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Six ways of decoding Obama's tax-increase-deficit-reduction speech

President Obama speaking from the Rose Garden on Monday.
REUTERS/Larry Downing
President Obama speaking from the Rose Garden on Monday.

1. For substance freaks, it’s the conclusion of a total proposal that Obama has made in three stages. The total package includes:

The $450 billion “American Jobs Act” that Obama unveiled in his Joint Session of Congress speech of Sept. 8, and Monday he repeated his refrain from that speech: “They should pass it right away.”

Stage Two was revealed the following Monday. It consisted of several ideas for changing tax deductions and the way hedge fund managers are taxed to collect more revenue as an offset for the new spending in the jobs bill. In Washington-speak, we’re supposed to call those provisions his “pay-fors.”

And now, Stage Three, laid out in the Rose Garden yesterday, is another set of spending cuts (in Washington-speak, we’re supposed to call these “reforms”) and tax hikes (also often “reforms”).

The three parts supposedly produce a $3 trillion net decrease in the future size of the national debt. And that’s on top of a $1 trillion debt reduction package that was already adopted at the end of the hideous debt-ceiling crisis negotiations.

2. For deficit hawks, among whom I number myself, it’s important to note that none of this will make the national debt go down. It just won’t go up as fast, and the difference is a total of $4 trillion of debt “reduction.” 

Still, notwithstanding various Republican mantras (“cut, cap and balance,” for example, or Michele Bachmann’s “never raise the debt ceiling again”), a plan to reduce the projected growth of the debt by $4 trillion will have to pass as bona fide fiscal conservatism today.

3. For those who cling to notion that the president’s job includes proposing legislation that Congress might actually pass and the job of Congress is to pass bills that the president might actually sign, it’s important to note that yesterday’s “proposal,” even  more so than Stages One and Two, is not a real proposal in the sense that it – or anything like it -- has any chance of becoming law, at least during the current Congress.

This is very sad. The next election is more than a year away. The economy is in the toilet. Most of the country now subscribes to some version of deficit/debt hawkery. (In fact, as Andrew Sullivan pointed out moments after the speech, a huge majority of Americans favor a big plan that would include tax hikes on the wealthy to tackle the deficit.)

I still like Tim Pawlenty’s phrase that the laws of fiscal gravity cannot be repealed indefinitely. But the partisan political paralysis is such that nothing can be done to stimulate spending nor to reduce the deficit for more than a year. It’s pitiful.

I want to explicitly repudiate the old journalistically-safe notion that both sides are equally to blame for this situation. I don’t think so. I blame the current Republican Party for changing the concept of compromise to something that means roughly the opposite of what it used to mean, and of adopting a policy of rule or ruin. It appears to have worked, if you measure success on the ruination side by Obama’s current approval ratings.

4. For political-horserace lovers, it’s important to note that now Obama is adopting a version of the Republican definition of “compromise.” He’s given up on the adult-in-the-room approach, which wasn’t leading to much progress on the things he cared about and was making him look ineffectual. Especially with yesterday’s speech, Obama has shifted into campaign mode. He can’t seriously think that the tax-the-rich proposals he laid out yesterday will pass in this Congress. How much more clearly can the Repubs tell him that they won’t tax the rich and that they have more than enough power in the picture to keep that from happening?

So Obama is laying down the argument that he will use for the next 12 months to ask for a second term and to hope that the public will send more Dems to Congress who would pass a package like this one.

5. For those who are interested in the merits of the argument itself, Obama laid them out yesterday quite clearly, although his phrases also dripped with the political needle and with the pseudoscience of partisan word choices. He said roughly this:

We need to keep trying to do something to stimulate the economy. So pass the jobs bill (right away) and keep hope alive. It would be a lot easier to go all Keynesian if the government wasn’t, at the same time, $14 trillion in debt. The debt issue is serious. Our kids’ futures really are at risk if we don’t address it. There are three ways to address it. Cut spending. Raise taxes. Stimulate the economy.

There are potential negative consequences with all three, but there is no alternative to some combination. I favor fair and reasonable amounts of all three. That’s why I refer to my approach three times in the speech as a “balanced” plan or approach. Also, the focus groups really liked that word “balanced” much better than they liked “tax increases” or “tax hikes,” so I never employed either of those phrases, although you can bet the Republicans will.

