Defending the President on the Tax Cut Compromise

I've been quite vocal on the subject of tax cut strategy, I've made efforts to craft a message that Democrats and President Obama could use and I've clarified that I disagree with the strategic decision to fold on this issue. But listening to President Obama speak on the subject over the past two days has inspired a slight re-analysis of my stance.

I still believe that the best strategy would have been to call the Republicans' bluff, but I must confess some uncertainty about the stimulative effect of middle class tax cuts and unemployment extensions. President Obama believes that the economic impacts caused by losing these income streams far outweigh the benefits of fighting now to increase the top tax rates--which will inevitably go up. And he may very well be right, given the current state of the economy. Indeed, the only part of the "tax hikes mean fewer jobs" mantra that makes sense regards the stimulative effect of middle class spending. Policies impacting the job-creation behaviors of the investor class are far more subtle and regulation-focused.

While I'm not yet sure that I believe the predicted harms of a higher middle-class tax bill, it's clear that Obama does. In that world--and a world where Senate Republicans have a proven willingness to filibuster anything--his move is the only one available. In the end, the re-election of Barack Obama will be determined by the health of the American economy. If he is correct in his belief that this deal is the best move for short-term job creation, then it is also the best move for 2012 politics. Remember that the President will be held responsible if the recovery falters in advance of the election.

As the president signaled today, there will be plenty of other opportunities to stand for the core principles of the Democratic Party in the years to come. Those opportunities, outlined today, include long-term budget solvency and significant tax reform. These are areas where Republicans will also be forced to make their values obvious. This is the fight that starts once Boehner takes office. It's a fight that Democrats are poised to win, if they can figure out a way to clearly articulate their values--and stand up for them. I just hope the president really came to fight.

Folding a Playable Hand

Last week I argued that Obama and the Democrats would benefit from some lessons at the poker table.  And I'm not the only one making awkward poker analogies recently. Ezra Klein wrote a full piece last week with a similar theme:

On page 116 of “The Promise,” Jonathan Alter describes President Obama's approach to the stimulus as "bad poker." "Instead of holding his cards close, and then sweetening the pot for Republicans with tax cuts in the final negotiations, [Obama] offered nearly $300 billion in tax cuts at the front-end of the process. ... It was a big bargaining chip left off the table."

While I'm not sure I completely understand the poker metaphor that he borrows from Jonathan Alter, the rest of the piece is a sound critique of Obama's compromise-based strategy in the face of determined, unprincipled GOP opposition. And the critique does fit well with a more well-developed poker concept: if you too frequently fold playable medium-strength hands, your opponents will eat you alive.

If Obama does not soon learn this lesson--and bring moderate Democrats from red states along with him--then America is in real trouble. No honest analysis of the current fiscal situation suggests that we can continue to run deficits at the current scale. All honest solutions to long-term deficits include taxation at a higher percentage of GDP than current rates provide.

But the Obama Administration and Senate Democrats have once again folded a playable hand. You can be sure the GOP strategists will be even more aggressive next time they sense weakness.

Shadow White House: Middle Class Tax Cuts

When I ran for president, I promised to make tax rates fair for Americans earning less that $250,000 per year. Today, I re-affirm my commitment to that goal.

If we fail to extend the current middle class tax rates, then the typical family will take home about 50 fewer dollars each month--starting in just 30 days. For most American families, this is real money. This is money we spend on our winter gas bills, on our kids' sports leagues or on a dinner out Friday night. This is money we need; money we put right back into our local economies.

So I urge members of Congress--both Democratic and Republican--to support the tax legislation currently working its way through the House. Now is not the time to raise taxes on working families.

But Republicans in Congress are doing everything they can to attach a payout for billionaires to the middle class tax cut currently being considered. To support this indefensible stance, they are using outdated economics and raw emotional appeals, so let's take a look at the facts.

They're going to make fun of me for saying this, but there's no evidence to suggest that raising taxes on the rich will cost America a single job. In fact, most independent analysts suggest that extending unemployment benefits will create far more jobs than passing more tax cuts for the richest Americans--and for a fraction of the cost.

When I ran for president, I promised to deliver difficult news, when necessary.

If we really want to encourage growth, we will need to be much smarter. In particular, we need to surrender the appealing falsehood that says lower taxes always lead to better economic growth. The Republican Party's dominance for 40 years has afforded countless opportunities to test this hypothesis and the results are definitive: cutting taxes does not create jobs.  We've repeatedly tried to cut taxes as a road to growth--and that experiment has repeatedly failed. We cannot continue to deny the benefits of good government to the American people simply to protect the skyrocketing wealth of the super rich. It is simply wrong.

