Obama Surrenders on Jobs

We will see what the president has to say in Cleveland on Wednesday--according to the Washington Post, he will pitch the R&D tax credit but no payroll-tax holiday: all told, a non-proposal, stimulus-wise. His speech on Monday already said, in effect, that he is giving up the effort to pass another stimulus. The Labor Day address called for $50bn of new spending on infrastructure, but over six years, and the plan "will be fully paid for", presumably meaning no increase in the budget deficit. It is a non-starter in any case, of course. But the messaging was revealing. The word "stimulus" was never mentioned.

This is a great mistake, as I argued here. The economy needs another stimulus, and can afford it. But Obama has decided that politics rules it out. He is in campaign mode, praising unions and beating up Republicans, evidently calculating that getting out the base is what matters. Meanwhile, economic policy is on hold.

Is there an alternative? I believe so, and made the case for it in the article I just linked to. A stimulus based on temporary tax cuts--extend all the Bush changes for two more years, and combine it with generous payroll-tax relief--would be difficult for the Republicans to block. Including an extension of the Bush tax cuts for high-income households alongside those for the middle-class might make the package less cost-effective in fiscal terms, though this is not clear. What is clear is that extending all the cuts would deny the Republicans their favorite excuse for saying no: "It's a tax increase."

Politically, the downside for the Democrats is obvious: failing to raise taxes on households making more than $250,000 would be seen by the Democratic base--which Obama is now trying to energize--as a victory for Republicans and another sell-out by the administration. For many of these Democratic voters, raising taxes on the rich is not mainly a way to raise revenue, it is an end in itself; and for a few I sometimes think it may be the most important goal of policy, bar none, regardless of the consequences. My guess is, if Democrats could only suspend their zeal to punish high-income households, they could put Republicans on the spot and get a second stimulus through. But they can't. It's the principle of the thing.

Read Peter Orszag in the New York Times. He is making a similar argument.

In the face of the dueling deficits [short-term and long-term], the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.

Great column, and I agree with every word.



Presented by

Why Is Google Making Human Skin?

Hidden away on Google’s campus, doctors at a world-class life sciences lab are trying to change the way people think about their health.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Videos

Why Is Google Making Human Skin?

Hidden away on Google’s campus, doctors are changing the way people think about health.

Video

How to Build a Tornado

A Canadian inventor believes his tornado machine could solve the world's energy crisis.

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In