Much as the Repubs wish it were otherwise, there is really no cuts-only way to get our fiscal house in order. That kind of approach wouldn’t be “balanced.” We’ll keep trying to squeeze that infamous waste, fraud and abuse out of the spending side, but unfortunately the big spending items -- military spending, interest payments on the debt and entitlement programs like Medicaid, Medicare and Social Security – account for the vast majority of the budget.

The Republicans know this but are seldom straight about it. The cuts that would have to occur would fall on many of those least able to absorb them. I’m not willing to go along with that. In fact, just to make clear that I’m not going to cave in to the Republicans, I will explicitly threaten to veto any bill that doesn’t call on wealthy individuals and corporation to pay more taxes. That only fair. It’s so fair that I will use forms of the word “fair” 11 times in this one short speech. That will include six references to “fair share,” meaning what I ask rich people to pay. There will also be one “fairer,” one “fairness,” two “unfairnesses.” Republicans have a hard time when the argument is about fairness.

They prefer to argue about a “freedom,” by which they mean, among other things, the freedom of rich people to pay less than their “fair share” of the tax burden.

OK, enough snideness from me

6. For those with a willingness to face realities, one of the most effective devices Obama has employed in both of his two big speeches is the theme of making unpleasant choices. If the public can face up to this, it will be a big deal. Of course everyone would like to keep all of their government benefits and of course everyone (except, apparently, Obama and Warren Buffett) would like to pay less in taxes. But something has to give.

This passage, if people would focus on it, would be a killer argument (and now this is not my snotty satirical paraphrase, this is from Obama’s speech):

 “It comes down to this: We have to prioritize. Both parties agree that we need to reduce the deficit by the same amount — by $4 trillion. So what choices are we going to make to reach that goal?  Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both. 

“Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both. 

“This is not class warfare. It’s math. The money is going to have to come from someplace. And if we’re not willing to ask those who've done extraordinarily well to help America close the deficit and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more: We’ve got to put the entire burden on the middle class and the poor. We’ve got to scale back on the investments that have always helped our economy grow. We’ve got to settle for second-rate roads and second-rate bridges and second-rate airports, and schools that are crumbling. 

“That’s unacceptable to me. That’s unacceptable to the American people. And it will not happen on my watch. I will not support -- I will not support -- any plan that puts all the burden for closing our deficit on ordinary Americans.” 

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Comments (24)

I wish Obama would have done something more along the lines of Bowles-Simpson and deal with entitlements. We also need to lower or hold constant marginal tax rates while eliminating or curbing deductions, exemptions and credits that now cost roughly $1 trillion per year. Such an overhaul could make the tax system both more efficient by removing distortions and disincentives to work, and more progressive, since the affluent make more use of such loopholes than the poor.

Bowles-Simpson received criticism from both sides of the aisle. That alone was enough for me to support its goals.

Go big or stay home.....

regarding #4, Obama should have adopted this approach in his first two years when he had Democratic majorities. It would have been easier to brow beat conservative Democrats than Tea Pary Republicans. This was his fundamental blunder, he turned to Republicans rather than progressives and blue dogs for compromise.

//For those with a willingness to face realities, one of the most effective devices Obama has employed in both of his two big speeches is the theme of making unpleasant choices. If the public can face up to this, it will be a big deal.

Seems to me the polls have long established that the "public" is ready and willing to make these choices and has been for over a decade. What- over 70% support a combination of tax increases and cuts? So Obama is just now realizing he might be able to exploit public support?

I hope Obama will stick to his guns on this, but unfortunately I don't trust him anymore. Even if he wins the election, I don't think he'll follow through. And I don't see him walking away from a bad compromises in the meantime. I hope I'm wrong.

"Still, notwithstanding various Republican mantras (“cut, cap and balance,” for example, or Michele Bachmann’s “never raise the debt ceiling again”), a plan to reduce the projected growth of the debt by $4 trillion will have to pass as bona fide fiscal conservatism today."

Right...hopefully we won't have to "notwithstand" rational spending cuts much longer.

