Obamanomics

[Graph from Brookings Institute Tax Policy Center].

David Leonhardt has an excellent piece on Obamanomics in the upcoming Sunday NyTimes magazine. Real gem. Leonhardt is a really superb writer–clear, deeply sourced. He also packs a huge amount of info into the piece.

A couple of themes: Obama is really nerdy and loves wonky nerds around him. Real egghead and loves economics eggheads around him; a focus on Obama’s infrastructure program (one of the real arrows in Obama’s quiver which they don’t tout enough imo).

His friend Cass Sunstein calls Obama a “University of Chicago Democrat” which means:

Today’s Democratic consensus has moved the party to the left, and on issues like inequality and climate change, Obama appears willing to be even more aggressive than many fellow Democrats. From this standpoint, he’s a true liberal. Yet he also says he believes that there are significant parts of Reaganism worth preserving. So his policies often involve setting up a government program to address a market failure but then trying to harness the power of the market within that program. This, at times, makes him look like a conservative Democrat.

On taxes (check graph above):

To do this, he is proposing tax cuts for most families that are significantly larger than those McCain is offering, along with major tax increases for families making more than $250,000 a year. “That’s essentially a major part of our economic plan,” Obama said. “But it’s also a political message.” Economically, he is trying to use the tax code to spread the bounty from the market-based American economy to a far wider group of families. Politically, he is trying to drive a wedge through the great Reagan tax gambit.

If you want to hear viscerally the Reagan anti-tax message, ludicrously pitched by McCain to all voters as you will lose your money to the government, here.

Leonhardt also describes how Obama wants to bring more progressivity to the payroll tax, which with all the attention paid to income tax and capital gains has largely been forgotten (also worrisome is the continued expansion of the Alternative Minimum Tax into middle class existence). So for all the McCain talk of the government growing and taking all your money anyway, as you can see from the chart unless you are really rich (like McCain), that ain’t happening.

DL:

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.

Though again looking at the conservative econ revolution since 79 they have clearly practiced a form of upper crust redistributionism with inequalities now greater that at any point since right before the Great Depression/Market Crash of ’29. A second Gilded Age which McCain only wants to further entrench.

And on those tax increases for the rich:

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.

On conservative criticisms of Obama’s plan (my emphasis):

First, they have argued that Obama’s tax increases would end up hitting every income group. Strictly speaking, this is true. Obama’s increase on the corporate income tax would ultimately fall on all stockholders, even poor ones. In practical terms, though, most families own little enough stock that the other features of the tax plan would matter far, far more. That’s why the Tax Policy Center numbers, which include the corporate tax increase, come out as they do. The second criticism is that Obama’s tax increases would send an already-weak economy into a tailspin. The problem with this argument is that it’s been made before, fairly recently, and it proved to be spectacularly wrong. When Bill Clinton raised taxes on upper-income families in 1993, his supply-side critics insisted that he would ruin the economy. As we now know, Clinton presided over the longest economic expansion on record, the fastest income growth most workers had experienced in a generation and the disappearance of the federal-budget deficit. His successor, Bush, then did exactly what the supply-siders wanted, cutting upper-income tax rates, and the results were much worse. Economic growth wasn’t quite as strong or nearly as widespread, and the deficit returned. At the very least, Clinton’s increases did no discernible economic damage. Rubin, citing academic work on tax rates, made the case to me that rates under an Obama administration would not be nearly high enough to stifle innovation.

And then finally as I discussed yesterday, Obama’s difficult in messaging the economy (the only thing preventing him right now from running away with this thing). Here is Obama himself responding to this issue–fascinating answer (my emphasis):

“I think I can tell a pretty simple story. Ronald Reagan ushered in an era that reasserted the marketplace and freedom. He made people aware of the cost involved of government regulation or at least a command-and-control-style regulation regime. Bill Clinton to some extent continued that pattern, although he may have smoothed out the edges of it. And George Bush took Ronald Reagan’s insight and ran it over a cliff. And so I think the simple way of telling the story is that when Bill Clinton said the era of big government is over, he wasn’t arguing for an era of no government. So what we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that the government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market. And it’s now a global marketplace. “Now, that’s the story. Now, telling it elegantly — ‘low taxes, smaller government’ — the way the Republicans have, I think is more of a challenge.”

Translation: Obama’s answer is pitched to the neocortex not the reptilian brain stem (as Republicans are brilliant at doing). I think Obama’s answer is quite sound and has a decent historical perspective and it also aware of his own inability to translate the language of the mind to the gut. But it still doesn’t get him any closer to that goal.

The danger of course of more years of right-wing ideology on the market is 1)further awful economics cutting taxes, further deficits, refusal to get the US gov’t and infrastructure into the 21st century 2)the left will push even further left and head in fact towards command and control economics: see Edwards and Clinton’s economic plans in the Democratic Primaries.

In other words, South Americanization.

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Published in: on August 20, 2008 at 4:02 pm  Leave a Comment  
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