How Obama Will Raise Taxes Without Raising Taxes

The chart to the right shows how, under current law, the CBO projects government revenue to look. So, by doing nothing, the Obama administration can raise taxes simply by letting existing tax provisions expire.

Is Obama Principled or Pandering?

President Obama told ABC's Diane Sawyer that "I'd rather be a really good one-term president than a mediocre two-term president." "You know, there is a tendency in Washington to believe our job description, of elected officials, is to get reelected. That's not our job description," Obama said. "Our job description is to solve problems and to help people."

If the only reason people think the job of a politician is to get reelection is cynicism, then Obama is making a strong, principled statement here. However, he is not a king. Obama is serving in a representative democracy, which means that Obama's job is to solve the problems that the voters want him to solve, not the ones that he, in his apparently lofty wisdom, decide need to be solved. Therefore, his job is to get reelected, because in a democracy that is ultimately how the people tell Obama whether he did his job or not.

Obama campaigned on a staggering multitude of issues, promises, and expectations, many of which were contradictory, and therefore went into office with a multitude of constituencies. He was expected to solve a lot of problems and help a lot of people, at no cost to anyone. During his time in office, he has inevitably let people down, and turned his back on many constituents. If Obama is being principled now, which constituencies' principles is he standing on, and which is he rejecting? On health care reform, he has chosen to pander to the political left, while simultaneously, and quite obviously, telling independents to take a hike because he intends to get it done before they can vote him out of office.

Think of it as a 'principled' way of flipping independents the bird.

Daily Read - 1/26/10

Obama is expected to propose a three-year freeze on discretionary federal spending. I hope he means it.

"Nearly three out of four Americans think that at least half of the money spent in the federal stimulus plan has been wasted, according to a new national poll," reported by CNN. Also, "4 percent think that no stimulus dollars have been wasted." Really? 4% of Americans think the government could spend hundreds of billions without wasting anything? Even Warren Buffett, an Obama supporter knows the stimulus bill was "8000 earmarks or something".

Apparently Obama believes in his own cult of personality. Politico reports comments made by retiring Rep. Marion Berry (D-Ark) that Obama thought Democrats could pass health care and not face political consequences because "Well, the big difference here and in ’94 was you’ve got me."

"More than 300 people and groups have sued the Obama administration fighting to get federal government records in the year since President Obama pledged his administration would be the most open in history" (Washington Post)

Reuters reports that New Jersey's Treasury Department "should be freed from union constraints that hobble its operations." "New Jersey's pension fund is the only one in the nation barred from hiring outside fund managers under a court settlement that unionized workers won."

Thomas Sowell says "If politicians can't do anything else right, they can count votes." (RCP)

David Brooks says "Ever since I started covering politics, the Democratic ruling class has been driven by one fantasy: that voters will get so furious at people with M.B.A.’s that they will hand power to people with Ph.D.’s. The Republican ruling class has been driven by the fantasy that voters will get so furious at people with Ph.D.’s that they will hand power to people with M.B.A.’s. Members of the ruling class love populism because they think it will help their section of the elite gain power." Then he argues that the US was founded by "anti-populists" who "rejected the zero-sum mentality that is at the heart of populism, the belief that economics is a struggle over finite spoils." (NY Times)

Richard Thaler, writing in the New York Times, wonders why so many Americans who owe more than their home is worth "are dutifully continuing to pay their mortgages, despite substantial financial incentives for walking away from them." Despite using the word "duty" in this sentence, he goes on about why the default rate isn't higher.

Obama's plan to let employees automatically enroll in direct-deposit retirement accounts and expand matching tax credits may meet resistance from small businesses. Many small businesses are struggling in this economy, and this program would create a new cost and administrative burden for them. Also, “I don’t know that there’s been enough thought to how certain small businesses, restaurants in particular, would comply with this if they don’t use a payroll company or participate in direct deposits,” said Molly Brogan, vice president of public affairs for the National Small Business Association. (Bloomberg)

However, Apple continues to make tons of money, demonstrating that some people can still afford really expensive products, even in this recession.

Daily Read - 1/25/10

The New Orleans Saints are on their way to the Super Bowl. Good news for a town that could use a morale boost.

