Obama's Job Plan: A Never-Never Bill

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I was tenatively in favor of the jobs plan that Obama proposed last week.  But that's before I realized that he has no intention of trying to get it passed:


The White House said Monday that President Obama wants to pay for his $447 billion jobs bill by raising taxes on the wealthy and businesses. Jack Lew, director of the Office of Management and Budget (OMB), said the tax hikes would pay for Obama's entire bill, which the administration is sending to Congress Monday evening.

The chief provision announced by Lew would be to limit itemized deductions for individuals who make more than $200,000 a year and families that make more than $250,000, something the Obama administration has previously pushed to do through its budget proposals. Lew told reporters at the White House press briefing that this would raise about $400 billion.

The administration would tax the income investment fund managers make, known as "carried interest," as regular income instead of as capital gains, which has a low 15 percent tax rate. This is another longstanding administration goal that has been resisted by Wall Street as well as some Democrats.

The administration estimates the capital gains change would provide $18 billion in revenue.

The administration also wants to eliminate tax breaks for the oil-and-gas sector, which would raise $40 billion, the administration said.

Another $3 billion would come from changing the way corporate jets depreciate. With a few other revenue increases, Lew indicated the total measures proposed by the administration would bring in $467 billion, $20 billion more than the cost of the bill.
It's worth noting that a deduction phase-out is actually worse than a marginal tax hike.  Deduction phase-outs amplify other rate increases--depending on how they're structured, a deduction phase-out can actually mean that you make less money at $251,000 than $249,000.  

But more importantly, paying for the bill with tax hikes--any tax hikes--is going to substantially reduce the stimulus this bill provides.  Just as government spending boosts aggregate demand, tax hikes (yes, even on rich people), reduce aggregate demand.  Providing stimulus through payroll tax cuts that are financed with tax hikes on other people is like trying to boost your household income by making your wife pay you to mow the lawn.

Yes, yes, I know--why should you believe me, when we all know that libertarians sell their souls to Satan Corporations in a secret ceremony involving Charles Koch, The Wealth of Nations, and a silver chalice full of Olde English malt liquor?  Well, don't listen to me then--listen to that torrid old conservative shill, Christina Romer, former chair of Obama's Council of Economic Advisors:

This paper investigates the impact of changes in the level of taxation on economic activity. The paper uses the narrative record ñ presidential speeches, executive-branch documents, and Congressional reports ñ to identify the size, timing, and principal motivation for all major postwar tax policy actions. This narrative analysis allows us to separate revenue changes resulting from legislation from changes occurring for other reasons. It also allows us to further separate legislated changes into those taken for reasons related to prospective economic conditions, such as countercyclical actions and tax changes tied to changes in government spending, and those taken for more exogenous reasons, such as to reduce an inherited budget deficit or to promote long-run growth. We then examine the behavior of output following these more exogenous legislated changes. The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment. We also find that legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases.

Of course, you can still argue that the bill will provide some stimulus, because maybe the stimulative multiplier on payroll tax cuts for the middle class is higher than the contractionary multiplier of tax hikes on the affluent.  I might even agree with you.  But why would you want a stimulus that relies on the delta between two fairly similar multipliers, when you could get much more stimulus by borrowing the money this year, and paying it back later, when we're richer? No matter how you look at it, unless these tax cuts happen well into the future, structuring the bill this way means that it will be much less stimulative than it could be.


If the president were serious about providing stimulus, he would pay attention to the work of his old CEA chair, and pay for the jobs bill by decreasing the growth rate of something-or-other in the future by 0.2%.  This is also what he would do if he were serious about getting any part of it through Congress.  Instead he is apparently sending them a less-stimulative bill designed to be maximally embarrassing to the GOP--which by definition means minimally politically viable.  

You can say that Obama has no choice, because the GOP is just so damn obstructive that they won't pass anything anyway.  As it happens, I disagree--I don't think that he could have gotten the whole thing through, but the GOP would probably have given him a few pieces to avoid looking like total jerks, and while that might not have done too much for Obama's re-election chances, it probably would have meant a lot to the schmoes trying to make their mortgage payments in a tough economy.

But say it's true.  If it is, I really wish that Obama hadn't wasted my Thursday evening, and that of 31 million other Americans, listening to a jobs plan that was only designed to produce one job--a second term for Barack Obama.  I mean, I don't blame him, exactly.  But I get a little pang when I realize that I could just as well have spent that time bleaching the grout in the master bath. 

Update: I see from the comments that this was taken as primarily a complaint that Obama is raising taxes.  Depending on how it's structured, it's a little bit of a complaint that he's raising taxes--you don't, I think, get all that much stimulus by pairing a temporary tax cut on the middle class with an even bigger permanent tax hike on corporations and high earners, though others may disagree.

But it's mostly half annoyance and half genuine disappointment, because if this is true, I think it means that Obama has given up on even trying to pass it; this is just political theater.  Maybe you think he had no choice--I disagree, but I can see where others may differ.  But either way, you have to be way more invested in Obama's re-election than I am to take much interest in pure political theater.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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