{"id":239,"date":"2012-11-09T12:04:09","date_gmt":"2012-11-09T17:04:09","guid":{"rendered":"http:\/\/www.themodestproposal.com\/?p=239"},"modified":"2012-11-10T15:20:28","modified_gmt":"2012-11-10T20:20:28","slug":"obamas-opportunity-possibilities-and-pitfalls-of-the-next-2-months","status":"publish","type":"post","link":"http:\/\/www.themodestproposal.com\/?p=239","title":{"rendered":"Obama’s Opportunity – possibilities and pitfalls of the next 2 months"},"content":{"rendered":"
\n\t\t\t\t\tTweet<\/a>\n\t\t\t\t<\/div><\/div>

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Within hours of Obama’s reelection on Tuesday, Senate Minority Leader Mitch McConnell (R) interpreted the Obama win and Democratic victory in the Senate by declaring<\/a> that the election is not a mandate for Obama’s policies and that Obama’s job now is to propose something that will pass the GOP controlled House.<\/p>\n

The next day, House Speaker John Boehner (R) declared, in\u00a0conciliatory\u00a0tones, that the high-income tax increases on which Obama ran and was reelected was a non-starter.<\/a><\/p>\n

Meanwhile, the “fiscal cliff” looms around the corner. \u00a0On January 1, 2013, the U.S. economy will be jolted by the convergence of the expiration of the Bush tax cuts, expiration of emergency unemployment insurance, an increase in the alternative minimum tax, and nearly $ trillion in across-the-board military and non-military spending cuts. \u00a0The Congressional Budget Office recently released their assessment that going off the “fiscal cliff” would push the U.S. economy into another recession.<\/p>\n

With continued Republican\u00a0intransigence\u00a0and a major economic downturn looming, Obama faces huge challenges in the next two months. \u00a0The President should hold firm on the promises and policies he ran on in his reelection campaign, and here are 5 reasons why he can deliver.<\/p>\n

Elections Matter<\/span><\/p>\n

Obama ran a campaign on a few clear and simple economic policy concepts, which included letting the Bush tax cuts expire on higher income Americans towards the goal of reducing the deficit by $4 trillion. \u00a0He repeated this platform<\/a> endless times and, when pressed made this a crystal clear campaign promise. \u00a0He won the election. \u00a0Many Democratic Senators likewise ran on expiration of the Bush tax cuts<\/a> and won. \u00a0This gives Obama and Democrats a mandate to deliver on his promise with the backing of an electoral mandate.<\/p>\n

Stalemate Results in Higher Taxes for Everyone<\/span><\/p>\n

John Bohener has indicated that raising taxes would not pass the Republican House. \u00a0But because the Bush tax cuts are set to expire already, a stalemate on this issue mans that taxes are going up without the cooperation of the Republican House. \u00a0Republicans used obstructionism to great effect in preventing most of Obama’s first-term agenda in a bid to defeat him in the Presidential election, but in this case obstructionism is a big loser for Republicans. \u00a0If no deal is made, taxes go up to Clinton rates, and that’s just fine with many Americans. \u00a0Even the CBO’s assessment, which warns of an economic recession, estimates that by 2014 the economic pain of the fiscal cliff would be over, and thanks to a return to Clinton tax rates, the deficit would be much reduced. \u00a0Even some Republicans<\/a> believe that we should jump off the fiscal cliff in order to reduce deficits. \u00a0The bottom line is that the Democrats hold most of the cards and the Republicans have few, and Obama should carefully use this fact not only to push the tax agenda he ran on for the last year, but also to force House Republicans to (finally) negotiate and compromise on a big deal that restructures and simplifies our tax code and promotes the President’s agenda, such as investing in infrastructure, education, and clean energy.<\/p>\n

Tax Cuts for the Rich Do Not Work<\/span><\/p>\n

I have written at length<\/a> about why the Bush tax cuts specifically and tax cuts for the rich in general have never worked to create economic growth. \u00a0As written on this blog here<\/a>, tax cuts for the rich do not work to stimulate economic growth. \u00a0A non-partisan Congressional Research Service report examining 65 years of economic data concluded that there is no correlation between lower capital gains or high-income income tax rates and economic growth:<\/p>\n

\u201cThe reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.\u201d<\/p><\/blockquote>\n

The GOP point to a study funded by the U.S. Chamber of Commerce and conducted by former Bush appointees working at Ernst & Young that claims that cutting the Bush tax cuts for the rich will cause the loss of ~700,00 jobs. \u00a0The White House<\/a> and fact checkers<\/a> point out that this study makes some\u00a0scrupulous\u00a0assumptions, including the assumption that the new revenues would be used for new spending instead of tax cuts elsewhere as well as debt reduction. \u00a0The Ernst & Young study even agreed with CBO that extending only the middle income tax cuts vs. all of the Bush tax brackets “would be more cost-effective in boosting output and employment in the short run because the higher-income households that would probably spend a smaller fraction of any increase in their after-tax income would receive a smaller share of the reduction in taxes.”<\/p>\n

But it doesn’t\u00a0necessarily\u00a0take a study for most Americans to know that extending the Bush tax cuts are not the answer. \u00a0The years following the Bush tax cuts were marked by anemic job growth, massive deficits and debt, and eventually a historic economic crash. \u00a0Even Reagan’s 1981 tax cuts, which are credit by some to be stimulative, ballooned the budget deficit and necessitated a number of tax increases later in Reagan’s Presidency. In a great piece<\/a>\u00a0by Reagan\u00a0adviser\u00a0and Bush (Sr.) Treasury official Bruce Bartlett, Bartlett explains why the Reagan tax cuts wouldn’t work today:<\/p>\n

