If the economic part of President Obama’s State of Union address last night were a song, it would have gone something like this:
“Now that we found love growth what are we gonna do with it?”
For the first time in six of these marathon outings, the president’s economic message was not: “yes, the economy’s weak but it’s getting stronger” or “we’re on the right path but we’re not out of the woods.”
Tonight he forcefully turned the page on that framing and spoke of “a breakthrough year for America, [as] our economy is growing and creating jobs at the fastest pace since 1999. Our unemployment rate is now lower than it was before the financial crisis. More of our kids are graduating than ever before; more of our people are insured than ever before; we are as free from the grip of foreign oil as we’ve been in almost 30 years.”
As he quipped impromptu: “This is good news, people!”
Fact is, the recovery, while incomplete—despite what the unemployment rate tells you, we’re not yet at full employment—is solidly underway, and growth-wise we’re killin’ it relative to most other advanced economies. (FWIW, the IMF thinks we’ll grow 3.6 percent this year compared to Europe’s 1.2 percent.)
What I heard President Obama say, in so many words, was now that we’ve got this growth in place, we need to start talking about the policy agenda that will give those on the wrong side of the inequality divide a chance to benefit from that growth. And he offered an extensive set of ideas in that spirit (more of specifics in a moment).
A cynic could dismiss all of that as meaningless noise in a gridlocked Congress. But that would be wrong.
True, few of the measures the president introduced tonight will be legislated by this Congress, but over the past year or so, with a crescendo in recent weeks, partisans on both sides of the aisle have elevated the need to address the problems of inequality, poverty, and immobility to the highest level of politics.
Potential Republican presidential candidates Jeb Bush, Marco Rubio, and Paul Ryan have all underscored this same point. It was particularly notable, if not cognitively dissonant, to hear Mitt Romney, viewed by many as the poster child for the top 1 percent, holding forth just last week on the urgent need for policies to improve the distribution of income and opportunity.
Meanwhile, the president’s agenda arrives alongside with two other new, sweeping policy initiatives from progressive sources. Rep. Chris Van Hollen (D-Md.), and a Center for American Progress “Inclusive Prosperity Report” (a report that some say has Hillary Clinton written all over it) have also offered progressive tax plans paid for by raising revenues from those at the top of wealth scale (the plans also offer important inequality-reducing ideas outside the tax system, including higher minimum wages, increased overtime coverage, more union power, and in the CAP plan, more balanced trade).
All three progressive plans then use the new revenues to help the middle class and the poor, through paycheck-boosting tax credits, help paying for child care (which the president labeled a “national economic priority”), better educational opportunities (early childhood ed, free community college, tax breaks for college tuition), incentives to boost savings, paid sick leave, infrastructure investment, and more.
To finance these measures, Obama and CAP go after an indefensible loophole that allows wealthy heirs to inherit billions tax free, and the president sets a fee on highly leveraged banks with assets over $50 billion (in financial busts, such leveraging amplifies the damage). President Obama also raises the tax rate on capital gains from 24 percent to 28 percent, the latter being the rate that prevailed under President Reagan.
Van Hollen finances his plan through a 0.1 percent tax on financial transactions—trading stocks, bonds, and derivatives—ideally coordinated with European financial exchanges to diminish capital flight, and the closure of other loopholes that disproportionately benefit those at the top, including tax expenditures like the mortgage interest deduction or the favorable tax treatment of unearned income. His plan would also stop corporations from deducting bonuses above $1 million if they’re cutting the jobs and pay of their workforce.
The contrast between these ideas, both on the taxing and spending side, and Republican ideas in this space set up a fascinating confrontation in this intersection of politics and inequality policy that I predict will reverberate for many months to come.
At least since Reagan, the Republican recipe for broadly shared prosperity has been macroeconomic growth, full stop. Their argument was and is: if we can lower taxes on the wealthy and cut regulation, growth will accelerate and lift not just the yachts but the rowboats as well. For literally decades, the “trickle-down” approach has appeared in various incarnations. It was the Romney/Ryan plan in 2012; last we heard, it was Jeb Bush’s as well. (To be clear, as Dean Baker has stressed, regulations that support the wealthy get a pass.)
Conversely, the Obama-Van Hollen-CAP plans all share a similar core that explicitly rejects trickle-down: growth is of course necessary, but it is not sufficient to lift the middle class and the poor. Whether you love these ideas or hate them, given that high inequality implies growth alone won’t sufficiently reach the have-nots, it then becomes awfully easy to understand the connection between closing a loophole that lets the wealthy bequeath billions tax-free to their heirs and using that revenue for child care or college tuition for the middle class.
For that reason, it may well be the case that once this inequality debate heats up on the way to the 2016 election, such ideas become the price of admission. They are not, of course, the only tickets to the debate, and I expect and welcome new poverty-and-inequality-reducing ideas from the heretofore tricklers.
If Romney does run again, it would surely seem extremely unresponsive to reality to run on the same platform. And Rubio as well as Ryan have made positive noises about increasing some version of the Earned Income Tax Credit for adults without kids, who currently benefit very little from this pro-work subsidy for low-income workers. Rubio has signed onto an extension of the child tax credit (though Chuck Marr warns it may actually hurt low earners relative to current policy).
But while it took them far too long to get there, Democrats led by their president are finally crafting the policy architecture to reconnect growth and broadly shared prosperity. Let’s see what the other side comes up with. If it’s just more trickle-down, at least when it comes to this issue of inequality, they may well find a deeply unreceptive electorate.