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Tuesday, October 25, 2016

Obama’s Budget Finally Gets The Politics Right

The president’s budget hits the right political notes, but it falls short of what we need to move the country forward.

President Obama’s budget for 2013 is a sharp improvement over his 2012 budget. What a difference a year makes. Back then, the emphasis was all deficit all the time. If I exaggerate a bit, it is because the Obama administration was so wrong-headed. He wanted to reduce discretionary spending to Eisenhower lows, for example. He told us a country must tighten its belt like a family, despite Keynes’s convincing analysis otherwise. Since then, inside-the-beltway analyses have claimed he had little choice but to focus on the budget deficit given the Republican strength in Congress, their propaganda offensive, and what the opinion surveys showed. For what it is worth, I think this is badly wrong. Why should people have thought anything other than that the deficit was our problem — and therefore big government as well? Almost no Democrats with a national platform were saying otherwise.

Last September, Obama changed his tune. He at last conceded that jobs were America’s biggest problem, not the federal deficit. Fortunately, he has kept talking that line. The new budget reflects that wisdom. Was it the Occupy Wall Street effect? I think to some degree it was. But the relentlessness of high unemployment numbers until recently could not be ignored.

So we now have a pretty good budget proposal from the president — that is, if we are content to put it in political context. Above all, the economy still needs stimulus, and he wants to extend the payroll taxes. The Republicans seem to have caved on the issue, a sign American voters may be waking up from their long sleep.

But more important, he is now willing to make proposals that will not win congressional support, a strategy he and his Clinton holdover advisers long resisted. He would tax high incomes at 30 percent, the Buffett tax. He would raise taxes on dividends for better-off Americans to the ordinary rates, and raise the capital gains tax as well. He will refuse to endorse a tax cut for those who make more than $250,000 a year — that is, he will allow the Bush tax cuts to expire for the well off. Remember, he threw in the towel on that one in December 2010, a stunning concession. If Republicans say no, they will now bear the stigma going into the election.

Importantly, he is proposing some serious long-term investment in the economy, partly to be paid for by the wind down in military spending as wars end in Iraq and Afghanistan.

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