Most Americans would agree that tax policy under President Clinton was thoughtful, measured and fair. Clinton tax policy turned deficits into surpluses and created 22 times more jobs than President Bush. Let me repeat that: President Clinton created 22 million new jobs, but President Bush only created 1 million. The tax bill we are considering is a compromise between the two--although I think we can agree that the evidence suggests one policy over the other.

In fact, the 3 best 5-year periods of economic growth in the past 50 years were all overseen by Democratic administrations--with higher rates of taxation. And despite the caricatures of the past 30 years, President Carter presided over a more robust period of GDP growth than even President Reagan. The simple fact is that economic growth is almost always much better when taxes are higher than they are now--and taxes on the super rich are currently at historic lows.

Republicans would have you ignore these facts simply because their ideology of continual tax cuts is so appealing. I have to admit I still want to believe it every time I hear it--nobody likes to pay more in taxes. But it simply is not true. Working people are far more likely to spend their money than the super rich. And it is this spending, known as demand, that spurs investment--not tax cuts for investors.

Republicans would also have you believe that the biggest obstacle to growth is widespread uncertainty about tax policy. This claim is as laughable as it is transparent: making current middle class tax rates permanent and returning rates to Clinton-era levels for those making more than $250 will provide all the certainty required. If Republicans in Congress truly believe that uncertainty has put the American economy on the precipice, then their efforts to block this legislation reflect a cynicism that runs terrifyingly deep. The American people expect more from their leaders.

Over the past 30 years, Republicans have presided over a complete reversal of the American Dream. Their broken moral compass has directed more and more of our wealth into the hands of fewer and fewer connected elites. Democrats don't want to start a class war, we want to stop one. We cannot afford $1T in additional deficits so the richest 1% of Americans can add more to their worth, but little to the economy.

So I reaffirm my commitment to protect the middle class from an additional tax burden.  That is why I will veto any legislation that does not protect the current middle class tax rates and return rates to Clinton-era levels for top earners. The bill brought before the House today will accomplish this goal and I encourage its passage.

In the coming debate, we should be careful to discuss the issue with honesty and integrity: taxes are not tyranny, but the dues required in a free state; taxes are not theft, but the money we pay for the things we decide to do together; taxes are not socialism, but lay the bedrock upon which modern markets are built.

Thank you. And God bless America.

Lessons from the Felt: A Week in Vegas

Every Thanksgiving, my wife and I spend about a week in Las Vegas. If you have a small family, there's no better place to eat well and to appreciate the bounties available to us as Americans. But I also get the opportunity to indulge in my favorite pastime: poker. 

Like most progressives, I'm somewhat risk averse. So I spent most of my time at the $1/$2 No-Limit Hold em table at the Bellagio:

With a minimum chip buy of $100 and a maximum of $200, these small stakes were right at the edge of my comfort zone as a hobby player. But as a poker player, I had to check my risk aversion at the cage. Once those chips were on the table I had to be willing to use them or they lost all power. That's because the biggest weapons in the poker player's arsenal are aggression and deception.

Unlike all of the other games in the casino, poker is not played against the house. On aggregate, the house will win all its other games (typically 1-2% but sometimes much more). But in poker, you have as good a chance as anyone else with a stake. At the same time, poker is a meritocracy. And the reality is that some players have a substantial edge. 

Most people believe this edge comes from a deep knowledge of statistics, but those people are wrong.  Sure, you are unlikely to be a profitable player if you are not aware of the basic statistics of the game.  But study of this aspect of the game is likely to reach diminishing returns fairly quickly.  As the old adage goes:

Poker is not a game of cards played by people. Poker is a game of people played with cards.

If you are not playing a game of opponents and situations, then you are not actually playing poker. It is surprising how many people spend countless hours at the felt without recognizing this.

Democrats would benefit from some lessons at the felted table. I'll try to start them off with a few here.

• Image is everything and is established quickly
• Strike back at an aggressor even harder ... Now!
• Beware when an aggressor stops attacking
• You can be friendly and brutalize your opponents at the same time
• If you don't choose the hands you play, your opponents will

Obama needs to get the congressional team together and talk strategy.  His bankroll is still big enough to make some adjustments. The good news is, he's played before.

