I know progressives that are upset with Barack Obama because he wants to cut taxes for 95% of Americans. These progressives tell me that Obama is pursuing a Reaganesque tax policy. Here’s the deal. Tax policy is one area where an administration can make some small impact on the performance of the economy. Sometimes the economy needs a little stimulus, which involves increasing people’s disposable income, or income available for investment. Sometimes it involves putting a brake on overexuberant behavior and balancing the books, so we aren’t borrowing money we can’t afford to pay back. The problem with the Republican Party is that they use every occasion to argue for tax cuts. That guarantees that they are right no more than 50% of the time.
Barack Obama recognizes that people and businesses are suffering from a period of tight credit. Under current circumstances, it makes sense to cut taxes. But we’re also experiencing a period of massive deficit spending, so we need to balance the books. We can cut some spending, but we also need to increase revenues. The only way to accomplish both goals at the same time is to cut taxes on most people and raise them on the people that are the most comfortable.
Obama’s tax policy is the right prescription for the times we find ourselves in, but it’s also the right place to be politically. We need to spread the wealth around a little bit precisely because the credit markets are so tight. We need to put more money in people’s hands so they can consume some goods and keep struggling companies in business. We need people to qualify for loans that suddenly have more realistic conditions. But we also have to have more government revenues, so we aren’t financing our operations exclusively through borrowed money.
The Republicans are making a last-ditch argument that a more progressive tax policy is ‘socialist’, but their argument is essentially dishonest. We have been financing our government on borrowed money for the last seven years, and we’ve been borrowing a lot of that money from China and Saudi Arabia. Our kids and grandkids are going to have to pay off those debts, and pay them off with interest. If we are going to put a stop to that, we’re going to have to increase taxes and cut spending. If we don’t raise that revenue from the wealthiest Americans, we’ll have to raise it from people that are already struggling. And that’s not a very politically palatable way to go.
Obama has the right strategy because he combines a sound fiscal policy with a sound political strategy. It would hamper our economic recovery if we raised taxes on struggling consumers and small businesses right now. But Obama proposes the opposite. He wants to raise revenues, but he wants to do it by taxing the top 5% of income earners.
Some progressives don’t like that because they want to raise much more in revenues and they want to avoid teaching people that tax breaks are good policy. But, it’s as wrong to be reflexively for tax cuts as it is to be against them.
Obama has a reasonable, reality-based plan. And the people running against him are telling nothing but lies about his tax plan.
An excellent overview which I plan to use tomorrow when I work at an Obama campaign office. There are still “undecideds” out there (as David Sedaris notes, trying to make up their minds between servings of the chicken or the shit with broken glass), and if I can find a reasonable one or two or three, I’ll try to appeal to their pocketbook. Thanks.
This:
“But we’re also experiencing a period of massive deficit spending, so we need to balance the books. We can cut some spending, but we also need to increase revenues. The only way to accomplish both goals at the same time is to cut taxes on most people and raise them on the people that are the most comfortable.”
is dead wrong. Didn’t you read Krugman’s call for fiscal stimulus. Even conservatives are conceding the need for Keynesian pump priming. You do not try to balance the budget going into a recession. Fiscal stimulus means increasing, yes, increasing the deficit. What Hoover did wrong and FDR too, at first, was try to balance the budget. It wasn’t the tax increase per se; it was that he was taking more money out of the economy than he was putting back in.
This is basic Keynes. When the economy is contracting, tax revenues will naturally decrease, and, if the government keeps its deficit at the same level, it’s spending will go down too. Government spending stimulates the economy. World War II didn’t get us out of the depression because war is good for the economy; it did it because deficits are how you stimulate a depressed economy. Milton Friedman believed monetary stimulus – cutting interest rates – could do the same job, but that looks dubious now, and, in any case, there isn’t far to cut them.
Tax cuts are not a bad idea because they increase the deficit. Spending increases are good for the same reason. Which is better depends on what you are taxing and where you are spending. In a sense, Obama is lucky; other than media and popular ignorance, the economic case for government spending on health care, say, or alternative energy is now stronger because we must spend to provide fiscal stimulus. The advantage of tax cuts is that they are faster, but increased spending gives us long run advantages like health care and energy. And there is also a good case for monetizing a considerably amount of this debt. Normally, that is inflationary, but in a recession or, especially, depression, especially one involving a credit crunch, there are deflationary pressures to counteract this. Some reforms that should probably be taken, such as increasing reserve requirements, are also deflationary. If we monetize, we are neither taking it from China nor passing it on to our children. It will probably bring down the dollar internationally, but that die seems pretty well cast in any case. The biggest problem Obama has with his policies right now is the popular and media superstition that a downturn should be met with belt-tightening.
His cut for 95% of us is stimulative but will lose some effect due to the amount of goods we import. A public public work project directed at infrastructure would be beneficial. Moneys spent on that will create tangible assets and salarys paid will then be spent and taxed again locally. He looked at this earlier when he spoke of a windfall profits tax on the oil companies that was to be redirected to infrastructure. Some sort of tax on speculative trading is in order. The tax cuts have to be stimulative given so much has been squandered. Spending increases mainline to the economy making goevernment projects appealing. The upper 5% need their money put to work we cannot afford to wait for it to trickle down. That does not work it and is not healthy for the economy.
WTF? Why would a progressive have a problem with Obama’s tax plan?
the way I see it, his cut actually WILL stimulate the economy. The fundamental flaw in the Bush tax cuts was that wealthy people drive the economy. they don’t: they already have what they need, and don’t by lots of small and mid-ticket items.
Middle- and working-class people buy all sorts of shit when they have money: cheap toys for the kids, refrigerators, dvd players, cd players, groceries for a family of 5 every week.
Bring on the tax cut so i can feed my family!
The problem with your argument,Brendan, is that all that shit is made in China. So buying it stimulates China’s economy, not ours.
Now, feeding your family, I support that! However, I am disturbed by how much of our food supply now comes from China and contaminated food too. I’m trying to buy more locally grown or US organic foods despite the enormous prices. Why do organic food organizations run polls asking if you are willing to spend 20-25% more for organic food when the real price in stores is 2 to 3 times as much? I’m also suspicious of the organic claims. When I grow organic apples, I have to peel off the skin and cut out all the bug-ridden parts, at least a third, but those organic apples in the store are picture perfect.