Intro: "When the applause among Democrats and recriminations among Republicans begin to quiet down - probably within the next few days - the President will have to make some big decisions. The biggest is on the economy."
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
Obama's Next Economy
08 October 12
hen the applause among Democrats and recriminations among Republicans begin to quiet down - probably within the next few days - the President will have to make some big decisions. The biggest is on the economy.
His victory and the pending "fiscal cliff" give him an opportunity to recast the economic debate. Our central challenge, he should say, is not to reduce the budget deficit. It's to create more good jobs, grow the economy, and widen the circle of prosperity.
The deficit is a problem only in proportion to the overall size of the economy. If the economy grows faster than its current 2 percent annualized rate, the deficit shrinks in proportion. Tax receipts grow, and the deficit becomes more manageable.
But if economic growth slows - as it will, if taxes are raised on the middle class and if government spending is reduced when unemployment is still high - the deficit becomes larger in proportion. That's the austerity trap Europe finds itself in. We don't want to go there.
This is why January's so-called "fiscal cliff" - $600 billion in automatic spending cuts and tax increases - is so dangerous. It's too much deficit reduction, too soon. Tax increases on the middle class would reduce their spending just when the economy needs that spending in order to keep growing, and cuts in government's own spending would make the problem worse.
If we go over the fiscal cliff, we're in another recession. Don't just take my word for it. That's also the view of the Congressional Budget Office and most private economic forecasters.
The way to ensure continued growth is to continue the President's payroll tax cut and extend the Bush tax cuts for income under $250,000, and continue government spending.
The way to increase growth is to permanently exempt the first $20,000 of income from the payroll tax and make up for lost revenues by raising the ceiling on income subject to it (that ceiling is now $110,100). And increase government spending - especially on critical public investments like education, job training, and infrastructure.
Any "grand bargain" on deficit reduction should contain a starting trigger - and that trigger should be when the economy can safely be assumed to be back on track. I'd make that trigger 6 percent unemployment and 3 percent economic growth for two consecutive quarters, and make sure that trigger was in the legislation.
The President needs to make it clear to the public that the only way we can achieve a better economy is through a larger and more buoyant middle class. If we continue lurching toward widening inequality and ever more concentrated income and wealth at the top, the vast middle class - as well as all those who aspire to join it - won't have the purchasing power to grow the economy and create more jobs.
That's why taxes must be increased on the wealthy, and the proceeds used to reduce the deficit over the long term, extend and enlarge the Earned Income Tax Credit (a wage subsidy for lower-income workers), and invest in education.
The President's victory doesn't give him a clear mandate to achieve any of this - the margin of victory was too small, and he didn't tell the American electorate explicitly that his priority would be creating jobs and growing the middle class instead of reducing the deficit.
But his victory gives him the attention of the nation and the authority that comes with having won reelection. It therefore gives him the opportunity to recast the economic debate. The upcoming fiscal cliff makes it particularly urgent he do so quickly.
Robert B. Reich, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage." He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
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A government's budget is not analogous to a family budget. Investing in infrastructure, environmental improvements put people to work and then we have more people working and paying taxes while also building a stronger community.
If the wealthy pay a little more in taxes to fund those investments they will be rewarded because there will be a healthy economy
Obama should not move too far right to meet the extreme right mid-way.
It is time to marginalize the truly loony in the House and wipe them from Congress in the next election cycle. Winning those campaigns starts now.
I also agree that the ceiling on payroll taxes should be raised to at least $150,000.
I am unhappy with the "payroll tax cut" that was implemented because it damages SS and MC and risk making the damage permanent. A direct but temporary income tax cut for lower incomes is far better.
Raising the payroll tax ceiling will hit me personally but it is overdue.
If that argument every applied any ounce of progressivism in the tax system has been wrung out of it now.
It should have been put in Gore's lockbox LONG ago.
SS is very special, it is a safety net, it was never intended to be a retirement plan and I personally don't want to see it lumped with income tax, progressive or not. I don't think of SS as part of the commons like gas taxes or income taxes that fund our communal good.
Wage earners pay into it with a expectation for the defined benefit later or if they have a catastrophic life event. The zombie-eyed granny-starver Paul Ryan received just such a benefit.
AndreM5, You are in general quite right, especially your position on the payroll tax cut. I fear that the longer it is allowed to remain, the more it does, indeed, ultimately damage SS and MC. Not many people express that opinion, but it is a sound one.
I would, however, eliminate the ceiling on payroll taxes altogether. I see no good reason to cap it at all. Most of us pay it on the entire amount we earn; why should the big earners be treated differently? They will someday collect the full amount of SS due them, based on their earnings, so no part of their earnings should be exempt from payroll taxes.
We need to work broadly from all parts of the political spectrum to achieve the progress that we want. He can try to lead us, but unless we follow strongly, it will not happen. We need to propose workable solutions and support rational compromise when necessary.
He needs us now more than ever. We can't rely on him doing it for us. We need to cover his back and he will cover ours.
I see no reason to expect second-term Obama to be any different from the first, his campaign rhetoric notwithstanding .