Defending Democratic Tax Policy

As I have made clear in the past few weeks, I think the most important issue currently under debate in Congress is the Obama Tax Policy. A recent New York Times piece by DAVID LEONHARDT assesses the pervasive claim that tax cuts are good for growth. The Bureau of Economic Analysis chart he provides tells the whole story:

The obvious policy punchlines are laid out in the rest of the piece, and are specific to the Bush Tax Cuts:

I mean this as a serious question, not a rhetorical one: Given this history, why should we believe that the Bush tax cuts were pro-growth?

Is there good evidence the tax cuts persuaded more people to join the work force (because they would be able to keep more of their income)? Not really. The labor-force participation rate fell in the years after 2001 and has never again approached its record in the year 2000.

Is there evidence that the tax cuts led to a lot of entrepreneurship and innovation? Again, no. The rate at which start-up businesses created jobs fell during the past decade.

But there's a deeper story that is told by the graph.  And it's a story that is deeply supportive of the narrative Democrats need to craft around economic policy if they want to be successful.

The three best five-year periods of economic growth since 1960 were:

1. Kennedy / Johnson (61-65)
2. Clinton (96-00)
3. Carter (76-80)

That's right. Growth in the Carter Administration was better than in either term of the Reagan Administration. And we're not talking about deficits, we're talking about GDP growth. This is the power of the Republican narrative on taxes and the triumphalism of the Reagan Revolution.  The failure of conservative tax policy to spur growth and provide security for the middle class is thoroughly documented.  Yet we still see Democrats parrot claims such as "It would be a mistake to raise taxes on anyone during a recession."  These claims are simply not true and must be confronted directly--because the American people rightly demand more of their government.

Centropians: The Third Party Seduction

Whenever shrill debate produces destructive partisan gridlock, many otherwise sane pragmatic realists start talking about how great it would be to have a third major party.  You know, for Independents.

The latest casualty to this wishful thinking seems to be the otherwise quite incisive Matt Miller:

I'm a Clinton White House alum who had hoped President Obama could usher in the debate we need. It's hardly all his fault that we're not there, but I'm convinced the parties' interest groups and "thought police" make real progress impossible without a new force that shakes things up. Democrats and Republicans care first and foremost about winning elections, a task that bears no necessary relationship to actually solving our major problems. Having our two-party duopoly control the terms of debate may have sufficed when America was the world's dominant economy, with little competition. But those days are gone. The challenges we face are serious. People know our current arrangements aren't up to them.

Anecdotal evidence: Speaking to 400 professionals of all stripes in California the other day, I asked who would be seriously interested in a third major political party. Fiscally conservative, socially liberal. Nearly every hand shot up.

Something's afoot and it's not just about the Tea Party. The radical center is ready to rise.

I hope he's right about the radical center, but the idea that a third party will end the gridlock in Washington is laughable. 

Inevitably, when Utopian visions of third-party intervention appear, they feature a party that is "fiscally conservative, socially liberal."  Set aside that this is a perfect description of both the modern Democratic Party and Libertarians.  The real problem with Miller's anecdotal evidence is that it includes so many different perspectives that it could not possibly hold together a real coalition unless it addressed many of the same communications issues facing the current Democratic Party.

Since I don't want to type "socially liberal, fiscally conservative" over and over, I'll just call this mythical new coalition Centropian.  Immediately, a number of questions come to mind for Centropian candidates:

• Where do Centropians stand on economic regulation?
• Since Centropians are "fiscally conservative", we can count on them to cut taxes, right?
• Where does the Centropian Party stand on global climate change?  What should we do about it?
• Do Centropians think we should remain in Iraq and Afghanistan?
• Do Centropians support the death penalty? What about for terrorists?

Of course, I could go on all day.  Ultimately any Centropian candidates would be forced into the same impossible choice as the existing major parties: govern or get elected.  The problem the Centropians would face--a problem that they share with today's Democratic Party--is that they cannot win without saying more about their principles and priorities.  And they can't win without defeating the experienced, entrenched propaganda machine on the right.

I'm just saying that if you're going to put a bunch of energy into building a coherent counter-narrative to the GOP, using pragmatic American values, then you might as well put that energy behind the party already trying to do it. Anyway, as Bloomberg reminds us, Centropian candidates never win.

Messaging, The Podesta Proposal and Presidential Power

Former Clinton Chief of Staff John Podesta and The Center for American Progress proposed yesterday that President Obama not sacrifice his important agenda, but rather focus on solutions that can be implemented from entirely within the executive branch.

