Unless there is something really good on cable, Daily Austerity Watch will be grabbing a tub of non-fat popcorn and watching today’s speech by President Barack Obama detailing his plans to tackle the deficit. It may be as entertaining as the remake of “Arthur” playing in the nation’s multiplexes.
Though Presidential Press Secretary Jay Carney repeatedly told reporters yesterday he would not “preview” Obama’s speech, the Administration did just that on a not-for-attribution basis. The Obama plan, it seems, will seek what MSNBC called a “balanced approach” by reducing spending on defense, and health care along with overhauling the tax code. Medicare and Medicaid will be “strengthened” though it remains unclear what that means.
Obama will need to give the speech of his presidency. Voters care a hell of a lot more about jobs than the deficit. That has been shown in poll after poll for months. However, the independents whose support he needs for his reelection consider the issue to be a big deal. Obama is on a tight rope. The anemic growth rate in the U.S. may be stymied if spending is cut too deeply too fast. Governments employ huge numbers of people both directly and indirectly. They won’t consume as much if their salaries are frozen, or worse if their jobs are eliminated. This may seem obvious but that fact gets lost in fiscal debate.
Last week’s budget deal that averted a government shutdown slashed $38 billion from the current fiscal year’s budget. The President’s Deficit Reduction Commission came up with $4 trillion in cuts over 10 years. House Budget Committee Chairman Paul Ryan (R-Wis.) wants $6 trillion in cuts over the next decade. The commission’s findings were ignored until now and Ryan’s plan has been pilloried by critics for benefiting the rich at the expense of the poor. Obama apparently wants to strike a middle ground by talking tough on deficit reduction but not so tough that it will alienate the special interest groups that will support him for reelection. It’s all going to come down to taxes.
“A key dividing line between the two approaches, and the two parties, is certain to be taxes,” according to the Wall Street Journal. “White House officials have said any effort to address deficits must be broad in scope, bipartisan and include higher revenues through changes to the tax code.”
Of course, Republican members of Congress would sooner do the cha-cha with Nancy Pelosi, the House Minority Leader, than back any tax increase no matter how much fiscal sense it may make. Obama, as he has done before, wants to increase taxes on the wealthy. What he means by “wealthy” remains to be seen. Billionaire Warren Buffett, history’s greatest investor, has argued for years in favor of higher taxes for folks like himself. House Speaker John Boehner (R-OH), for one is skeptical, proclaiming: “If the President begins the discussion by saying we must increase taxes on the American people — as his budget does — my response will be clear: Tax increases are unacceptable and are a nonstarter.”
The problem with anti-tax zealotry is that it misses a bigger point. Taxes are n0t a bad thing. After all, they fund needed services such as police service, teacher’s salaries and road repair. Believe it or not, people don’t mind paying higher taxes provided they get value for their money (better trash service or a top-flight school system). Nobody, of course, wants government to waste money.
U.S. policymakers may find some solace by looking at Sweden.
No less of an authority than the Wall Street Journal and Heritage Foundation in their 2011 Index of Economic Freedom said the European nation’s tax rate were “has a very burdensome income tax rate and a moderate corporate tax rate. The top income tax rate is effectively 57 percent, and the corporate tax rate is 26.3 percent.” Government spending also is very high, equalling about 52.5% of GDP thanks to massive stimulus spending.
But as Bloomberg News notes, Sweden’s economy is thriving. In fact, it is Europe’s fastest-growing economy and expects to run a surplus thanks in part to tax cuts. It plans to cut taxes for a sixth straight year in 2012.
“The Swedish economy grew 5.5 percent in 2010, the most since 1970, as exports recovered from the global financial crisis,” according to Bloomberg. “The largest Nordic economy will expand 4.6 percent this year, compared with the 4.8 percent predicted last month, the government said in its spring fiscal policy bill released today in Stockholm. The government raised its forecast for growth in 2012 and 2013 and predicted a widening surplus over the next four years as unemployment falls.”
America, though, has a long way to go before it claim Sweden-like success.
–Jonathan Berr
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