We all should now look at the influence some of the MBA programs are having on this. I retired early from an MBA program that required students to attend an economics course that was for all intents and purposes an indoctrination into the beliefs espoused by Milton Friedman. I was reminded of this my final year when a student in my class bellowed "Employees are nothing but expendable human capital--we owe them nothing! We just learned that in our economics class."
So many now teaching in the nation's MBA programs earned their doctorates during the Reagan years when selfishness and "yuppie" values were prized. They are a source of the selfishness and viciousness that now prevails in our markets. I think it's now time to cast a spotlight on these practices and beliefs and measure their current and potential impact on our nation.
By all means, keep up the pressure.
But the best pressure would be to let the Democrats know that we're fed up with their impotence and betrayals.
Labor Party 2016!
Bob, we've been telling him this for four years. He doesn't listen.
If by some miracle he did decide to do the right thing, he would have to reframe the issue and admit that his previous course -- and that of the GOP -- was wrong.
His past acquiescence to the right works against his being able to make such a change.
But keep pushing. Letting things go as they are will be disastrous.
These are current member of congress that have pledged themselves to support Progressive solutions that put people first. Their solution to stay away from the cliff and get on the right path is called the "Deal for All". Tell your Congressperson to support it, along with the Caucus' Budget for All.
My Congressman won re-election by the skin of his teeth, I will not vote for him again unless he vocally supports this solution.
Thanks for the reminder Brad and for drawing people's attention to the credible, common sensical progressive budget/fiscal alternatives that are already out there and which we need to start getting behind.
The Congression Progressive Caucus' proposal is called the "Deal For All" and can be found at:
http://thomas.loc.gov/cgi-bin/query/z?c112:H.RES.733:
They also have a much more comprehsensive budget proposal ("The People's Budget") that progressives should get behind and start pushing the administration and the democratic leadership to get behind.
http://cpc.grijalva.house.gov/the-peoples-budget/
As far as my Congressman goes, he is a member of the Caucus, but when I spoke to him about the Budget plan 2 months ago he said its too late. Where was he when it wasn't too late? Only a handful of the Caucus makes any noise, most of them attach their names to it so they get Progressives to vote for them.
I mentioned this a few months ago, I plan to start right now alerting my Congresspeople, including my new Senator, that every time there is a camera in their face mention the Deal for All and the Budget for All. I know between now and January 1st, both of my Senators in 2013 will have a lot of camera time.
At the very least, it will alert the American public that there are alternative solutions.
thanks for the correction Brad...hadn't seen "A Budget For All" which i'm assuming is different than their "Deal for All"...will have to check it out later after work. thanks for the correction and heads up brad.
http://cpc.grijalva.house.gov/budget-for-all/
Another way to look at it is how much revenue does $1 of gov't spending generate? Of course it depends on the type of spending but estimates i've seen of the GI bill, for example, is that it paid for itself 7 times over so republican notion that all gov't spending is bad (except for defense) and equal is simply not true.
Moreover, we will create a demand pull rather than trickle down effect on the economy.
Last but not least should be a systematic effort to educate the public as to difference in these two concepts so that common sense may start to prevail.
Since as Reich says the President did not win by a large margin, nor did he specifically say what he was going to do should he be re-elected except in broad terms ... what is likely is that he is going to continue to coast letting events overtake his decisions and then compromising.
What else can he do?
What can we all do to let the President know we do not want to see him to do that, and what other alternatives can we give him when dealing with Republicans since they still have the majority in the House?
Obama has plenty of guts when he's droning over Afghanistan and sending Seal Team 6 to kill some extremist in a robe, but Wall Street and Bonerhead are going to get what they want.
In four times that has happened, devastation followed. After WWI and WWII government spending was reduced about 60% and depression or sever recession followed. Hoover cut spending in 1932 and a normal depression became the Great Depression. FDR gave into right-wing whining in 1937 and cut spending only to see four years of recover from the Great Depression immediately reversed with the GDP contracting and unemployment skyrocketing.
We don't even have to balance the budget. Jimmy Carter lowed the debt as a ratio of GDP to 32.5% (lowest since WWII) and never ran a surplus; he merely grew the economy more than he grew the debt. Reagan, on the other hand, skyrocketed that debt to past 68% of GDP and put us on the rod to financial ruin.
We don't even have to raise taxes on the wealthy. The correct course is to end the freeloading by hundreds of corporations that pay little or no tax while getting billion of dollars from the Treasury in handouts or contracts from the Pentagon.
The perfect solution is proposed in the book "Saving America: Using Democratic Capitalism to Rescue the Nation from Economic Folly." The President, his economic team and every member of Congress should read it and take to heart its proposals.
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After World war II and into the 1950s individuals paid 53% of all income taxes. Corporations and other businesses paid 47% of income taxes.
We have constantly lowered taxes on business – especially on the corporations – and piled it onto individuals so that now business' share of income tax paid is less than 10%.
Just end corporate freeloading and lesson the burden on individuals will do much more good that hiking taxes on the wealthy. But raising taxes there wouldn't hurt but that isn't the total answer.
The Rolling Jubilee proposed at http://www.youtube.com/watch?v=1Qs9w1XlJKE is a scam in my opinion. We simply need to change the "rules of government." We need to get political and change Congress so that WE THE PEOPLE can make the rules of money rather than leaving it all up to the one percenters.
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