Concentrating on executive powers presents a real opportunity for the Obama administration to turn its focus away from a divided Congress and the unappetizing process of making legislative sausage. Instead, the administration can focus on the president’s ability to deliver results for the American people on the things that matter most to them:

• Job creation and economic competitiveness
• Educational excellence
• A clean energy future and energy independence
• Quality affordable health care
• Consumer protection
• The home foreclosure crisis
• Accountable government delivering results at lower cost
• Sustainable security for the nation

The CAP proposal then lists a number of policy recommendations that can be implemented directly by the President and executive branch.  For example, to move forward his domestic agenda President Obama could:

• Direct an assessment, strategy, and new policy development to promote U.S. competitiveness.
• Launch the new consumer financial protection bureau with an aggressive agenda to protect and empower consumers.
• Increase the capacity of small businesses to expand hiring and purchases by accelerating the implementation of the Small Business Jobs Act.
• Promote automatic mediation to avoid foreclosure where possible and speed resolution.
• Create a web portal to empower housing counselors, reduce burdens on lenders, and speed up home mortgage modifications.
• Help stabilize home values and communities by turning “shadow REO” housing inventory into “scattered site” rental housing.
• Promote practices that support working families.

I leave a discussion of efficacy surrounding CAP's long list of policy details to those more familiar with policy.  My concerns--as always--are optics, messaging and strategy. As CAP points out themselves, the American public is hungry for an effective government focused on addressing their economic concerns:

The public has made clear its disgust with Washington’s ways—the same sentiment that helped to bring President Obama to office. It would be a welcome relief from watching legislative maneuvering to see the work of a strong executive who is managing the business of the country through troubled times, doing more with less, each day working to create a stronger economy and a more effective government.

As I've argued elsewhere, the most important indicator for Obama's reelection is unemployment; and the most important criterion is success.  Either he will fix the economy, or he won't.  So his best strategy is to aggressively pursue every policy that he believes will make a difference on that front.  But there is also no doubt that the optics for such an approach are extremely good--especially if the Obama Administration can avoid repeating the rhetorical failures of the past two years. 

One of the biggest memes regarding Obama's missteps since taking office is that he and the Democrats "spent too much time talking about Health Care Reform."  While it is true that the HCR debate went on far too long--and Obama himself has conceded the point that the protracted timeline and persistent obstruction likely soured Democratic approval--this meme is simply not borne out by the facts.

The Washington Post has a convenient database of Obama's activity as president.  You can get fun stuff like word clouds, you can sort by topic and you can drill down into specific speeches.  For example, the following is a word-cloud aggregation of Obama's speeches at Economy-focused events:

Read properly, you get extremely accurate high-altitude impressions of how Obama has spent his time and words. I highly recommend the resource and will discuss it in more detail in a future post.  Looking closely at event attendance by the President, we see a story not in alignment with that coming out of the mainstream DC punditry class:

The most obvious point is that, even if the health care debate took longer than expected, Obama spent significantly more time attending to economic concerns than to health care reform.  It's not even close.  But adding some additional texture, we can see the real source of distraction:

This is part and parcel of the Republican strategy.  Half of what they say is not designed to influence the thinking of the American public, but the behavior of the Democratic Party.  Attacks on HCR in particular--and Obama's economic reforms in general--are a clear example of this approach. 

When they diverted American attention to the process used  to pass Obama-Pelosi legislation, Obama and the Democrats fell for the ploy and talked about government process rather than the important legislation under consideration.  This would be a mistake if the US public merely did not care about government process.  But the situation is worse than that. When politicians get defensive about process, then Americans rightly wonder what they are trying to hide about the underlying policy.  In this case, the Democrats had nothing to hide.  But they did a terrible job convincing the America public of that--and fell hook-line-and-sinker for well-worn Republican strategies to distract them from the effort.

The Fallacy of Business Uncertainty

As I mentioned earlier, it is important that Democrats address the "uncertainty" argument with urgency and clarity.  Kevin Drum at Mother Jones lays out many of the problems with the persistent uncertainty meme in a post Sunday:

• PPACA has no impact on small businesses and only a minuscule impact on large businesses. Medium-sized businesses face a modest penalty if their workers use federal subsidies to enroll in private insurance programs via the exchange. In other words, the overall financial impact on the business community is pretty modest. What's more, there's really not much uncertainty here. The broad impact of PPACA's rules is already clear, and they don't take effect until 2014 anyway. This is not having a significant impact on business investment decisions in 2010.
• There's no excuse for Congress leaving tax policy up in the air for as long as it has. But even with that said, the Bush tax cuts affected personal tax rates, not business rates. And despite demagoguing to the contrary, even if the Bush tax cuts expire completely the effect on small businesses would be close to zero.
• Financial reform was a fairly modest affair, and in any case its effect is almost entirely restricted to the financial sector. Its effect on the rest of the business community is slight.

