The White House White Board on the Tax Deal
Here is Austan Goolsbee explaining the President's rationale for the tax cut deal. My comments are after the break.
More detail can be found here. He makes his case pretty well, subject to two assumptions. First, he assumes that the listener doesn't have higher expectations of what concessions the President could have extracted from the Republicans in exchange for his veto threat. My criticism in the last post was that he basically gave it away. I don't think the Administration helps itself by using "hostage" language -- no one wants to hear the White House describing itself as helpless.
Second, he assumes that the listener is incapable of properly assigning blame to the Republicans for taxes on incomes under $250,000 (or $1,000,000) going up in the counterfactual in which he doesn't cut this deal. He might have mentioned, for example, that Senate Republicans have already blocked these two sensible alternatives. Why is the image we have of the Senate now have to involve Bernie Sanders engaging in a filibuster (making smart and liberal use of Capital Gains and Games, by the way)? Why couldn't the Democrats have arranged this so that they were united and it was the Republicans who were seen as obstructing the legislation? This is just poor political tactics.
Naturally, I would like to know from Austan or the White House why, when they choose to give stuff away in these stimulus bills, they don't include provisions to pay for the spending during the subsequent economic recovery or why they focus on private investment -- which has been quite insenstive to the current low cost environment that already exists -- rather than public investment, which can capitalize on that low cost environment to repair and modernize infrastructure that sorely needs it.
The messaging, negotiation
The messaging, negotiation tactics and ability to pass legislation is awful. Not passing a budget resolution early that would have allowed the Democrats to use reconciliation. Not bringing this up for a vote before the election. Not hammering the Republicans for their recent vote against middle class tax cuts. The list goes on.
Many fear that the cut in the payroll tax will ultimately undermine social security. The Republicans will likely argue against raising payroll taxes when they expire, but will likely cut off funding from general revenues.
The usual Republican line is that they never met a tax cut they didn't like. Counting as a major victory that the Republicans agreed to a bunch of tax cuts is odd.
I continue to agree with you on infrastructure. I encourage you to add education to your list. It's at least as essential as infrastructure and it's losing to state budget cuts.
I think it would have been
I think it would have been smart politics if Obama had refused to go along with the high income tax cuts IF -- repeat, IF -- he (1) made a convincing case to the public that those tax cuts would indeed add greatly to future deficits and debt, even net of any realistic expectation of their net positive economic impact, and (2) that insofar as we accept higher deficits now as stimulus, we should choose efficient (cost-effective) ways to provide that stimulus, and those tax cuts are not an efficient device, and (3) made it clear to the American people that it's not a choice between being nice to "the rich" or sticking it to the rich (as if it's some social act), but rather that the less "the rich" pay now, the more the middle class will have to pay later, because we will all have to eventually pay for the added debt.
BUT...
An even smarter political strategy (and fiscal policy) would be what I describe here: http://economistmom.com/2010/12/can-we-do-the-noncrazy-thing-with-the-bu...
As a note re: my comment at
As a note re: my comment at the link, even though the Republicans were ok with a given percentage point temporary cut in payroll taxes, Obama could still have said he'd cut payroll taxes by a greater amount using the same amount of money the Republicans wanted to forgo by extending the tax "cuts" for "the rich".
Infrastructure?
Neither political party has much commitment to infrastructure spending. Our wealthy millionaire elites in the Senate are willing to pay pork to the military, but don't care about the crumbling state of public infrastructure. Obama and the Dems have moved so far into the Reaganomics camp that there is now an opening for Republicans to take up the mantle of FDR JOB creation.
At the States level, even if the political parties care they don't have the tax revenue.
Just when borrowing is cheap, we are set to see a large net decrease in spending for public infrastructure. Instead, borrowing and tax dollars are being handed to wealthy elites who will invest in overseas opportunities where economies are expanding because governments are making investments in infrastructure and workforce. The US is not going to compete because of ideologues who insist that our government stay on the sidelines, even as foreign governments are heavily weighing in for their side.
He fails to mention carried
He fails to mention carried interest, 15% cap gains and 15% dividends. Those are the cuts which pushed the effective tax rate for the top 400 down to 16% in 2007. Supposedly someone with 1 million in income gets 100K tax cut under the new plan. It's not the 39 to 35% rate reduction that gives the millionaires 100K in tax cuts. That only gives them 30K in tax cuts (.04 x 750K). The other 70K comes from the cap gains and dividend cuts (assuming the 100K number is a correct estimate). So that's a big deal and the main reason why there is so much opposition to this bill from the left. There is nothing to suggest these favorable rates encouraged business formation. In fact, the dividend rate encouraged shareholders to withdraw capital from corporations which increased corporate debt and slowed investment in equipment.
Austan Goolsbee is Funny
The first thing that struck me about this presentation is that the whiteboard faces "the Republicans" off against "Obama" rather than the "Democrats". While Goolsbee is the President's economic advisor and this was, after all, the White House Whiteboard, I thought the juxtaposition carried a lot more meaning than perhaps was intended.
I really had to chuckle though, at the rather dramatic ending. Goolsbee IS funny even when he's not trying to be. In his ending he dramatically stated "the fact is that we are going to grow are way out of "these problems" (not defined, but I trust he wasn't talking about the deficit) and the foundation of that growth is gonna be RIGHT HERE (pointing at the list of $56 billion of temporary spending measures). That's making the case pretty well?
bipartisan?
It's telling that the two parties of note in this presentation are NOT Republicans and Democrats. That might have something to do with why Democrats are as upset with the results as they are.
I am thinking more and more that one of the failings of Obama as president has been that he understands bipartisan negotiation to mean that he is the personal representative of one of the sides, rather than playing the role of arbitrator or facilitator serving both sides.
Perhaps he thought he could be a builder of a coalition that crosses party lines. It seemed like a good idea at the time, but quickly became unrealistic. I don't think his current approach to bipartisanship is likely to succeed any better, just as it failed for Gov. Schwarzeneggar in CA.