Wednesday, January 06, 2010

Writhing in the budget strait jacket

I have always worried that David Brooks had a point here, back in April '08:
He made a sweeping read-my-lips pledge never to raise taxes on anybody making less than $200,000 to $250,000 a year. That will make it impossible to address entitlement reform any time in an Obama presidency. It will also make it much harder to afford the vast array of middle-class tax breaks, health-care reforms and energy policy Manhattan Projects that he promises to deliver.
Clive Crook, long an advocate for a U.S. VAT,  made a similar point in Feb. '09:
In this "new era of responsibility", as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.

Regarding the long-term structural deficit, the Times' Jackie Calmes today reports that Peter Orzag is looking for a way out of the strait jacket as the Administration faces a budget hit by by unplanned stimulus measures beyond the original $787 billion package, a larger-than-planned Afghan buildup, and rejection by Congress of Obama's proposals to change tax rules for multinationals and cap charitable deductions for wealthy individuals:
With most Bush tax cuts scheduled to expire at the end of this year, some officials, including Mr. Obama’s budget director, Peter R. Orszag, suggested that instead of permanently extending the cuts for all but the richest Americans — as the president has long promised — Mr. Obama could instead propose to extend them a year or two, arguing that further action would await the recommendations of a bipartisan budget commission that leading Senate Democrats want to create.

Critics countered that Republicans would say Democrats were laying the groundwork to raise taxes on the middle class, violating Mr. Obama’s campaign promise. Mr. Obama has decided to stick with his plan to extend the tax cuts permanently for those making less than $250,000, officials familiar with the deliberations say.

No one wants or expects Obama to raise taxes on most Americans while the economy is still weak  Republicans would flay him, and Democrats have I think internalized the Keynesian message broadcast early and often by Paul Krugman and many others, that tax hikes and budget cuts before recovery is well underway could tip the economy back into recession, as happened in 1937.   Long-term, however, I have often wondered whether Obama would pivot in a second term to look for some kind of tax increase on more than the wealthiest 5% of Americans.  Or else dream up new ways to soak the super-rich.

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