A 7-year-old boy from London has raised more than $161,000 for Haiti relief! Charlie Simpson "had hoped to raise just £500 for UNICEF's earthquake appeal by cycling eight kilometers (five miles) around a local park." (CNN, here)

Barney Frank is considering "abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," according to a Boston Globe article. Under any new system "any entities receiving government backing would need to be more heavily regulated to limit risk, with greater product restrictions on mortgage-backed securities and higher capital than what Fannie and Freddie had," says David Min, an associate director for the Center for American Progress. Would the new system include provisions to prevent Barney Frank and other politicians from pressuring lenders to lower standards so they can campaign for re-election on the platform of increasing homeownership? Would the new system provide stiffer penalties for people who fail to pay their mortgage, or would it just penalize taxpayers and/or Wall Street?

The government is in a precarious position. The removal of more than $1 trillion of support for the mortgage market is "a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble." (Washington Post, here)

James Carville argues in the Financial Times that Democrats haven't blamed Bush enough. Instead of trying to "march forward in a new post-partisan environment", Carville suggests Obama should carry on with a far-left agenda because "Nothing can change Washington." I guess he thinks hope and change are dead.

Here's an interesting chart (right) from the USA Today's article on how government spending cannot be significantly changed without doing something about entitlement programs.

Meanwhile, Obama intends to use his State of the Union address this Wednesday to announce that middle-class Americans are entitled to twice as much of a tax break for having children, forgiveness for portions of their student loans, and a taxpayer-subsidized employer-based retirement plan (Washington Post, here)

James Sherk of the Heritage Foundation is on the WSJ's opinion page today says "typical union member now works in the Post Office, not on the assembly line," and discusses some possible implications.

What I'm Reading - 1/24/10

"Friday night's star-studded "Hope for Haiti" telethon has raised a record-breaking $58 million, with more donations continuing to pour in from around the world, the benefit's organizers announced Saturday. The preliminary figure is a record for donations made by the public through a disaster relief telethon, according to a news release from telethon organizers." (CNN, here)

Another great post from the "Good Intentions are Not Enough" blog, on how the internet makes it easy to set up a sham organization to "raise money" for Haiti.

George Will on the "silver lining" of the Massachusetts election: "a mandate to be moderate." (here)

After 411 speeches, "the president has decided that he needs to start “speaking directly to the American people.”" National Review's Mark Steyn on how nobody is looking forward to Obama speech #412, here.

The Economist on how government is getting too big. "America now has a quarter of a million people devising and implementing federal rules."

The WSJ on Coburn's amendment asking Congress to cut spending instead of raising the debt limit here. I also recently highlighted the amendment.

Interesting post on the Cato Institute's blog says "42 senators in 2008 voted to spend more tax dollars than socialist Bernie Sanders", and that Obama was "one of the 11 senators who voted for more spending than the socialist senator" in 2007.

Keith Hennessy has an excellent post on the difficulties of dividing health insurance reform into smaller bills.

Goldman Sachs Campaigns for Obama!

From the Washington Examiner (here):

For his presidential campaign in which Wall Street regulation was a mantra, Obama's top source of funds was investment bank giant Goldman Sachs, whose employees, partners, and executives gave him $995,000 -- that's the most any politician has raised from any one company in a single election since the age of "soft money" ended.

Daily Read - 1/22/10

Krauthammer on the Massachusetts election (here) "The reason both wings of American liberalism -- congressional and mainstream media -- were so surprised at the force of anti-Democratic sentiment is that they'd spent Obama's first year either ignoring or disdaining the clear early signs of resistance: the tea-party movement of the spring and the town-hall meetings of the summer. With characteristic condescension, they contemptuously dismissed the protests as the mere excrescences of a redneck, retrograde, probably racist rabble."

WSJ's Peggy Noonan on political shifts: "In the 2006 and 2008 elections...you came to see the two major parties as the Nuts versus the Creeps. The Nuts were for high spending and taxing and the expansion of government no matter what. The Creeps were hypocrites who talked one thing and did another, who went along on the spending spree while lecturing on fiscal solvency." Voters thought Obama was not a nut based on his campaigning, but then realized he really was one...then Republican candidates in Virginia, New Jersey and Massachusetts "played the part of the Creep very badly!"

The U.S. continues subsidizing bad loans through Fannie Mae and Freddie Mac, but refuse to recognize "tens of billions of dollars" of losses as part of the federal deficit. (WSJ, here) Meanwhile, the President is off vilifying Wall Street.