What leftists refuse to even hint at is that "Teh Rich" they hate *so* much do not have the financial wherewithal to satiate government's appetite for spending...and I include knuckleheads like GWB in that.

If you want to raise taxes, and you want fairness, you have to start with the 40% that pay nothing and work your way up. The free and reduced lunch counter has to be closed for all but the truly helpless.

As Stephen Hawking proves, that bar is pretty high.

I admit I skimmed this article and didn't read it carefully but I did note that Tim Pawlenty weighed in by saying "the laws of fiscal gravity cannot be repealed indefinitely". Since his method of "balancing the budget" in Minnesota was to put off part of what was owed to the schools (which left them to try and cope with the shortfall) and incurring debt in the form of bonds. I agree with his statement but how do his actions even come close to making anyone believe he believes what he said. Politicians, particularly Tea Party Politicians, don't even seem to get that actions speak louder than words.. perhaps because in the political world, they don't. How unfortunate.

All of these proposals are to treat the symptoms of a massive change in the world economy and not the cause.

It's all about the jobs. Well-paid, secure, permanent jobs. 10's of millions of those jobs in the US. Tax cuts did not and will not bring them. Tax increases will not bring them. Stimulus works for a while, but falls short on the "permanent" need.

Without them, demand for services rises and ability to pay for services falls. Private consumption falls. The economy falls further.

Jobs. It's all about the jobs.

With respect to the politics, the worst thing the Republicans can do is reflexively oppose any and all Obama proposals. At some point they will own the economy--quite likely as the election nears.

I honestly don't understand how this situation got as bad as the press is making it out to be.

The United States Government spends a very small portion of GDP relative to other nations, actually, the 16th least in the world:

http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-...

144. US 19.9
145. Cameroon 19.1
146. Argentina 19.1
147. Armenia 17.8
148. Philippines 17.7
149. Brazil 17.3
150. Hong Kong 17.0
151. Guatemala 16.7
152. CAR 16.6
153. Costa Rica 16.5
154. Haiti 16.4
155. Singapore 16.3
156. Bahamas 16.0
157. Cambodia 13.3
158. Bangladesh 12.8
159. Turkmenistan 9.6
160. Afghanistan 9.2

We spend more on the military than the rest of the world's nations combined, and yet we still spend the 16th least.

Our so called "entitlement programs" are extremely limited in access compared to other industrialized nations. We have a bare-bones social safety net (SSI) and healthcare for the old and poor, whereas other industrialized western nations have universal healthcare and policies that let parents take years off of work to raise children (and get paid for it by the state).

I do not see where we have a spending problem in the least. Our government spends less than any country whom we'd like to consider a peer, and our citizens enjoy less benefits of citizenship than almost any other nation.

If, instead of 20% of GDP, we spent what Bosnia/Herzegovina does (50% of GDP), maybe this conversation about which schools should close and which poor 30-yo people should be allowed to die because they don't have health insurance could start to be a reasonable one.

But we don't. We have super, super rich people who want to pay virtually nothing, as a percentage of their income, to maintain our society and its quality of life.

Generally, small r republicanism and majority rule has served to check tiny minorities of a population that control all the wealth and power.

That we can even discuss the GOP "solutions" to the "deficit crisis" demonstrates that small "r" republicanism is an insufficient means to the ends enumerated in the preamble of the constitution and in the declaration of independence.

Consider the Connectio to:
The Economic Pyramid
______CONSUMER
_____RECREATION
____COMMUNICATION
___TRANSPORTATION
__BUSINESS
-INDUSTRY
AGRICULTURE
|SOIL|MINERALS|FORESTS|WATER|
|WIND|SOLAR|GEOTHERMAL|ETC._|
Our economy rest on a base of natural resources.
Conservation is the wise-use, management, & development of the Earths natural resources.
Conservation & shared sacrifice is needed at all levels of the Economi Pyramid!
Revenue is needed to grow the economy!!!

I am tired of this mantra that the bottom 50% needs a 'skin in the game'

The bottom 50% controls less than 2% of the country's wealth. Any budget solution predicated on increased revenue simply cannot come from them. This is not idealogical, this is arithmetic.

