Four Bombshells Obama Just Dropped

[babylonsister]

http://www.thedailybeast.com/blogs-and-stories/2009-02-27/obamanomics-101/


Four Bombshells Obama Just Dropped

by Matt Miller

snip//

The “class war” canard. The tax police are already having a stroke over Obama’s plan to limit the value of itemized deductions (like the ones for mortgage interest and for charitable donations) taken by people who earn more than $250,000 a year. Under Obama’s plan, such earners could deduct those expenses only at the 28 percent rate, not at the 35 percent rate (or the 39.6 percent rate, once Bush’s tax cuts expire after next year). What’s that mean concretely? Today, every $1,000 in mortgage interest or charitable gifts generates $350 in tax savings for top earners; under the new plan the tax savings would be $280.

To sell the tax swap across the aisle, they might slyly market it as the Sarah Palin plan.

Conservatives cry “class warfare.” But the truth is that current arrangements actually represent plunder from above (an enduring feature of America's tax history, as I show in this chapter of my book, The Tyranny of Dead Ideas). As a moment's reflection shows, the ability to enjoy more tax savings because you’re in a higher tax bracket is perverse; why should America subsidize John Thain’s mansion more than it subsidizes the average homeowner—or the average renter, for that matter, who gets no subsidy at all? As the GOP cries foul, I'd put Obama out in town-hall meetings to pose this question: “Why in America should a millionaire’s mortgage be worth more to him than yours is to you?” Plus, as Bob Greenstein of the Center for Budget and Policy Priorties cleverly points out, this takes the value of these deductions back to what they were under Ronald Reagan (when the top rate was 28 percent). Can the Gipper really not have been doing right by the top?

Climate "tax and dividend." Policy wonks of all stripes have long said the right way to implement higher carbon prices and spark a market-based move to green energy is to auction emission permits via some kind of cap-and-trade system, or to enact a new carbon tax and then to immediately rebate most of the proceeds to middle- and lower-income families hurt by the associated rise in dirty energy prices. Obama’s budget laudably does precisely that, dedicating 80 percent of expected cap-and-trade revenue to such tax cuts (by making Obama’s $800-per-couple “Making Work Pay” tax credit in the stimulus plan permanent). The balance covers Obama’s call for roughly $15 billion a year in new clean-energy investments. To sell the tax swap across the aisle, they might slyly market it as the Sarah Palin plan, since that’s basically what she’s done in Alaska: raise taxes on oil companies to give tax cuts to everyone else.

Not-as-big-as-you-think government. As an old fiscal hand, the first page I always turn to in the budget is the one that lays out spending, taxes, and deficits as a share of GDP. This offers the best measure of the “size” of government relative to the size of the economy. In 2009, the emergency spending to combat the recession and banking meltdown will take us to 27.7 percent of GDP (up from 21 last year), well beyond anything we’ve seen in decades. That’s a little scary. But if recovery proceeds reasonably well, Obama shows us on a path to a ten-year spending average of around 22 percent of GDP, just what spending was under (you guessed it) Ronald Reagan. No matter who’s in power these numbers will rise afterward as more baby boomers retire. But for now, the idea that this blueprint is some epic shift to “big government” is demonstrably false, unless you think Reagan’s spending made him a socialist. Which brings us to a related point:

Obama’s not “radical”—the debate has been too timid. The hyperventilating New York Times (in its news coverage, mind you) declared Obama's plan a “radical change in course.” But in reality Obama’s ambition only shows how timid the boundaries of debate have been. Take his two biggest initiatives. Over the next decade, Obama’s climate agenda involves about $670 billion in tax hikes, tax cuts, and investments—that’s about 2 percent of the $42 trillion in GDP now forecast over that period. His significant downpayment on health-care reform weighs in at about the same size. Only in Washington’s bizarre politico-media culture can a shift of about a nickel on the national dollar from current uses to different ones be cast as “revolutionary.” The hype underscores the extent to which our supposedly brutal partisan debates have really taken place between the 49-yard lines on either side. In budget terms, Obama’s moving us to the 45-yard lines to meet our challenges. It’s about time. But Lenin would scoff.