While bank lending is constrained due to the government's delays in working on new regulations, "More than 40 U.S. homebuilders have teamed up with private equity firms to acquire and complete unfinished subdivisions as banks cut construction lending." "Banks slashed lending to homebuilders because regulators pressured them to reduce real estate assets as defaults on construction loans climbed, said Robert Seiwert, vice president of the American Bankers Association." (Bloomberg, here)

Equity manager Judah Kraushaar in the WSJ on the need for Congress to focus on financial reform, not squeeze it between their other priorities:

What we need now is clarity. What will future capital requirements look like? What is the plan to return the banks to reasonable rates of profitability? Until that architecture is put in place, banks will have little incentive to sell the problem assets currently clogging their balance sheets—let alone to lend more aggressively.

Protracted congressional hearings on the bank crisis, piecemeal new regulations, sporadic attacks on bank compensation, and an ad hoc approach to taxing banks will only compound the crisis in the American financial service industry.

Obama slams the Supreme Court decision to allow more political contributions from corporations, 1 1/2 years after breaking a pledge to seek public financing and became "the first major-party presidential nominee to reject the public funds, passing up nearly $85 million in taxpayer money and instead looking to the 1.5 million donors who contributed to his primary campaign". Any way the wind blows...

UFC heavyweight champion Brock Lesnar slams Canadian health care (here). Lesnar recently recovered from a severe digestive disease and said:

Probably the lowest moment was getting care from Canada."
"They couldn't do nothing for me," he noted in a later media conference call Wednesday. "It was like I was in a Third World country."

Common Sense from Senator Coburn

Senator Tom Coburn, M.D. has an editorial in the Washington Examiner today stating the Massachusetts election was "not a referendum on President Obama, health care, or any single issue per se, but on the size and scope of government." The Senate is going to vote soon to raise the limit on U.S. debt by $1.9 Trillion. He is offering an amendment to the bill "to give my colleagues a chance to change their behavior by forcing the Senate to choose between raising the debt limit and cutting spending. The logic of the choice is simple: Millions of families in America have to make hard choices. So should Congress." What a contrast to others who say Americans are hurting in this recession, so the government should pull out all the stops, spend more, and worry about it later.

Coburn wants to eliminate duplicate government programs: The government has "105 federal programs to encourage students to enter the fields of math and science. Thirteen different federal agencies spend more $3 billion each year to fund these programs...why not have one outstanding program instead of 105 overlapping and mediocre programs?"

Some Senators are proposing a commission to investigate how to reduce the federal debt, but Coburn says "we already have a commission to set budget priorities. It’s called the United States Congress. If Congress lacks the political will to set priorities, we don’t need a new commission, we need a new Congress." (emphasis mine) In Coburn's eyes, creating a commission is just another way to duck responsibility.

I wish Coburn luck with his amendment, but I suspect Congress wants to keep all the duplicate programs. There is more to take credit for that way.

Daily Read - 1/21/10

Saundra Schimmelpfennig's "Good Intentions are Not Enough" blog has a very good post on The DOs and DON'Ts of Disaster Donations, including:

• Do look for organizations with prior experience and expertise, and
• Do consider holding off some of your donations until later in the rebuilding process

"One of two piers at the port serving the Haitian capital has reopened, and a gravel road was laid off of it, clearing a major route for aid to come into the city, officials said. A Dutch Navy ship, the Pelikaan, unloaded 90 tons of humanitarian aid Thursday morning. Two other ships previously offloaded containers for trucks to carry supplies into Port-au-Prince" (CNN article)

"In a country whose government has all but stopped functioning, in a city whose crowded shanties remain largely unreached by aid cargoes, it has fallen to communities on the ground to fill the gap as best they can. Religious missions, with their deep community connections, are proving to be particularly critical conduits of help, both spiritual and material." (WSJ article)

This Daniel Indiviglio article at The Atlantic discusses "Glaxo-SmithKline's recent decision to put thousands of chemical compounds which may cure malaria into the public domain." An interesting discussion of the balance between responsibility to shareholders and responsibility "for the greater good"

This NY Times article from Sunday talks about "Baumol’s cost disease," which refers to businesses that don't benefit from increased efficiency and therefore labor costs continually rise - such as "the performing arts...education, police work and garbage collection." "Cost disease helps explain why low-income Americans can now afford flat-screen televisions that were out of reach a decade ago, but health insurance that was unaffordable in January 2000 remains unaffordable in January 2010."