I agree that "entitlements" (unfortunate word choice) must be part of the solution. But entitlements include all kinds of exemptions and deductions in the current tax code as well as those emphasized by right-leaning extremists. (Translate: fixing the deficit should not and cannot be done primarily on the backs of lower income and vulnerable people).

Defining what are "reasonable" and appropriate spending cuts is often in the eye of the beholder.

I agree with Thomas that there are "knuckleheads" on both sides (or really all sides of this issue). And I'm one who dislikes labels. But I disagree that the best approach is to start from the bottom and work your way up.

I think you have to approach it as objectively as possible and work toward a balanced approach. Unfortunately, this seems daunting to say the least and perhaps closer to impossible given the current political climate in which "compromise" is a dirty word.

@#3
There is no "40% that pay nothing." Myth, lie, whatever you want to call it, it doesn't exist. Let's start with facts if we're going to have any sort of rational discussion. Unfortunately, I think that's probably an unlikely event.

"as Andrew Sullivan pointed out moments after the speech, a huge majority of Americans favor a big plan that would include tax hikes on the wealthy to tackle the deficit."

Well of course they do. A huge majority of Americans would be in favor of confiscating Bill Gate's wealth and distributing it to the rest of us.

So to clarify, Obama's plan to pay for more public union jobs is to confiscate the wealth of successful Americans, simply because in a democracy, they're too few in number to fight back against the mob. Nice moral leadership.

The Republicans certainly recognise "class war" when they see it. They have been waging a class war on the just plain citizens for about 26 years. For them it is their aristocracy against everyone else.

"Six ways of decoding Obama's tax-increase-deficit-reduction speech."

Here's the seventh way: Obama has given up on trying to fix the economy. Does anyone really believe that raising taxes is going to help the economy? Of course not.

"I blame the current Republican Party for changing the concept of compromise to something that means roughly the opposite of what it used to mean..."

This is the most important statement in the entire article. It is the foundation of the GOP spin machine used throughout the Bush administration and the current GOP congress.

- Clear skies initiative - pollutes
- PATRIOT Act - removes constitutional rights
- Compromise - never give an inch

Even to the point where conservatives claim that the poor pay no taxes. Tell that to someone who just put a few dollars worth of fuel into their beater to drive to a minimum wage job. Gas tax. License fees. Payroll taxes.

"For deficit hawks, among whom I number myself,"
Erik, there you go again with that first person pronoun of which you spoke.

Rachel, I'm speaking of the 40% that pay no income tax; I suspect you knew that but I'm happy to add precision to the discussion.

Nathan, I don't have the exact figures at hand, but as they are not really important to the matter of "fairness", I'll take yours at face value.

Whatever the figure, it represents economic activity that add no value to "the commons", which as any leftist will attest to, is of the utmost importance.

Further, folks that have no vested interest in the costs of "the commons" are apt to make free use of the benefits of the commons, since to them, it *is* free. I suspect the dialogue in leftist drum circles would be dramaticly different if "tax increase" meant the same thing to all; as it should.

(#7) I'm not sure how the numbers you cite were arrived at but it is drastically different than that of:

http://en.wikipedia.org/wiki/Government_spending

For example, Wiki's table has total government expenditure as percent of GDP at 38.9 for the US, not 19.9 as in your cite.

Other countries of interest: Canada at 39.7, Germany 42.7, Norway 40.2, France 52.8, Sweden 52.5, etc. And the US is certainly not the 16th from the bottom.

Perhaps state and local spending was ignored in your reference....

Thanks ink stained wretch black

As with the now discredited reasons for war in Iraq more and more journalists like yourself are fingering the culprits in this financial mess like it or not that we all share.

I think holding lending institutions more accountable for the financial situation and raising payroll deductions for ssi as well as bringing back well paying jobs to the USA and reigning in the military, industrial political complex would be a good start.

Now for some stand up.

#17, Mr. Swift: As long as you're adding precision to the discussion, let's be clear that in that 40% you're including the corporations like GE who paid no corporate income taxon $14.2 billion in worldwide profit, including $5.2 billion profit from US operations? That's p-r-o-f-i-t as in otherwise taxable income. Paid by virtue of spending tens of millions of $$ for lobbyists for tax breaks.

http://www.nytimes.com/2011/03/25/business/economy/25tax.html?pagewanted...

