Can we start calling the Bush tax cuts the Obama tax cuts now?
Seriously, President Obama now owns nearly all of the Bush-era tax cuts and is using the bulk of those affecting marginal rates as a cudgel against Republicans. He did so on Monday at the White House, calling on House and Senate Republicans to extend for one more year most of the George W. Bush-era tax cuts.
“If Congress doesn’t do this, millions of American families ... could see their taxes go up by $2,200 starting on Jan. 1 of next year,” Obama said. “And that would be a big blow to working families, and it would be a drag on the entire economy.”
This is a political argument. It is not an economic argument (more on that presently). Obama wants to drive a wedge between Republicans and swing voters on the question of priorities and values. He’s cornered the market so effectively, even big-time cable networks are confused. CNN on Tuesday morning had a graphic describing Obama’s push to extend most of Bush’s tax cuts as “Obama’s Proposed Tax Cuts.” Huh?
In. An. Election. Year.
Remember, Obama had no trouble whatsoever agreeing to extend all of the Bush tax cuts in late 2010 for two full years. That was part of an elaborate lame-duck compromise where many other priorities collided (not the least of which was Obama’s push for an extension of jobless benefits and a brand new, one-year 2 percentage-point cut in the Social Security payroll tax). Even so, Obama erased nearly four years of rhetoric opposing extension of Bush’s tax cuts for the wealthy. One of Obama’s best-remembered campaign promises vanished in a puff. The rationale was, again, economic. “I’m not willing to let our economy slip backwards,” Obama said on Dec. 6, 2010, by way of explaining his policy cave. “It’s the right thing to do for jobs. It’s the right thing to do for the middle class. It is the right thing to do for business. And it’s the right thing to do for our economy.” At the time, the unemployment rate was 9.8 percent. The economy created 39,000 jobs in November 2010, down from 172,000 jobs created the month before.
I don’t resurrect this history to pillory Obama or rekindle Democratic (in this case, liberal Democratic) grievances over his big tax-policy surrender. The point is we have to start asking ourselves, as a country, what our tax policy is actually creating in terms of jobs, growth, and wealth. What have the Bush tax cuts wrought? What has their extension for two years achieved? What about Obama’s tax cuts, credits, and subsidies, meant to beef up consumer spending and soften the inflationary blows of, among other things, college tuition and worker retraining?
When Bush signed the first round of tax cuts in June 2001, he compared the move to sweeping tax cuts ushered in by John F. Kennedy and Ronald Reagan. There isn’t room here for a full-blown debate about the economic merits of the Kennedy, Reagan, and Bush cuts, each of which slashed marginal tax rates. But there is something to ponder in terms of diminished economic returns. The U.S. economy (gross domestic product) grew at an average annual rate of 4.65 percent from 1961 to 1964 (Kennedy’s years) and 5.05 percent from 1965 to 1968 (Lyndon Johnson’s years). The average rate of GDP growth in the Reagan years (1981-1988) was 3.4 percent. In the Bush years (2001-2008), it was 2.09 percent. From the beginning of 2010 to now, GDP growth has averaged 2.2 percent.
The Bush years created low-level economic growth and nearly stagnant wages. The phase-in of marginal tax-rate cuts passed in 2001 were accelerated in 2003. On top of that, Bush cut taxes on dividends and capital gains. These moves, together, were supposed to spur growth in the wake of the 9/11-induced recession. They vastly underperformed.
And yet, Obama extended all of these tax cuts in 2010, with the hope they would, as noted above, generate economic growth, boosting wages and hiring. The results have been just as meager as before. But Obama added his own tax cuts. He started with the Making Work Pay provision in the stimulus law, a $116 billion one-time tax credit worth $400 to individuals and $800 to married couples. Then in 2010, he added the 2 percent payroll-tax cut (now extended for a second year with no end in sight and an annual cost of roughly $115 billion). Obama, like Bush, has continued “patching” the alternative minimum tax, protecting the middle class from a huge annual tax increase.
But like the Bush tax cuts on marginal rates, dividends, and capital gains, Obama’s efforts have vastly underperformed in terms of job creation and wage growth. America’s economy is still in a daze, stumbling along while the jobless search aimlessly for an economic ladder to pull themselves out of the recessionary mire.
Despite Obama’s rhetoric, we are not about to have a fresh debate about tax policy. Current policy isn’t working. The economic future of this nation, 12 years of actual experience shows, is not going to be won or even mildly improved by the current combination of tax policy. Fresh thinking and political risks are required, or the economy and tax debate will remain as irrelevant as they are now.
This article appears in the July 11, 2012, edition of NJ Daily.