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.