Wednesday, April 13, 2011

The second problem with Obama's deficit plan

Obama's plan's second failing is worse: the annual deficit, to the extent that it is an issue in the short-term, is created by the Bush tax cuts, and could be essentially eliminated for a decade by rolling back those cuts. Yes, all of them, even the ones on the "middle class" (meaning people making up to a paltry 250k a year (it's true that this might plunge us into the dark days of economic despair that were the late 90s)).

Despite this being the single most obvious, simplest, most coherent solution, absolutely no one is willing to propose it, because our political class is absolutely terrified of the word "tax." Obama himself pledged to not raise taxes people making less than 250k a year. We're left trying to solve a problem while being unwilling to even mention its cause. The result: a maddening array of deficit plans, all of which carefully dance around the core issue by forcing American to limbo under lower government revenues.

After all, we wouldn't want most Americans to think that the President was raising their taxes!

Okay, if you didn't already, click on that last link. Really, do it. Because it really highlights the stupidity of the White House's (and, in fairness, everyone else's) view of the situation. Fact is, most people have no idea whether their taxes are going up or down.

Maybe Americans are just that thick. More likely, though, the economic pressures on any given voter are going to be complex and therefore hard for that voter to fully parse. People of course know if their overall economic circumstances are improving or worsening, at least superficially. They just ask themselves, "Am I more or less worried about making ends meet than I was last year?" But unless they're keeping thorough personal records and a close eye on macroeconomic indicators, it's much, much harder for these same people to determine the source of their relative comfort or discomfort. If inflation is rising, wages are stagnating, and taxes are falling, the effect of each trend becomes almost impossibly difficult to disentangle from each other.

As a proxy, people use broad social and political cues to decide what's happening. If a Democrat is president, taxes are probably going up. If a Republican is president, taxes must be going down.

The important thing to remember is that these cues are insulated from actual policy, actual economic outcomes, actual voter happiness, and therefore actual political outcomes.

The lesson to be learned: if you're a Democrat, everyone already thinks you're raising taxes, or at the least, not cutting them. So it stands to reason that if you think raising taxes will lead to better economic results, you may as well just go ahead and do it. The marginal political benefit of an awesome economy far outweighs the marginal political detriment of having a small percentage of high-information voters (most of whom have already made their minds up anyway) realize you raised their taxes.

And, hey, whaddya know, the Bush cuts are set to expire automatically! All Obama would have to do is threaten to veto any extension, and he'd have somehow happened upon a more credible and enforceable deficit solution than anything he or Ryan have dreamed up so far.

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