Some of which goes of course for $375/bottles of Echezaux for Cong. Paul Ryan and his ilk at fancy DC restaurants. It's expensive to pay for Congressmen to keep a straight face while proclaiming: we are too broke to afford A, B, C for this country's Social Security, Medicare, environmental laws, etc.: we need spending cuts!!!

It’s always a pleasure to see Mr. Bumble from “Oliver Twist” represented in these discussions of economics and social justice in the form(s) of Mr. Tester and Mr. Swift… Indeed, if we want to make genuine progress toward eliminating the deficit, there’s not much that can be ruled “off the table.” Entitlements and the military take up most of the federal budget, and they’re the hardest nuts to crack on the spending side.

Secretary of Defense Panetta’s silly assertion that any cuts in the Department of Defense budget would “weaken the United States” are laughable. We spend billions on unnecessary hardware programs while starving programs involving humans that would be a lot more effective as protectors of both American interests and the American public. Billion-dollar aircraft carriers are not a cost-effective way to dispense justice to criminals, which is what terrorists are.

Social Security pays for itself, and is not responsible for any portion of the deficit. Left to operate as it currently does, it will eventually run up against some fiscal issues, but the fixes necessary to continue it as perhaps the most fiscally-responsible of government programs are relatively small, though not without inconvenience – and perhaps more than that – for some.

Health care continues to be, if not the only 500-pound gorilla in the room, one of the most aggressive. We have splendid health care for a relative few, average health care for many, and terrible health care, or none at all, for many more. At present, we ration health care on the basis of ability to pay, which is not only rather difficult to justify on moral grounds, but is the antithesis of every major religion, including Mrs. Bachmann’s.

On the revenue side, I’m inclined to line up with Neal Rovick (#5). The world and its economy are changing in ways both transitory and fundamental. Demand for products doesn’t come from tax cuts, it comes from people who have reasonable, reliable income.

Mr. Tester’s assertion that the upper one percent of the population in income are “…too few in number to fight back” would have more credibility if the numbers over the past generation or so didn’t show, rather convincingly, that it’s been the other way ‘round. The transfer of wealth from lower and middle classes to the highest fringe of the upper crust since Ronald Reagan was president has been one of the more astonishing economic developments of the past 30 years, and historians will be writing about it in those terms for a long time after I’ve left the scene. Income distribution in our current society is hugely skewed toward the upper end. The absolute numbers of the really wealthy may be small, but they have access to lawyers and politicians that ordinary citizens can’t hope to match. Statistics to support this are all over the web.

When the wealthiest 10 percent of the population controls 2/3 of the nation’s net worth, as it does now, the notion of “class warfare,” while certainly tempting, is more or less the opposite of what’s being asserted by those on the right. If there’s anything approaching genuine “class warfare,” it’s been the wealthy against the rest of the society. That notion is reinforced by the fact that the median net worth (this includes the value of one’s home, if it’s “owned”) of American families in the most recent data set I could find online was about$120,000, while the median net worth of members of Congress was about $900,000. The insistence upon tax cuts by a Republican-controlled Congress, while shameful, should not come as a surprise.

Moreover, as Warren Buffett himself has pointed out, not only do the wealthy pay income taxes at a lower rate than those of modest means – when they pay them – much of their income isn’t even “earned” in what those outside the financial trade would regard as the “traditional” sense. They’re making money on investments they’ve made in someone ELSE’s labor, and it’s taxed as capital gains, with a tax rate only about 60 percent of what “regular” income is taxed at. To be kind, I’ll just say that the current tax code isn’t always fair.

Does GE have a payroll tax?

Excellent analysis and all in one place. thanks for more good reporting by Black and MinnPost.

Some more incisive words from Paul Krugman:
"One is that you have to beware of the old trick of saying “taxes”, then slipping into “income taxes”. Most Americans pay more payroll than income taxes, but the reverse is true at high incomes. So focusing only on income taxes makes it seem as if the rich pay much more of the burden than they really do.

Another, more subtle trick involves comparing percentage changes in taxes as opposed to tax changes as a percentage of income."

The complete column is at:
http://krugman.blogs.nytimes.com/2011/09/21/the-distributional-effect-of...