The paucity of hope - and other victims of Obama's tax-cut deal
Changelessness we can't believe in. Not much of a slogan, I admit, but a pretty fair statement of where we're at after the president's tax deal with congressional Republicans.
It's not that the deal doesn't have some good features. Extending unemployment insurance, cutting payroll taxes, and preserving tax credits for college tuition and low-paying jobs are all imperative, even if some provisions, such as continuing to provide unemployment insurance amid the deepest and most intractable recession since the '30s, shouldn't be in question in any nation with a claim to moral leadership (or even moral adequacy).
Yet it is anything but clear just how much oomph these measures, not to mention the across-the-board tax cuts, will lend our faltering recovery. Holding income tax rates at their current level would merely perpetuate the economic status quo. The extension of unemployment insurance is the deal's most effective provision for maintaining the amount of money in circulation - but it does nothing to raise that level. Like most of the provisions that came from the White House, its effect is more humanitarian and anti-contractionary than stimulative. That doesn't make those provisions less necessary - far from it - but neither are they a panacea for the nation's economic ills.
But the price the Republicans extracted in return for staying their assault on common decency was uncommonly steep: Directing public funds to enriching the rich, despite the evidence that this will do nothing for the economy. With an assist from outgoing Democratic Sen. Blanche Lincoln, who thoughtfully tends to the interests of Sam Walton's heirs, they propose a huge cut in the estate tax. Income tax levels on the wealthiest 2 percent of Americans will not be restored to the higher levels enacted at the start of the Clinton presidency (during which 22 million net new jobs were created) but kept at the levels to which they were reduced at the beginning of George W. Bush's presidency (during which just 7 million net new jobs were created until the downturn, which wiped them out).
The top tax rate on capital gains will remain at 15 percent - meaning, income derived from investment will continue to be taxed at a lower level than most income from wages. But money invested in American companies these days is as likely to be spent abroad as in the United States. By 2008, 48 percent of the revenue of the Standard & Poor's leading 500 companies came from abroad - up from 32 percent in 2001, according to Business Week. For many (nominally) American companies, production is even more offshored than sales. If you invest in Apple, you're investing in a company that employs roughly 25,000 people in the United States, even as 250,000 employees of Foxconn, China's leading manufacturer, make Apple's products in Shenzhen province.
The other tax breaks for capital over labor make equally little sense. Business will be allowed to expense all of its investment in plants and equipment - which would be a fine idea if American corporations weren't already sitting on more than $1.5 trillion in cash. They're not hurting for funds. They're hurting for domestic customers - small businesses in particular. Our big businesses may decide to expense new facilities in China and India - an interesting way to lessen their U.S. tax bills.
Proposals that would have created jobs in America seem to have fallen by the wayside in the new tax deal. The Build America Bonds program, which enabled local governments to construct schools and roads for lower costs, is not part of the package, nor is Sen. Mark Warner's proposal to swap out the tax cut for the rich in favor of a job-creation tax credit. Even viewing this deal as the closest thing to a stimulus package that can emerge from a Congress in which Republicans routinely thwart spending on all but the rich, it still falls far short of the 2009 stimulus - which saved millions of jobs but was nonetheless too small to really restart the economy.
The best we can say of the deal is that it largely perpetuates, and only occasionally worsens, the status quo - in particular, the three-decade status quo in which the rich get richer at ordinary Americans' expense. Obama vowed during his news conference Tuesday to take on that status quo over the next two years, but his inability thus far to frame that debate - even though most Americans share his opposition to extending tax cuts for the rich - is maddening.
Stasis you can grieve over. Good grief.