It goes like strangely methodical clockwork. Guys like Rick Santelli – never particularly political, mostly economics guys – criticize policies of the Obama administration, and they suddenly become targets of ridicule in places like The Daily Show and The Huffington Post. Jim Cramer will be seeing more of this.
The Economist will be next, I suspect:
Obama’s budget forecasts that the economy will shrink 1.2% this year then grow by an average of 4% over the following four years. It might if the economy were to follow a conventional path back to full employment. But this is not a conventional recession. The unprecedented damage to household balance sheets could well result in anaemic economic growth for years, significantly undermining the president’s revenue projections. The economic outlook continues to darken and the stockmarket has already tumbled to 12-year lows. Mr Obama may either have to renege on his promise to slash the deficit to 3% of GDP in 2013 from more than 12% now, rein in his spending promises or raise taxes more.
Second, Mr Obama’s scattershot tax increases are a poor substitute for the wholesale reform America’s Byzantine tax code needs. Limiting high earners’ deductions for mortgage interest, local-government taxes and other things is certainly more efficient than raising their marginal tax rates even more. But it would be better to replace such deductions for everyone with targeted credits, abolish the alternative minimum tax (an absurd parallel tax system that ensnares a sizeable chunk of the upper middle class), and implement a broad sales tax. Rather than simply eliminating the sheltering of corporate income from abroad, Mr Obama could have broadened the corporate tax base and lowered the rate. In sum, Mr Obama could simultaneously raise more revenue and make the tax code simpler and more conducive to growth. But he hasn’t.
Tell it like it is
Finally, by asking only the richest 2% of Americans to pay more, Mr Obama is building his vision of a more activist government on a shaky foundation. Mr Bush’s tax cuts raised the proportion of American families that pay no federal income tax (or are net recipients of tax credits) from 33% to 38%; Mr Obama’s will raise it to 44%, according to the Tax Policy Centre, a research group. Although many of these people do pay payroll taxes, Mr Obama is also intent on reducing the link between payroll taxes and the pension and health-care benefits they were supposedly designed to pay for. It certainly makes sense to keep poor people off the income-tax rolls, but removing a sizeable chunk of the middle class weakens the political bond between taxpayer and government, and will lead to pressure for more such spending.
The Economist endorsed Obama in last November’s election.