He concludes:

The uncertainty meme is just mind boggling. Businesses always have a certain amount of regulatory uncertainty to deal with, and there's simply no evidence that this uncertainty is any greater now than it usually is. (It is, of course, entirely believable that business owners who spend too much time watching Fox or reading the Wall Street Journal editorial page might believe otherwise, but that's a whole different problem — and one that Imrohoroglu should spend his time debunking, not promoting.) The only significant real uncertainty that American businesses face right now is financial uncertainty: that is, whether there will be enough consumer demand next year to justify hiring more workers and buying more equipment today.

There is plenty more to say here, but the point is to not roll-over on these Republican memes.  It is simply not true that Obama has introduced economic uncertainty with his policies and Democrats should not be afraid to say so.  If anything, the GOP is creating uncertainty with their consistent obstruction and promises of passing impossible legislation.

Toward a Coherent Democratic Message on Tax Policy

The Democrats' messaging on the Middle Class tax cuts can be straightforward. 

It is irresponsible to pass more than $1T in debt to future generations at a time when the Super Rich are taxed at historic lows. The tax rates during the Clinton Administration coincided with a decade of sustained job growth and historic deficit reduction.  We can return to those days of fiscal sanity, but only if we don't fall for the seductive--but false--arguments from conservative think tanks in Washington and their sponsors among the Global Super Rich.

The Democrats should stick to this message and pound on it every day until 2012.  

As Democrats, we know that the Clinton tax rates were appropriate and played a major role in both the amazing growth of the 90s and the record budget surpluses handed to the incoming Bush administration--and we should not be afraid to say so.  But, just as important, we should not be afraid to believe so.  Ultimately, Democrats can only win the jobs debate in 2012 if the job situation actually improves.  It should be obvious, then, that Democrats' best chance in 2012 is to pursue policies that they actually think will work in the meantime. Given the behavior of the GOP during the past two years, it should be clear that these policies are not to be found in the proposals and critiques coming from the other side of the aisle.

Democrats can return to a position of credibility on economic issues quite easily by improving the job situation and repeating a simple and unassailable observation:

Although short-term deficits are often unavoidable due to extreme economic circumstances such as the current downturn, systemic deficits are serious and must be addressed.  The last administration to deal effectively with systemic deficits was Democratic.  In fact, the only administration to reduce federal deficits since 1980 was also the only Democratic administration since then.  It is amazing that Republican leaders still expect to be taken seriously on fiscal responsibility, given their track record on fiscal issues.

Fortunately, the House Progressive Caucus gives us a quick look at how this might work:

 

A number of progressive bloggers, most notably Greg Sargent, have been pushing back hard against the idea of signalling compromise on tax policy:

The larger problem is that there's no incentive whatsoever for Republicans to accept any such "deals." By signaling that their priority is to gain a compromise, rather than firmly laying down a marker and refusing to budge, Dems have already sent a clear message to Republicans: We'll give you what you want, as long as we can all find a way to call it a "compromise."

I want to agree strongly, by way of disagreement.  My largest point of disagreement here is with the generality of the claim made by Sargent, along with many critics on the "professional left."  As an Obama-McCaskill Democrat, I believe that hard-line ideological entrenchment on both sides must give way to a more productive politics of efficacy and common ground.  But compromise only makes sense in the context of clear and consistent values. If market-based solutions and spending cuts can be shown to be the most effective solution to a problem whose amelioration is consistent with Democratic values, then Democrats should be receptive to "compromise" on that issue.  But, to be clear, tax policy is not one such issue.

Bear in mind that the Bush tax cuts expire in the status quo.  An extension requires action by both houses and the President.  It is the people who want something more than the status quo who need to show up at the table and compromise.  Otherwise, nothing happens and we return to the tax rates under Clinton.  Obama could fight for Middle Class tax cuts on the premise that they can be sacrificed for fiscal sanity, if compromise fails.  He could co-opt the Tea Party debt arguments immediately in support of this stance--providing the additional rhetorical benefit of highlighting some of the internal contradictions in contemporary GOP orthodoxy and their 2010 messaging.  Again, the worst-case outcome in a game of chicken would merely be a return to the highly-successful Clinton tax regime.