"A divided Supreme Court on Thursday swept away decades of legislative efforts to restrict the role of corporations in election campaigns, ruling that severe restrictions on corporate spending are inconsistent with the First Amendment's protection of political speech." (Washington Post) Wonderful - more power for businesses to "vote themselves largesse from the publc treasury"

In this Washington Post article, President Obama said "We were so busy just getting stuff done and dealing with the immediate crises that were in front of us that I think we lost some of that sense of speaking directly to the American people about what their core values are and why we have to make sure those institutions are matching up with those values." Nice spin. 2009 was spent not reforming the financial system, not creating jobs, not reforming health care, not inproving education, and not changing the energy sector. 2009 was not about "getting stuff done" -- it was about sticking to an agenda and finding out that even a supermajority of Democrats in Congress couldn't pass it. Rahm Emanuel didn't want the crisis to "go to waste". To date, not only have they failed in exploiting the crisis for their agenda, but they have also increased the overall uncertainty that is preventing businesses from investing and growing the economy. Obama plans to rectify all of this by telling everyone how angry he is at Wall Street.

Evan Newmark's "Mean Street" blog in the WSJ says "Apparently, this is now how we treat success in America. We damn it — and then we punish it by enacting loopy, politically — expedient measures such as caps on Wall Street trading and principal investments...We need people to come together, but we engage in populist divisiveness. We need millions of jobs, but we kill the incentives and destroy the capital that will create them."

From George Will's column in today's Washington Post:

"We are on the precipice of an achievement that's eluded Congresses and presidents for generations."
-- President Barack Obama, Dec. 15, on health-care legislation
Precipice, 1. a headlong fall or descent, esp. to a great depth.
-- Oxford English Dictionary

"Some are More Equal Than Others" Read responses to the WSJ's article on union member's special exemption from the proposed 40% tax on "Cadillac" health care plans.

Daily Read - 1/20/10

A 6.1 aftershock hits Haiti. "The U.S. Navy ship Comfort is to arrive midmorning Wednesday in the flattened capital. U.S. helicopters will ferry patients aboard, bringing relief to overloaded hospitals and clinics."

Yesterday's election in Massachusetts shows again that Americans prefer divided government over one-party rule:
'It is to me a new and consolatory proof that wherever the people are well-informed they can be trusted with their own government; that whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."
—Thomas Jefferson to Richard Price, January 8, 1789. (quoted here)

Jay Cost at RCP's HorseRaceBlog ponders Obama's next move. He doesn't "know what Obama will do next. His political biography is so slender that none of us really do...Obama is a mystery, though he has written two autobiographies about himself."

A Washington Post article about FHA "plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit". It's about time. Ironically, if a private bank that received TARP funds tightened credit like this, Obama would be calling for their heads.

Meanwhile, the government can't get around to letting banks know how much capital they are required to hold: "The U.S. Treasury Department has missed the first deadline in its work to draft tougher capital standards" (Reuters, here) Until the government figures this out, banks will keep holding extra cash, and lending less. Of course, Obama will call for their heads.

The Wall Street Journal's Holman Jenkins on more Washington duplicity (here):

"Crediting themselves with mending the crisis, President Obama and Treasury Secretary Tim Geithner ruled that banks were on a solid footing because private investors would provide fresh capital and banks would be free to book profits and earn their way out of trouble.

That was then. Today it's politically convenient to bash banks for the very same profits, and to punish the very same investors with a new Obama bank tax. First, the government coaxes banks into buying back the government's TARP stake (and therefore government's share of future earnings). Then it turns around and helps itself to a chunk of those earnings anyway.

Say it isn't so - "President Barack Obama's top goal as he enters a second year in office is to lift U.S. job creation and revitalize the economy, the White House said on Tuesday" (Reuters, here). Can't you just stay out of the way?

NBC is going to pay Conan O'Brien $40 million to go away. Isn't that taxpayer money going to pay for a mistake made by fat cat CEOs? GE owns NBC, and GE received government bailout money. Where's the compensation czar when you need him?

Megan McArdle at the Atlantic on the cost of health care reform: "anything Obama does to "pay" for this program is something that cannot be done to "pay" for our growing Medicare problem. Slashing provider reimbursements, Medicare advantage, etc, if it is done, is something that should be done in order to close the projected 3.4% budget gap in 2019. Once we've used them for new entitlements, we are less able to pay for the entitlements we've already got." This was posted in September, but worth thinking about today.

The Intergovernmental Panel on Climate Change (IPCC) says to ignore their "poorly substantiated" prediction that Himalayan glaciers would melt by 2035, but "don't think it takes anything away from the overwhelming scientific evidence of what's happening with the climate of this earth."