I basically stole the title of David Leonhardt’s excellent article on what Barack Obama proposes for our economy (adding the “101”) that appeared in the New York Times Magazine on Sunday – when you can’t improve on something, don’t even bother.
There are many ways that Obama is superior to John W. McBush: Iraq, improving our schools for real, restoring our economic competitiveness, rebuilding our infrastructure, addressing health care, entitlement reform (eventually…and I’d like to add preserving the Constitution to that list – maybe I’ll be able to one day), but with the exception of the war and the climate crisis, the underpinning of all of will be the return of equitable distribution of wealth in this country (or some approximation of that, at least something a hell of a lot better than anything we’ve seen over the last eight years) to levels close to what we experienced under the Clinton Administration.
And that, in essence, is what Obama is proposing.
And as Leonhardt also tells us, Obama is actually closer to an economic school of thought more similar to Milton Friedman than most people realize. He only sees government intervening in the event of “market failure,” which is a euphemism for what we’ve endured under Bushco.
This means that, while Obama doesn’t envision anything along the lines of “Great Society”-era legislation (assuming that could even fly now, and it barely did even back then), he does see a place for government as a means of providing a structure of sorts for capitalism to work (which I think is pretty close to what most of this country sees as its proper role).
Though Leonhardt’s piece is lengthy, it is definitely worth the read. And this excerpt “cuts to the chase”…
The Tax Policy Center, a research group run by the Brookings Institution and the Urban Institute, has done the most detailed analysis of the Obama and McCain tax plans, and it has published a series of fascinating tables. For the bottom 80 percent of the population — those households making $118,000 or less — McCain’s various tax cuts would mean a net savings of about $200 a year on average. Obama’s proposals would bring $900 a year in savings. So for most people, Obama is the tax cutter in this campaign.As McBush adviser Douglas Holtz-Eakin has pointed out, more or less (he used to work in the CBO), Obama’s plan to impact the payroll tax would hasten a serious dialogue on Social Security, since there would be fewer funds for that pot (with H-E accusing Obama of “a lack of judgment,” of course). Also, Obama’s plan to return to Clinton-era levels of taxation hastens charges of “dependence over self-sufficiency and bureaucratic condescension over self-help,” as the authors of the book “Grand New Party” put it (as if governments are the only institutions with bureaucracies – please).
If there is a theme to the Obama tax philosophy, it’s that the tax code is not quite as progressive as you think it is. Most of the public discussion about taxes tends to focus on the income tax, which taxes the affluent at a considerably higher rate than anyone else. But the income tax doesn’t take the biggest bite out of most families’ annual tax bill. The payroll tax does. And even as the federal government has been reducing income taxes over the last few decades, it has allowed the payroll tax, which finances Social Security and Medicare, to creep up. That’s a big reason that overall tax rates for the bottom 80 percent of earners have not fallen as much as rates for the affluent.
Obama’s second-most-expensive proposal, after his health-care plan, is the equivalent of a $500 cut in the payroll tax for most workers. (It is actually a credit that is applied toward income taxes based on payroll taxes paid.) In a speech this month in Florida, he proposed that the cut take effect immediately, in the form of a rebate, to stimulate the economy. For most workers, it would be the first significant cut in the payroll tax in decades, if not ever.
The other way that he would cut taxes involves a series of technicalities. But since the campaign began, Goolsbee has been arguing that those technicalities offer one of the best glimpses of how Obama thinks about the tax code. Right now, several big tax breaks that sound broad-based — like those for child care and mortgage interest — don’t always benefit middle-income and lower-income families. Another example is the Hope Credit for college tuition, a creation of the Clinton administration. Obama wants to more than double the credit, to $4,000. More to the point, he would make it “fully refundable.” As a result, a family with an income-tax bill of $3,000 wouldn’t merely have that bill eliminated; it would also receive a $1,000 check. Increasingly, the income-tax system becomes a way to transfer money to poor families.
All told, Obama would not only cut taxes for most people more than McCain would. He would cut them more than Bill Clinton did and more than Hillary Clinton proposed doing. These tax cuts are really the essence of his market-oriented redistributionist philosophy (though he made it clear that he doesn’t like the word “redistributionist”). They are an attempt to address the middle-class squeeze by giving people a chunk of money to spend as they see fit.
He would then pay for the cuts, at least in part, by raising taxes on the affluent to a point where they would eventually be slightly higher than they were under Clinton. For these upper-income families, the Tax Policy Center’s comparisons with McCain are even starker. McCain, by continuing the basic thrust of Bush’s tax policies and adding a few new wrinkles, would cut taxes for the top 0.1 percent of earners — those making an average of $9.1 million — by another $190,000 a year, on top of the Bush reductions. Obama would raise taxes on this top 0.1 percent by an average of $800,000 a year.
It’s hard not to look at that figure and be a little stunned. It would represent a huge tax increase on the wealthy families. But it’s also worth putting the number in some context. The bulk of Obama’s tax increases on the wealthy — about $500,000 of that $800,000 — would simply take away Bush’s tax cuts. The remaining $300,000 wouldn’t nearly reverse their pretax income gains in recent years. Since the mid-1990s, their inflation-adjusted pretax income has roughly doubled.
To put it another way, the wealthy have done so well over the past few decades, with their incomes soaring and tax rates plummeting, that Obama’s plan would not come close to erasing their gains. The same would be true of households making a few hundred thousand dollars a year (who have gotten smaller raises than the very rich but would also face smaller tax increases). As ambitious as Obama’s proposals might be, they would still leave the gap between the rich and everyone else far wider than it was 15 or 30 years ago. It just wouldn’t be quite as wide as it is now.
Well, as I often do on economic matters, I turn to Paul Craig Roberts. Knock down a good, stiff drink before you read what he has to say here – you’ll need it.
And then try convincing me that Obama is wrong.
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