But progressives can take these tax critiques even farther, going on the offense against GOP tax ideology itself.  As I suggested last week, this ideological battle is crucial both to the success of the Democratic Party and the long-term fiscal solvency of the United States of America.

Since the late 60s, conservative "think tanks" have been mercilessly pushing the idea that:

1. Taxes at any rate are a drag on economic growth, so tax cuts are always good for the economy and for job growth
2. Tax cuts don't need to be paid for, because the resulting growth actually increases revenues to the government (as "proven" by Art Laffer, with the so-called Laffer Curve)

The second point is the most obviously false. And classical American arguments from "common sense" should suffice to undermine it.  While this bill of goods has been sold repeatedly to the American public with decreasingly clear "intellectual" support from right-wing propaganda outfits such as Cato and Heritage, no one thinking seriously about tax policy actually believes that cutting taxes in the US today will lead to an increase in revenues.  Put bluntly:

So why does Laffer's sketch on Dick Cheney's cocktail napkin rank near the top of my list of bad economic ideas? Because, when applied to the U.S., it's intellectually dishonest. The Laffer Curve offers the false promise that we can cut taxes without making any sacrifice on the spending side, and that's simply not true. It's the economic equivalent of arguing that you can lose weight by eating more.

A more graph-savvy way of expressing the GOP fallacy here, is to say that Republicans have transformed the Laffer Curve:

into the Laffer Line:

The logical conclusion would be that we can collect nearly infinite revenue from nearly 0% tax rates.  Anyone with the most rudimentary understanding of basic arithmetic should be skeptical that this is true.  Bookman continues:

But the problem is, something very destructive happened in the translation of this economic theory into political language and policy. In the popular conservative version of the Laffer Curve, no debate over the location of Point A is even tolerated, because cutting tax rates is said to ALWAYS generate more government revenue.

...

If lower rates always produce more revenue, as the right likes to claim, the Laffer Curve becomes the Laffer Line, and Point A, the sweet spot, stands at a tax rate of zero.

While that makes no sense mathematically, politically it is an enormously appealing notion. It’s like telling someone with an obesity problem that the best way to lose weight is to always eat more ice cream — more times than not, their eagerness to believe overwhelms any skepticism.

OK. So cutting taxes won't increase government revenue. But that leaves two more false claims in the collective minds of the American public:

1. The Super Rich will not invest if we tax them more, so say goodbye to job-creation
2. The continued job problems are a direct result of "uncertainty" on the part of job-creators, and this is clearly the result of impending tax increases and federal overreach, especially regulatory overreach.

While I'd like to leave a more detailed discussion of the GOP narrative on taxes--and the precise nature of their rhetorical advantage--to a later post, it is important that Democrats address the "uncertainty" argument with urgency and clarity. 

Current US tax rates will inevitably rise.  Even though the GOP seem to be demanding it, we simply cannot afford permanent extensions of the Bush tax cuts.  This is, quite simply, an economic and political reality that cannot be avoided.  That being true, extending the top rates temporarily actually adds to the uncertainty supposedly experienced by the investor class.  Some clarity now, even if it means slightly higher taxes, will ultimately be good for the economy.

Legislatively, the best strategy is for the Pelosi lame-duck House to move forward with a permanent Middle Class tax:

Specifically: Dems could still hold a vote only on whether to extend the middle class tax cuts permanently, without tying it to any vote on the high end cuts. That, at any rate, is what some on the left are pushing for, arguing that it's a good way for Dems to use their remaining control over the legislative agenda to their advantage.

When Republicans and the Super Rich claim that increases in the top tax rate exacerbate unemployment, they are attempting to extort the American people--and should be called-out as such. It's not the federal government that outsources jobs to China and India, it's the movers-and-shakers in Corporate America.  These executives and the corporations that they oversee should be held to a new standard of American Economic Patriotism in the years and decades to come.  The American Middle Class depends on it.

It's the Taxes, Stupid

Today's big story with the wonks is the early reporting from the co-chairs of the deficit commission.  Brightside observations and doomsday scenarios abound.  Ezra Klein points out that this is just the co-chairs speaking. And anyway, the commission doesn't actually have any power. And Yglesias tweets:

Deficit commission proposes gas tax hike. #focusonthepositive

The main story, pathetically small gas taxes aside, is that this report provides absolutely no evidence of progressive participation in the deficit commission.  None.  Matt Yglesias highlights the most obvious slight to progressive values, arguing that "it is worth noting that raising the Social Security full benefits retirement are is [sic] basically the very most regressive way to reduce entitlement spending."  While cuts to entitlement spending (i.e. Social Security and Medicare) are surely part of any long-term deficit-reduction proposal, any changes should reflect the progressive values motivating the entitlements to begin with. Improved means-testing is an obvious example of truly progressive safety-net policy, but I don't want to get diverted by entitlement reform. In the meantime, I'll simply suggest we stop calling them "entitlements".

