Noam Scheiber has an excerpt of his new book on Obama’s economic policy in The New Republic. It focuses on 2011 and the series of bruising negotiations with Republicans over the deficit. And it includes the now-familiar internal White House struggles between deficit reduction and economic stimulus, with deficit reduction winning out through 2010 and most of 2011 until that old-time populism returned to the fore. (Scheiber wrongly adds that “The decision to focus on the deficit in 2011 was defensible at the time” because the economy didn’t break down until later – even the most cursory look at the available economic evidence in 2010 and 2011 shows that the economy badly needed help and not austerity.)
Scheiber reports that Treasury Department officials were the ones desperate to increase the debt limit as part of the Bush tax cut bill at the end of 2010. The White House was largely uninterested, taking an initial Republican “No” for an answer and declining to use the leverage of the imminent expiration of the tax cuts. It would all work out later, the White House figured. In fact, they were counting on it because they wanted a big deficit deal as much as Republicans, they thought, and they could leverage the debt limit debate into their original plan. We know how it turned out.
Scheiber concludes that the President has turned back from the attempts at compromise with Republicans, now set on a different course:
FOR TWO AND A HALF YEARS, Obama had been hatching proposals with an eye toward winning over the opposition. In most cases, all it had gotten him was more extreme demands from Republicans and not even a pretense of bipartisan support. Now, after the searing experience of the deficit deal, he still wanted reasonable, centrist policies. But he was done trying to fit them to the ever-shifting conservative zeitgeist. When he finally turned back to jobs in August, he told his aides not to “self-edit” proposals to improve their chances of passing the Republican House. “He pushed us to make sure this was not simply a predesigned legislative compromise,” one recalls.
Scheiber wonders if this was another last-minute course correction, a response to a reality getting away from the Administration, or evidence of a real shift. [cont’d.]
The first test of this will come Monday with the President’s new budget proposal. The New York Times frames it as a choice made to favor new taxes over deficits, seemingly unaware that new taxes close deficits.
President Obama will lay out a budget blueprint on Monday that amounts to an election-year bet that a plan for higher taxes on the rich and more spending on popular programs like infrastructure and manufacturing will trump concerns over the deficit.
The new budget proposal contrasts with the deficit-cutting promises that attended the budget rollout last year and the debates that followed. Figures released on Friday indicate that the White House foresees a slightly higher deficit in the current fiscal year than the $1.3 trillion deficit of the 2011 fiscal year, even after the budget battles that dominated Washington last year.
The deficit is projected to fall to $901 billion in the fiscal year that starts in October, the first time since 2008 that the red ink would be below the $1 trillion mark. But last year, the White House had projected the 2013 deficit dropping further, to $768 billion.
The increase in the deficit for FY2012 assumes the extension of the payroll tax cut, unemployment insurance and the doc fix. But this budget has little to do with the outlays for FY2012; that’s come and gone. The keys to this proposal are $350 billion in jobs programs, basically the un-passed remnants of the American Jobs Act, and some additional investments in manufacturing R&D. Those aren’t going to happen given the Republican House. So the budget deficit for FY2013 is bound to be smaller than the $901 billion forecast in this document. In fact, this budget, like most Presidential budgets, will be proclaimed DOA the moment it drops tomorrow.
The budget proposal still has $3 trillion in deficit reduction over the 10-year window (on top of the $1 trillion already in place from spending caps in the debt limit deal), but half of that comes in the form of new taxes. A “financial crisis responsibility fee” creeps back into the equation, at a 10-year cost of $61 billion, along with the expiration of the Bush taxes cuts over $250,000 in income, and the imposition of the “Buffett rule,” which would replace the alternative minimum tax and ensure that millionaires pay at least a 30% effective rate.
And there are spending cuts in the document – $638 billion all told, including modest trims to Medicare and Medicaid, as well as agriculture subsidies.
And finally, as an add-on outside the document, by the end of the month the President will call for a lower corporate tax rate and fewer loopholes:
President Barack Obama will call for cutting the top 35 percent corporate tax rate as early as this month, according to two sources close to the administration.
The president is likely to propose a rate closer to an average of that seen in peer nations, the sources said.
This would jibe with remarks made last year by Treasury Secretary Timothy Geithner, who suggested the United States should be moving to a rate more in line with its major trading partners in the high 20-percent range.
The effective corporate tax rate in this country stood at 12% in the most recent statistics.
So can we conclude that this fits with the recent shift? Maybe in terms of emphasis. The jobs programs and higher taxes on the wealthy are at the top of the priority list. But all of the elements that the Administration has sought from the beginning of their term – a total of $4 trillion in deficit reduction, the “lower the rate, broaden the base” perspective on corporate taxes, an extension of the Bush tax cuts for 98% of the population, still remain in this document. We’re really talking about tone.