Monday, July 09, 2012

Plain sense, and a touch of nonsense, from Obama on taxes

Evoking the harm apparently done to the economy by last year's debt ceiling debacle, Ezra Klein frames Obama's call today for a one-year extension of the Bush tax cuts for the lower 98% -- but not for the top 2% of earners -- as a political gamble.  The looming fiscal cliff, Klein suggests, threatens to damage confidence this fall as the debt cliff did last summer; Republicans in Congress certainly won't accede to Obama's proposal before the election; and any drag on growth right now could un-elect Obama.

I don't really think there's any risk. Or rather, the risk of hurting the economy through continued deadlock on the tax question is the lesser of two risks. The alternative Klein holds out is capitulation -- extending all  the tax cuts for a year. That would not only infuriate the base, reprising the trauma of late 2010; it would reinforce what I believe is the chief rap against Obama among independents or undecideds: weakness and ineffectuality, being unable to put his preferred policies across.  

Notwithstanding the usually insurmountable structural impediments to a president imposing his will on a Congress in which the opposing party has the votes to block action, there is a measure of truth and justice to this rap against Obama, because of his conduct during the debt ceiling negotiations last summer. He should not have embraced negotiation-as-a-hostage as "a unique opportunity to do something big"; he should not have accepted the debt ceiling as a deadline for negotiating deficit reduction; he should not have gone on national television to urge Americans to press their Congressional reps for "balanced" deficit reduction and then signed onto a deal with no new revenues. If necessary, he should have prepared the ground for a 14th Amendment or platinum coin end run around the debt ceiling and pulled that trigger if he had to.

Obama did draw the right lesson from that debacle, and today's proposal is in line with his conduct since last September, when he laid out his jobs bill and challenged Congress to pass it. Structurally, this call to extend the tax cuts for one year only for the lower 98%, creating a yearlong window for the next Congress to strike a more comprehensive tax reform/deficit reduction deal, reminds me of the payroll tax cut fight of last winter and the just-concluded student loan fight -- both of which he won, thus in part reversing the capitulation narrative of the debt ceiling deal.  I think he will win this one too -- if (and so after) he gets reelected, and regardless of which party gains in Congress if he wins. As with the payroll tax cut, the politics of hiking taxes on 98% of Americans because you won't let the top rate on the top 2% bump up modestly will prove just too impossible when the tax cut expiration looms over the lame duck. Huge majorities favor modest tax hikes for the wealthiest as a component of deficit reduction.

Stylistically, the speech was admirably spare. I think that Obama has learned gradually to keep it simple; this one was Bill Clintonesque is framing a choice.  All the language was familiar Obamese, but with fewer component parts to the argument built in.  First, he framed a philosophical choice:

Our core mission as an administration and as a country has to be, yes, putting people back to work, but also rebuilding an economy where that work pays off -- an economy in which everybody can have the confidence that if you work hard, you can get ahead.

What’s holding us back from meeting these challenges, it’s not a lack of plans, it’s not a lack of ideas -- it is a stalemate in this town, in Washington, between two very different views about which direction we should go in as a country.  And nowhere is that stalemate more pronounced than on the issue of taxes.

Many members of the other party believe that prosperity comes from the top down, so that if we spend trillions more on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth.

I disagree.  I think they’re wrong.  I believe our prosperity has always come from an economy that’s built on a strong and growing middle class -- one that can afford to buy the products that our businesses sell; a middle class that can own homes, and send their kids to college, and save enough to retire on.  That’s why I’ve cut middle-class taxes every year that I’ve been President -- by $3,600 for the typical middle-class family.  Let me repeat:  Since I’ve been in office, we’ve cut taxes for the typical middle-class family by $3,600.  (Applause.)

I wanted to repeat that because sometimes there’s a little misinformation out there -- (laughter) -- and folks get confused about it.

Moreover, we’ve tried it their way.  It didn’t work.  At the beginning of the last decade, Congress passed trillions of dollars in tax cuts that benefited the wealthiest Americans more than anybody else.  And we were told that it would lead to more jobs and higher incomes for everybody, and that prosperity would start at the top but then trickle down.

And what happened?  The wealthy got wealthier, but most Americans struggled.  Instead of creating more jobs, we had the slowest job growth in half a century.  Instead of widespread prosperity, the typical family saw its income fall.  And in just a few years, we went from record surpluses under Bill Clinton to record deficits that we are now still struggling to pay off today.
 And then he framed a policy choice in light of the stalemate:
I believe we should be able to come together and get this done.  While I disagree on extending tax cuts for the wealthy, because we just can’t afford them, I recognize that not everybody agrees with me on this.  On the other hand, we all say we agree that we should extend the tax cuts for 98 percent of the American people.  Everybody says that.  The Republicans say they don't want to raise taxes on the middle class.  I don't want to raise taxes on the middle class.

So we should all agree to extend the tax cuts for the middle class.  Let's agree to do what we agree on.  Right?  (Applause.)  That’s what compromise is all about.  Let’s not hold the vast majority of Americans and our entire economy hostage while we debate the merits of another tax cut for the wealthy.  We can have that debate.  (Applause.)  We can have that debate, but let's not hold up working on the thing that we already agree on.
Let's agree to do what we agree on. Deft, isn't it? And note the hostage reference -- cashing in, in a sense, on past capitulation. We all know by now who's willing to compromise and who takes the country hostage. But the clear signal that he won't compromise on the upper-crust cuts takes the poison out of the hostage reference.

Note too that at the beginning Obama did his opponents the honor of refraining from implying that they have deliberately sabotaged the economy, as virtually every Democrat in the country now believes they have. It's a philosophical difference that's deadlocked the country, in Obama's narrative -- tinctured by GOP fanaticism, but still a good-faith contest with a large area (98%, one might say) of agreement.  So let's agree to agree.

There is one piece of nonsense in this speech -- part of the two-party kowtow to "small business":

Now, we can already anticipate -- we know what those who are opposed to letting the high-end tax cuts expire will say.  They’ll say that we can’t tax “job creators.”  And they'll try to explain how this would be bad for small businesses.

Let me tell you, the folks who create most new jobs in America are America’s small business owners.  And I've cut taxes for small business owners 18 times since I've been in office.  (Applause.)  I’ve also asked Congress repeatedly to pass new tax cuts for entrepreneurs who hired new workers and raised their workers’ wages.

But here's the thing that you have to remember.  The proposal I make today would extend these tax cuts for 97 percent of all small business owners in America.  In other words, 97 percent of small businesses fall under the $250,000 threshold.  (Applause.)  So this isn’t about taxing job creators, this is about helping job creators.  I want to give them relief.  I want to give those 97 percent a sense of permanence.
The 97% of small businesses that earn less than $250k are not "small business," they're micro-business.  Their job creation is negligible. High-growth startups are an engine of job growth. But their earnings are not under $250k. 



  2. You have to punt after you screw up three downs.

    1. Yeah, we almost sold out Our Arlen Specter Liberalism last summer. No downsides to a unilateral executive lift of the debt ceiling last summer. Right?

  3. Revenues vs Profits? Multi-owner firms?

    High growth startups might include multiple partners with millions in sales and net earnings under $250,000 per partner. Young architects? A bioinformatics firm?

    1. Sounds like a relatively narrow sliver to me -- do you have any numbers on such high-growth, low income partnerships?