The story I really want to talk about here is the failure of the Democratic Party to change the narrative on taxes.  It's not like they've been caught off-guard: for decades Republicans have been arguing beyond any reason that lower taxes are always better--while frighteningly escalating fiscal deficits. Republicans have succeeded so many times in convincing the American public that taxes are too high that the Democrats have stopped trying to debate that point directly. This cowardice on the central issue of American politics is precisely why the Democrats are continually doomed to rhetorical and electoral failure.

Look, fiscal policy is hard. And most Americans' eyes have glazed-over by the time you mention the third number.  But this is terrain that Democrats cannot afford to yield.  The best primer for pretty much anyone to understand the tax debate comes in Matt Miller's The Tyranny of Dead Ideas.  You should read it, but I'll summarize the highlights of the chapter on tax policy:

• Wagner's Law: The greater a nation's GDP, the greater its demand for public services
• Tax increases are inevitable, from the current rate of 18% GDP to at least 22% GDP in the near term
• The Republicans have shown little tolerance for ideological heretics in their ranks who have publicly acknowledged the structural inevitability of tax increases
• Behind closed doors, GOP realists acknowledge that the 2025 tax rate will be in the neighborhood of 25%
• The vehicle for extracting government revenue from the economy has changed over time from tariffs to income taxes; there is no reason not to change it again.

I would merely add:

• 22-24% GDP assumes current policies (with trims), what if we want to pay back the debt?
• Progressives should expect this rate to be closer to 27 or 29%, given that they may also want to address the nation's infrastructure, energy and education problems
• Democrats could embrace the "simplify the tax code" and "tax reform" rhetoric from the other side, injecting their own values to ensure more progressive taxation than the status quo--changing the vehicle is just fine, it's the values we care about.

So what has the Obama-appointed bipartisan deficit commission suggested as goals:

• Cap revenue at or below 21% of GDP
• Lower Rates

I don't think this commission is going anywhere in the near term. But this is how badly the Democrats are losing a debate where they have the facts on their side.  Krugman summarizes the frustration among realists well:

OK, let’s say goodbye to the deficit commission. If you’re sincerely worried about the US fiscal future — and there’s good reason to be — you don’t propose a plan that involves large cuts in income taxes. Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies — goodies that fairly obviously, even without having the details, would go largely to the very affluent.

I mean, what’s this about? There is no — zero — evidence that income taxes at current rates are an important drag on growth.

Oh, and they’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

Still, I guess this is what it takes to get compromise, if by compromise you mean something the center-right and the hard right can agree on.

What is going somewhere in the near-term is the debate on the so-called Bush tax cuts (or, "job-killing Obama tax hikes", depending on who you ask).  There seems to be growing consensus on the pundit left that this is Obama's Waterloo.  And they may be right. If he does not stand up and fight--and Democrats with him--for the very tax policy that he ran on in 2008, then Democrats may lose the political terrain forever.  And the White House in 2012. 

The good news is that the conditions are right to have this fight now.  There is no doubt that extension of the Bush tax rates will disproportionately benefit the Super Rich.  Democrats' tax message must target the Middle Class.  While economic realities may lead to a slightly larger tax bill for us in the middle, that's a small price to pay for more fairness and greater fiscal solvency.  Our children will thank us.

To make this work, Democrats need to make clear that they are willing to cut spending where appropriate and go out of their way to undermine the caricature that suggests they only know how to solve problems by "throwing money at them."  Democrats also need to be receptive to market solutions--and conspicuous in doing so.

Government is a matter of priorities.  And it is the responsibility of those in government to discuss the priorities in such a way that the American people can participate in a meaningful way.  To date, the Democratic Party has shown a persistent failure to communicate with the American public on the central issue of taxes--obscuring it from the public debate on priorities.  Matt Miller wrote a WaPo column today discussing exactly the messaging I have in mind.  Miller suggests that a potential third-party candidate ("Johnson") might use honest direct language to win elections in the current environment:

"Actually, Republicans and Democrats aren't giving you an honest picture," Johnson says. "The truth is that once the economy's back on track, taxes are going to rise in the years ahead no matter which party is in power, because we're retiring the baby boomers. That means we'll double the number of people on Social Security and Medicare. We've already got trillions in unfunded promises in these programs. Even if we trim their growth, and cut other spending, which we need to do, the math doesn't work at current levels of taxation. And we can't borrow the whole boomers' retirement from China. So the idea that we can keep overall taxes where they are now, let alone cut them, is a Republican hoax.

