Is Obama Missing His Best Chance for Change?
Since his election, President Obama and his top aides have frequently cast the economic crisis as an opportunity to push his agenda of change. Now, three months into his presidency, we are getting a good sense of how he and the Democratic Congress intend to use that opportunity.
Their priorities are becoming clear: Providing health coverage for many uninsured, cutting taxes for those making $200,000 or less, and, though this one may be receding into the distance, addressing global warming. Equally important, we’ve learned what long-term priorities are falling off Obama’s A-List: confronting the budget deficit, reforming taxes and entitlements, and constraining health costs.
There is a clear and unsurprising pattern here: Obama is going for the most politically palatable rather than the tough choices. For instance, while covering the uninsured is by no means simple, it is a far easier political lift than controlling medical costs. That, after all, would require some form of rationing—an exceedingly unpopular step.
The tax story is the same. Combining big tax cuts for more than 95 percent of individuals and families while significantly increasing federal spending is not sustainable over the long-term. Similarly, Obama aides say he supports tax reform, and the President has just appointed a new commission to study the subject. But Obama has imposed so many constraints on this initiative that it cannot possibly succeed. For instance, he has decreed that no one making less than $250,000 would pay more taxes. As my colleague Rosanne Altshuler wrote the other day, serious tax reform is not possible in such an environment .
As a result, addressing the long-term deficit has also fallen by the wayside. Reducing the red ink will inevitably require a mix of significant tax increases and spending reductions. It would also mean reforming Social Security and, especially, Medicare.
Obama had expressed some interest in confronting Social Security but that seems to have been scotched by Hill Democrats. And for now Medicare reform looks as if it will be an exercise in shifting money around, rather than slowing spending growth to something approaching GDP.
Putting the brakes on medical costs would be a huge accomplishment since these expenses have been growing at a staggering 2 percentage point faster than GDP for years. However, while Obama talks about “bending the curve” in medical spending, I don’t see proposals that will do that. He is leaving the details of health reform to Congress, and lawmakers seem more interested in nibbling around the edges of the cost problem. For instance, doctors may get higher Medicare payments, while hospitals and nursing homes would receive less, patients would pay a bit more, and Medicare Advantage managed care plans would lose their government subsidies. Whether you like these ideas or not, it is hard to believe they will significantly reduce health costs.
It is hard to criticize Obama for avoiding the really tough choices. After all, nearly any politician would do the same. And a recession is no time to be cutting spending or raising taxes. But Obama will never get on the road to change we can believe in by continuing the duck the really tough calls.
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What you are talking about is a Tobin Tax. It would be inflationary because either the buyer or seller would adjust the price of the underlying product to absorb the tax and pass it to the consumer (unless the consumer paid it directly). Even stock transactions would find a way into product price eventually as investors would require more in dividends – or day traders would require more revenues to find the stock price attractive (leading to faked figures and more bubbles – not good).
Recent events have shown that the cost to our society of a wide array of financial transactions is not trivial – i.e. – stabilizing the economy will about double the federal budget. I believe those involved in financial transactions should pay this cost, regardless of any considerations of profit or loss. A relatively small tax of 1% or less on any money received by any person or organization, for any reason whatsoever seems reasonable – call it a transaction tax. This includes money received for selling stocks, bonds, futures, options, real estate, food, medicine, televisions, wages, illegal drugs and any or anything else. Goods that change hands five times on the way to the final consumer would be taxed on the gross of each transaction five times. Period. No exceptions. Yes, this would have a huge impact on a few people, primarily those that are abusing financial transactions to put a small percentage in their pocket. Most normal people or companies would end up paying less direct taxes. With the exception of a few extra high social cost items such as cigaretees or tobacco, this would be the only tax – no capital gains, no social security, no income, no gas taxes, etc. Money leaving or entering the country would be taxed at the same rate (once each way, unless going to a place with the same tax).
Advatages:
Would remove a bunch of the motivation for corruption of government employees, elected or otherise.
Only those with money in their pocket pay a tax. They just sold something, therefore they have money and can afford to pay.
Everyone that uses money would pay – the more they shuffle money around, the more they pay.
Everyone, rich or poor, has a stake in what the government spends money on. For those that are really destitute, we can always give them money if we choose.
Would greatly simplify the tax code, which is essentially incomprehensible now.
Failure to pay taxes becomes a fairly straightforward legal matter. All that is required is proof money was received and taxes were not paid.
A wage earner would have less deducted from the paycheck. Someone buying a stock and selling it years later at a profit would pay much less taxes. Day traders, hedge funds, and the like would pay much higher taxes, possibly even to the point of nearly eliminating them – which I believe would not be a bad outcome.
Let's not write the obituary on the Obama Presidency so fast, shall we?
It may take some time to put real cost control proposals out there – and they may come from the minority (provided they don't prefer setting Obama up to fail to actually doing good public policy).
Hopefully proposals for tax increase will percolate up through the process and he can find a way to back pedal on the restrictions placed on the panel – OR – some other panel, possibly one run from the TPC, might advise either the panel or the President of needed revenue raising strategies.
For Heaven's sake, its only April of the first year.
Obama has indeed missed his best chance for a “Nixon goes to China” change of course. Everybody knows that the government must break its promises to Medicare and Social Security recipients. The sooner this happens, the more time people will have to make adjustments.
The current crisis was the best opportunity to make these changes, better than anything pundits ever imagined. That would have been change I could believe in, because it would have put government policy on a sustainable path. Experts including Len Burman concur, as you can hear for yourself at http://www.taxanalysts.com/www/conferences.nsf/KeyLookup/GBRO-7PYSBK?OpenDocument&link=media
Obama has instead chosen to expand government programs and promises, making the long-term problem even worse and setting us the inflationary trail already blazed by Argentina. History will not look kindly on this choice.