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Right Turn
Posted at 12:30 PM ET, 07/29/2012

Obama’s one note: Tax the rich

Consider how President Obama responds to news of our worsening economy. The Wall Street Journal reports:

[T]he unwillingness of consumers and businesses to spend despite super-low interest rates has economists worried. The personal saving rate — saving as a percentage of disposable personal income — rose to 4% in the second quarter from 3.6% in the first, showing Americans were saving instead of spending, even though gas prices were falling.
Businesses, meanwhile, appear to have grown more cautious about spending. The new GDP report showed that nonresidential fixed investment expanded 5.3% in the second quarter, less than the 7.5% in the first, though spending on equipment and software was healthy. Joseph Carson, an economist at Alliance Bernstein, said: “Uncertainty surrounding U.S. tax laws has created confusion and concern among companies, which has probably depressed investment spending.”

What does Obama do when presented with a GDP figure of 1.5 percent, a downgrade of its 2012 growth projection (from 2.7 percent to 2.3 percent, which most economists now find unrealistic)?

He hides from the media on Friday. In Saturday’s radio address, he goes back to pushing his idea that the George W. Bush tax cuts should end for upper-income taxpayers, which would include many small businesses. Is there any wonder that “uncertainty surrounding U.S. tax laws has created confusion and concern among companies, which has probably depressed investment spending”?

Obama’s left-leaning supporters would like us to believe that Friday’s news is just more of the same. If only. In fact, things are getting worse, not better. (“The economic outlook for the rest of the year is darkening. Economists at Wells Fargo Securities, for example, now expect an even weaker pace of 1.2% in the third quarter. Among the new headwinds: the rise of the dollar, which makes it harder for U.S. exporters to sell their goods abroad and could further hit corporate profits. Businesses have also been stockpiling inventory for months amid weak demand, a sign of sluggish growth to come”).

But all the president can come up with is a string of personal attacks on Mitt Romney and shopworn class warfare. He falsely asserted in his weekly radio address that Republicans want only to preserve tax cuts for the rich. But in fact the Republicans want to, in the short run, prevent anyone’s taxes from going up and then get to tax reform. It is Obama insisting taxes go up for upper-income taxpayers and small businesses that pay according to the individual rates. He wants to show he’s beating up on the rich more than he wants to show he’ll do whatever it takes to keep another recession at bay.

Obama argued against tax hikes in December 2010, when he genuinely figured that it was needed to boost the economy. And frankly any self-respecting Keynesian should be screaming for no tax hikes. Economist Veronique de Rugy writes:

So I wonder, given the weak economy, where are the outraged Keynesians complaining about the unsoundness of raising taxes in this situation? I know there are plenty of them asking for more spending.

Indeed, from a Keynesian perspective there’s no real difference between tax cuts and spending hikes. Obama recognized as much when he hawked the extension of the Bush tax cuts less than two years, when the growth rate was more than double what it is now.

Truth be told, the tax-the-rich crowd isn’t operating from economic principle. This is politics, and politics of a certain type.

Obama and his Chicago political gurus believe they can micro-target their way to victory, zeroing in on specific constituencies in particular states to squeak by. Play to single women ( Life of Julia ), Hispanics (unilateral immigration law!) and ideological interest groups (nix the Keystone XL pipeline). So economic common sense (build a pipeline, don’t hike taxes) gets thrown overboard to cultivate slivers of slivers of the electorate that Obama thinks can be chased to the polls on Election Day by class envy, the promise of an ever-expanding welfare state (no more work rules for welfare!), and fear of Romney.

Hey, it might work. But lefties should hold the sanctimony. This is simply Karl Rove’s grow-the-base on steroids (or, more precisely, social media).

But I suspect the entire endeavor is flawed. The tactic assumes that there is a majority in key states that doesn’t care that the economy is going down the tubes or can still be bamboozled into thinking it isn’t Obama’s fault we have had the worst “recovery” in modern times. Polls don’t show that to be the case anymore.

It also has bet heavily on the idea that Romney can be so demonized that anything Obama could do ( like keep trying the same failed economic approach year after year) is not as bad as the Romney bogeyman.

This was Jimmy Carter’s gambit, too. But when Ronald Reagan got the most intense look-over by voters at the convention and in the debates he wasn’t scary or mean or extreme. He seemed genial and talked about freedom and restoring prosperity.

By overplaying its hand so absurdly in July, the Obama team risks setting the bar for Romney this fall very low. We’ll see if he can hop over it.

By  |  12:30 PM ET, 07/29/2012

Categories:  2012 campaign, Economy

 
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