Monday, January 24, 2011

No crusade in the SOTU?

Matt Yglesias was onto something -- if only administration thinking -- when he wrote:
It sounds silly to call for less presidential leadership, but I think the evidence suggests that what’s needed here is actually a very vague and generic endorsement of the concept of tax reform plus some themeless pudding. Frances Lee’s important book Beyond Ideology: Politics, Principles, and Partisanship in the U. S. Senate argues persuasively that what happens when a president tries to “lead” on an issue like this is that a dynamic of partisan polarization kicks in. What you really need to get tax reform is for some hard-working members of congress from both parties to take the initiative in hammering out a framework and building support on the Hill. If such a thing happens, the White House should of course try to play a constructive role. But jumping all over the issue and a creating a dynamic where tax reform becomes “a key priority for the Obama administration” that opportunists on the right want to kill for the sake of a political win would not be a constructive intervention.

Today, the WSJ's Jonathan Weisman relays (alleged) administration thinking in advance of the State of the Union address:
The president will try to keep the deficit conversation in broad terms, fearing that detailed proposals would put Republicans, Democrats and Washington interest groups into a defensive crouch before real negotiations can take place, according to those officials [familiar with the speech]. White House officials, for instance, have assured Democratic lawmakers that the president will not explicitly call for cuts in Social Security benefits, though he will say changes are needed to put the program on a solid fiscal footing.

Further signaling is that the President will talk somewhat more specifically about a corporate tax cut. This could be perceived as a kind of warmup to global negotiations to reform the entire tax system, since the basic structure of probable reform would be the same: lower the overall corporate income tax rate, and close myriad loopholes that currently assure that almost no businesses pay anything approaching the current nominal rate.  Obama, it should be noted, has been on record as favoring this  kind of corporate tax reform at least since the 2008 campaign. In June 2008, for example, he told the WSJ:
But it would be a mistake to say I view our tax code only as a distribution question. I also think that our tax code has come to distort a lot of economic decision making so I'd like to see simplification as part of an overall tax agenda. On the corporate side, for example, one of the things I've asked my folks to look at is: Are there ways we can close existing loopholes in tax havens at the same time as we're lowering overall rates? We've got this new problem: The biggest problem with our tax code when it comes to the business side is that we have one of the highest tax rates -- corporate tax rates -- on paper but our effective tax rate is one of the lowest … You know, how much you pay in taxes as a corporation a lot of times is going to depend on how good your lobbyist is, as opposed to any sound economic theories. So those distorting effects I'd like to actually remove and eliminate from our tax system, but obviously that's a complicated and difficult task. The last time we did it was in 1986. We're going to have to, I think, revisit that.

It is a tough question whether -- or rather, how -- Obama needs to "lead" on tax restructuring and deficit reduction. Should he seize on at least the gist of the Bowles-Simpson plan, which includes the huge two-party tradeoff of lowering overall rates while raising overall revenue, and, as Roger Altman and Richard Haass urge in today's FT, "educate Americans on the sacrifices that are inevitable and on the spending cuts and tax increases that cannot be avoided if a far worse crisis is to be averted" -- imprinting in some detail the contours of a solution in keeping with Democratic priorities?   Or should he, per Yglesias, offer generalities about deficit reduction coupled with calls for the kind of Federal investments he sees as vital?  Looks like it's going to be the latter -- which is more in keeping with Obama's m.o. thus far. Recall that he offered only general parameters (publicly) to Democrats shaping healthcare reform, and avoided lines in the sand while negotiating his tax deal with Republicans in the lame duck session.

It seems to me that Obama's main "educative" task is to get across the Republicans' fervent pursuit of Draconian cuts in discretionary spending is mere posturing as far as the deficit is concerned -- those cuts are really about defunding effective regulation and so pleasing their corporate masters. If he can help hammer home that social security, Medicare/Medicaid, and defense make up the vast bulk of government spending, that will be a major advance, since it's a message that never seems to sink in, in part because Republicans do their utmost to obscure it. He will express a willingness to work with both parties on fundamental tax reform, which is likely to be a multi-year process, and perhaps gesture toward Democratic priorities on that front, such as raising more revenue, increasing the share paid by the wealthy, and controlling healthcare costs via well-resourced implementation of the PPACA.  Broad parameters, a 20-year horizon and a willingness to work. That's his way.

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