions.
And the Dow is nowhere near the mythical 30,000 predicted by market crackpots as close as early 2008; instead, volatility rules.
To make matters even worse, the controversial rescue of the banks has not improved the credit situation. Even if it did, it is highly unlikely that people shaken by a precipitous drop in property and asset valuation, not to mention an uncertain job market, would be eager to max out their credit cards. And clearly the spending of the still rich on expensive baubles and outrageous services does not by itself constitute sufficient demand.
So is it credible to expect businesses to ramp up hiring and production when faced with a decline in demand? I don’t think so. Rather, we can expect them to horde what cash they can hang on too and wait for a change in the weather; which, outside of a few overachieving sectors, is just what they’ve done. The same can be said for Mr. Perry’s beloved investors.
All this is to say that the direct correlation between higher taxes and fewer jobs, which Mr. Romney claims, or between higher taxes and reduced investment, as Mr. Perry and other have it, is far from established if it ever was. As Mr. Buffett put it in his Times op-ed, potential taxes have never caused investors to shy away from a sensible investment. The key word here is of course “sensible”, and only the perception of adequate demand can make an investment sensible.
As it turns out, sense is just what we have a dearth of right now, above all in Washington. Nevertheless, most unbiased, reasoned opinion is in agreement that if two things are clearly related it is higher taxes and our ability to make a convincing dent in the deficit. The question is how much and who to tax.
Mr. Obama’s decision to only target those earning a million and above may be strategically sound but it may not accomplish enough if not coupled with carefully calibrated cuts to entitlements. Still, it is a start in the right direction, even if it’s doubtful it will ever clear Congress. And because it sets him so cleanly apart from his rabidly anti-tax opponents, it is a resounding opening shot in Mr. Obama’s re-election bid.