Today, by contrast, income tax rates are at a historical low \u2013 the top tax rate is just 35 percent and revenues are less than 15 percent gross domestic product versus 19.6 percent in 1981. The average federal income tax rate on a median family is less than 5 percent and its marginal rate is 15 percent. Inflation is nonexistent and the federal funds rate is close to zero.<\/p><\/blockquote>\n

Republicans also continue to repeat the misleading claim<\/a> that expiring Bush tax cuts for the top income brackets hurt small businesses. \u00a0In fact, according to the non-partisan Tax Policy Center, only 2% of small businesses are in the top two income brackets that would be impacted by a tax increase on income over $250,000 per year.\u00a0 According to the Joint Committee on Taxation, such a tax increase would impact 3% of all businesses. \u00a0The GOP definition of \u00a0“small business” misleadingly includes\u00a0some of the largest and richest corporations in the world, including many hedge funds, law firms, and corporate giants like Bechtel, Price Waterhouse Coopers, and even the infamous Koch Industries, which has over 70,000 employees. \u00a0They have been called on it many times, yet continue to repeat this misleading claim.<\/p>\n

With record deficits, a massive debt, and historically low tax rates, it is indefensible to insist on high-income tax cuts that add nearly $1 trillion<\/a> to the debt over 10 years and have no\u00a0discernible\u00a0positive impact on economic growth.<\/p>\n

Imaginary GOP Mandate<\/span><\/p>\n

Both Bohener and McConnell point to the fact that Republicans retained control of the House as a mandate for lower taxes and a call for Presidential leadership. \u00a0But let’s look at the facts: The vast majority of Americans, 75%, disapprove<\/a> of the GOP Controlled House. \u00a0In fact, more Americans, by a 48.8% to 48.5% margin, voted for Democrats than for Republicans in House races nationwide<\/a>. But for two decades straight, Republicans have controlled the majority of State legislatures on years ending in 0 (2000 and 2010), which means they have\u00a0gerrymandered districts (meaning they redraw district maps to select the voters they want in order to win more House seats), that give them a structural advantage and ensures them more seats in the House even when they get fewer actual votes across all House races. \u00a0This is why the GOP retained control of the House by a healthy margin even while Democrats picked up seats in the Senate and won the White House. \u00a0The Senate is decided on statewide votes, meaning that redistricting does not impact Senate seats. \u00a0Likewise the White House race is decided by majority votes in each state, which is not impacted by Republican gerrymandered districts. \u00a0The House is thus not representative of the will of the people, and retaining control in the House does not translate to a mandate. In other words (no surprise here), the GOP Controlled House is farther to the right than America, and the President should drive this point home. \u00a0President Obama has a duty to lead, but the burden also lies on John Boehner to lead his right-wing caucus to where the American people are, no the other way around.<\/p>\n

Obama’s Opportunity\u00a0<\/strong><\/p>\n

With a mandate on policy, a reinvigorated base, and a looming fiscal cliff, Obama has a big opportunity and little room for error. \u00a0His job now is to use the leverage he has over the House GOP, not giving up much, but reaching out to the GOP (not just Bohener) to such an extent that any\u00a0intransigence\u00a0on the part of House Republicans will be nakedly on display to the American people. \u00a0Obama needs to keep the American people engaged, at least for the next two months, in order to hammer home a grand deal. \u00a0What Obama can’t do is repeat the mistakes of his first term by letting the GOP obstruct his policies and ignore his attempts at compromise.<\/a> \u00a0What Obama can’t do is to allow a temporary fix to diminish the potential of his current political capital and extend the policy and tax rate uncertainty that is the main reason why the engines of the private sector have been\u00a0idling\u00a0for so long. \u00a0Obama has a chance to lead, and a big victory is very possible for him and the American people.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Within hours of Obama’s reelection on Tuesday, Senate Minority Leader Mitch McConnell (R) interpreted the Obama win and Democratic victory in the Senate by declaring that the election is not a mandate for Obama’s policies and that Obama’s job now is to propose something that will pass the GOP controlled House. The next day, House Speaker John Boehner (R) declared, in\u00a0conciliatory\u00a0tones, that the high-income tax increases on which Obama ran and was reelected was a non-starter. Meanwhile, the “fiscal cliff” looms around the corner. \u00a0On January 1, 2013, the U.S. economy will be jolted by the convergence of the expiration \u2026 Continue reading this post → <\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,5],"tags":[54,37,35,53,43,36,49],"class_list":["post-239","post","type-post","status-publish","format-standard","hentry","category-2012-election","category-taxes","tag-bush-tax-cuts","tag-deficit","tag-election","tag-fiscal-cliff","tag-gop","tag-obama","tag-tax-cuts"],"_links":{"self":[{"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=\/wp\/v2\/posts\/239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=239"}],"version-history":[{"count":7,"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=\/wp\/v2\/posts\/239\/revisions"}],"predecessor-version":[{"id":241,"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=\/wp\/v2\/posts\/239\/revisions\/241"}],"wp:attachment":[{"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=239"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.themodestproposal.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}