"But Democrats are kidding you when they make it sound like we can solve the problem by taxing a few people at the top. The truth is that to pay for the boomers' retirement, taxes will have to go up some on everyone. But there's also good news - if we're smart about it, and change the way we tax ourselves, we can pay for the boomers and still keep the economy humming. That's the conversation we need to have. Here's the kind of tax reform it would take. . . ."

This need not be the message of a third-party.  Indeed, it expresses core values that the Democratic Party can still claim as its own, such as seriousness and a commitment to the Middle Class. The American public would not only tolerate such a message, they would respect it.  Just today  Progressive Change Campaign Committee released a poll suggesting that Tuesday's voters would prefer increased taxes on the wealthy to cuts in Social Security benefits. And polls can be moved.

I will have more to say about tax rhetoric in a future post.  If you're concerned about fiscal realism, you can start by signing a petition to not extend the Bush tax cuts.

Can Obama Pull a Reagan?

When I saw Barack Obama address the DNC in 2004, I knew immediately that he was the future of American politics. He delivered that day, and many since, a message of clarity and vision rivaled only by the greats: Reagan, Jefferson, Lincoln and Kennedy. His message was timeless and universal and spoke of deep American values. His early opposition to the Iraq War suggested that his judgment was sound and could be moved only by reason, principle or evidence--even when opinion polls were stacked against him by as much as 9 to 1. Although I hadn't yet realized that John Kerry would lose, I saw immediately that Barack Obama would be the next leader of the Democratic Party and the next President of the United States.

From a policy perspective, Barack Obama has not disappointed me one bit. Sure, I would have liked to see a stronger stimulus and a bolder fight in the Senate on the full scope of House legislation, but the Obama agenda is historic and impressive, especially in the context of consistent GOP (and often Blue Dog) obstruction. As a legislative realist, I blame the process and the obstructionists, not the president.  And his willingness to compromise is what truly non-partisan Americans have repeatedly said they want from their government.

I am, however, quite concerned about the message and communications operation inside the White House. I expected Reagan, but we're getting Carter. Carter's a nice guy. And incisive. But Reagan literally changed the way America thinks about government for (at least) 30 years. The great hope that Obama offers is not merely 8 years of policy, but the opportunity to once again change the way America thinks about government for a generation.

The good news is that it is not too late. In the days since the election, the media has asked: Can Obama pull a Clinton? But that will simply not be good enough. A long view strategist would instead ask: can Obama pull a Reagan?

If he spends more time on the bully-pulpit--as "2004/2008 Obama"--using authentic American language, President Obama can indeed replicate the transformative effect of The Great Communicator from 1982 to 1984. But he has to start now.

Hello World!

My name is Christopher Walker. I'm a computational semanticist living in San Francisco. I'm frustrated with the current political dynamic and I've decided to start today with a full-time effort to help: repair the quality of political discourse in America; contribute to a new Democratic narrative; save the American middle class from destruction at the hands of corporate America, Washington special interests and the global Super-Rich.

Although I acknowledge the importance of the ground game in electoral politics, the typical person-to-person volunteer role does not work for me. As my wife Marina can attest, I'm simply not that kind of people-person. But I am a people-watcher, a professional semanticist, a former debater, a recovering Libertarian, a poker player and a native Michigander. I have strong sense of what motivates Americans. I've applied this instinct repeatedly for the amusement of my friends--predicting, for example, the rise of Sarah Palin as early as June, 2008.

I will use this space to discuss the two major aspects of the Democratic communications problem:

1. How the Republicans use message discipline to leverage an extensive set of associative networks; and
2. How the Democrats can formulate and reinforce a clear and memorable narrative of values that will allow them to build a lasting American majority.

I have over a decade of computational linguistics experience in industrial (Powerset, Bing), academic (UPenn, Linguistic Data Consortium) and government (DARPA, NIST) settings.  Today I will start to bring those skills to bear on the Democratic communications problem. My time in middle management has taught me that the perfect is the enemy of the good.  So I'll save additional details for future posts.