Obama's 'plan to govern' UPDATE | Arkansas Blog

Tuesday, December 7, 2010

Obama's 'plan to govern' UPDATE

Posted By on Tue, Dec 7, 2010 at 6:52 AM

The New York Times sees in President Obama's rollover to Republicans on tax cuts a plan to govern the next two years with a changed Congress. I think it could more correctly be called the Republican plan to govern — give Democrats nothing until Obama says he'll accept whatever the Republicans demand. What, really, did Repubs give up in this compromise? Extended unemployment benefits? Would the GOP contingent really have gone to the mat to punish people who are out of work? On second thought ...

I see the deal includes the Republican-Blanche Lincoln estate tax plan — protection for $5 million of a single person and $10 million of a married couple's assets and a top tax rate of 35 percent, down from a rate that topped previously at 55 percent for amounts over $3 million. This is a multi-billion-dollar tax cut for the richest people in America, many of them sitting on fortunes built through appreciated inherited assets on which they've paid no taxes and expended no sweat. (And where they do have income from dividends and interest on their riches, they pay a lower income tax rate than people who work for a living.)

UPDATE: As usual, Ernest Dumas, the sage of Champagnolle, sees this "compromise" for what it is — a clear illustration of a broken system. Read on for an early release of his column this week.

A broken system

By Ernest Dumas

Let’s say that a president and his party hit upon a policy that a big consensus of economists says would be good for the country, that is enormously popular with the American people and that enjoys the solid support of a majority of both houses of Congress.
Then let’s assume that the policy is thwarted and instead the government adopts one that poses a great danger to the country, partly by adding $450 billion a year to a budget deficit that already scares the daylights out of people.
Is the system broken or what? And can one political party be so crafty and the other so inept that their skirmish over a serious policy issue produces such a perverse result?
That is precisely what is happening this week in the battle over extension of the Bush-era tax cuts. President Obama and some in his party capitulated in the face of absolutely united Republican opposition and agreed to extend the low marginal tax rate for the nation’s richest people at least another two years and grant even bigger tax cuts on vast inheritances. You can count on it now: It will be extended again after two years because the Republicans will own Washington then and will control election-year politics as deftly as they controlled it this year’s.
The simple explanation is that the modern Senate custom of letting 40 percent of its members dictate the agenda produced the incredible result, but that is only the surface of the problem. One party has achieved unprecedented unity behind the idea that the president and his party should be stifled at whatever cost to the country, and the other party is so diffused that it cannot carry a point even with a president celebrated for his eloquence.
Sen. John McCain, the Republican standard bearer in 2008, illustrates the problem. McCain vehemently opposed the tax cuts in 2001 and 2003 because they favored the richest Americans and businesses. He predicted that they would return the country to massive deficits and stymie economic growth. Proven right, he now insists on continuing the low rates on the top 2 percent of Americans because it would thwart the man who beat him.
Only one Republican broke ranks. Sen. George Voinovich of Ohio, who retires next month, said Monday he would oppose extending all the tax cuts. He said continuing the tax cuts ran counter to the party’s and the American people’s wishes to balance the budget.
“The American people should know that a lot of the reduction of their taxes is borrowed money from China,” he said Monday. “You’ve got to pay for it. You’ve got to pay for it. You’ve got to pay for it.”
Voinovich said other Republican senators agreed with him privately but thought they had to stick with the party’s leadership.
Most Americans actually get it. A CBS poll last week showed that only 26 percent favor continuing the 35 percent tax rate on high incomes, which by the way is less than half the top rate in 1970. (It would go up by 3.6 percent if Congress doesn’t act, reducing the deficit by $700 billion over 10 years.) Most of the 26 percent were reflexive Republicans. Democratic and independent voters overwhelmingly favor extending the tax cuts only for the 98 percent of people earning less than $250,000 a year. Those tax cuts were smaller than those with incomes in the highest bracket.
Even under Obama’s original tax plan, on which he campaigned in 2008, the richest 2 percent would be the biggest beneficiaries because they have more income in the bottom four brackets than anyone else. But the president and the Democrats’ anemic congressional cohort could not generate the public outrage that would overcome the Republican phalanx.
Here is why the year-end battle is so important. It may be the last chance to reverse the slide toward an unsustainable and cataclysmic debt. The deficit-reduction commission’s package of reforms are going nowhere in the new Congress, not because they would harm the elderly but because they would require some higher taxes. Unless there is a dramatic economic recovery like the one that accompanied the drive to a balanced budget in the late 1990s, the deficit will grow larger, sapping economic growth, expanding the great inequalities in income and imperiling the country’s security.
The plan that President Obama and the Republicans agreed upon this week—a two-year extension of all tax cuts, a huge reduction in taxes on the estates of billionaires and multimillionaires, a one-year reduction in payroll taxes, extension of unemployment benefits for 13 months and more business tax breaks—will add $900 billion to the debt over the next two years, after which the impulse to continue all the tax cuts will be unstoppable.
The compromise—sellout is a better description—includes some marginally hopeful parts. Obama won an extension of unemployment benefits and another stimulus benefit, a one-year reduction in payroll taxes that will give people another $120 billion to spend next year to see if it will stimulate demand. It will also deplete the Social Security trust fund, advance the day of insolvency and aid the cause of Republicans who want to exploit the deficit crisis to reduce old-age and disability pensions and dismantle Medicare.
That is called pessimism, but show me a reason to be optimistic.

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