There are things to question in the new plan—does Obama buy enough reform for all the new money he’s throwing at schools, for example—and more fine print to come in April. But how much can you cover at one dinner party? And yes, it's obviously fair to ask whether Obama can get it all done; Bill Clinton’s far less ambitious agenda imploded in 1994 and left a shadow that crimped Democratic ambition for a decade. Still, at first blush, this is the most exciting effort in my lifetime to both deal with an unprecedented crisis while laying the ground work for long-term economic renewal. Let the budget battles begin!

[katty]

1. thanks-great post

[maxsolomon]

2. given the public's disgust with the GOP

not to mention their utter bankruptcy of ideas, obama should be able to get much further than clinton did before 1994.

so i'd like to see the debate pushed to the red zone - the 20 yard line. that's the place where we chop the MIC down to size, stop policing the planet, kick our petroleum habit & tell OPEC to suck it, legalize & tax drugs, & quit being babies about human sexuality.

[Peace Patriot]

3. Thank you, Babylonsister! Excellent post!

The OP makes a really important point about the 49 yard line--both "sides" of our national political "debate" (directed from DC), playing on their 49 yard lines, being so close together there is hardly a difference in their thinking, while Obama moves the game out to the 45 yard line, with what are actually very mild, common sense taxing and spending proposals. I had instead envisioned this so-called "debate" as being way over on the right end of a spectrum from left to right, with all-out socialism on one end and all-out dog-eat-dog on the other. Our political "debate" includes only "dog-eat-dog" and "dog-eat-dog most of the time." It doesn't even get to the center. And anything left of center (the most good for the most people) doesn't even exist.

This OP is a really good explanation of why and how Obama's proposals are merely a mild, common sense reform--things we should have done long ago.

It is enraging that the Bushwhacks ran things off the cliff as they did, before we could pull back to common sense--and THAT is an investigation (among others) that we really need to do--along with getting rid of 'TRADE SECRET' voting machines, so that it can never be done again. This Financial 9/11 was deliberate, in my opinion, in order to loot us one more time, after eight years of looting and mayhem in our economy. This final looting makes recovery all the more difficult. I think we need reforms much to the left of Obama's. But the crazy notion that his reform's are "radical" is typical of the bullshit that was fed to us, that got us into this hard place.

[Cha]

4. Yeah, it's radical all right..

'cause we're just out of 8 years under the bushwellain regime where down was up and crooked was straight..and when you heard "clean air initiatives" you could bet the pollution was heinous.

How tremendously exciting for us that "the groundwork is being layed for long term economic renewal"! An America brought back from the brink by a President who was up for the challenge.

[tomp]

5. no surprise.

"..our supposedly brutal partisan debates have really taken place between the 49-yard lines on either side. In budget terms, Obama’s moving us to the 45-yard lines to meet our challenges. "

[zeemike]

6. What is most amazing to me is

That Obama has ben our President for what now 5 weeks?
And already has addressed many of our concerns with at least one step forward.
In eight years we could have a much different country.
K&R

[Igel]

7. UC schools in the '90s moved to a high-fee/high-aid model.

It reminds me of the "have high carbon fees and then subsidize lower wage earners" talk. The administration said it'd be great: Students with greater resources would be able to better afford the fee hikes, lower-income students would be better off, and those in the middle would pay higher fees but get greater aid to offset the increase. The unstated goal, or at least the one stated only behind closed doors: Increased non-white, non-Chinese attendance.

Of course, it would be revenue neutral.

The result: It worked exactly as planned. The first year.

The first economic glitch, however, saw it skew badly: The very low income students got their aid, everybody else got loans. Average debt for those whose families made above median income had already soared; after the first year or so the debt increase sank to lower income levels as grants became loans. What happened to the difference: It went to the university.