Another Perspective

How to Call Obama’s Bluff

Otherwise, Republicans are playing a losing hand.

By 7.18.11

I hate to say this, but as much as I agree with Boehner & Company about the debt limit, I think Republicans are playing a losing hand. The problem is that if they go to the wall and shut the government over raising taxes, it's going to be 1995 and Newt Gingrich all over again. As much as the Democrats may be at fault, the public is going to blame the GOP.

Look at the polls now. More than 70 percent of the public doesn't see any problem with "raising taxes on millionaires and billionaires" and "making the rich pay their share." I don't believe in making decisions by polls, but you have to take this into account in approaching such a big risk. If the Washington Monument closes down or maybe even Social Security checks get delayed, the story is going to be -- as it has been for the last century -- that Republicans are the "party of the rich" while the Democrats are the "party of the common man."

That is certainly not true anymore. The Democrats may have a solid block of votes among people of lower income, but their main strength comes from their support in the elites of the East and West Coasts. If you were looking for a historical analogy, the Age of Andrew Jackson would be the best example, when a frontier populist majority united behind a nationalistic military hero in opposition to the New England elites that had assumed leadership of the young republic in the generation after the American Revolution. After all, what was the National Bank -- which Jackson abolished, to the dismay of East Coast elites -- except an earlier version of the Federal Reserve? John Quincy Adams, who had defeated Jackson in 1824 without winning the popular vote, thought one of the most pressing issues in the election of 1828 was the establishment of a national astronomical observatory -- probably an 1828 equivalent of global warming. Contrary to what you hear at all the Democratic Jefferson-Jackson Day dinners around the country, Old Hickory's core constituency was the growing legions of freeholders and small business people who were sprouting up all over the country and suddenly found themselves confronting a European-style mercantile elite that wanted extensive government control of the economy. With Jackson at the helm, America instead became the Land of Free Enterprise.

Political rhetoric being what it is, however, none of this is going to penetrate. Instead, with Obama harping on corporate jets and "tax breaks for the wealthy," the stereotypes of the last century will remain -- Republicans are the "party of the rich" while Democrats are the "party of the common man." Who is closer to Wall Street, Michele Bachmann and Tim Pawlenty or Timothy Geithner? But no matter. Obama knows his strengths and will only ratchet up the rhetoric as the deadline approaches, with the press trotting along behind.

The only dissenting voice out there comes from Marc Rubio. Listen to what he is saying. As a second-generation Cuban refugee, Rubio knows that every country in Latin America has at one time or another been ruled by some tinhorn demagogue whose entire political platform consisted of "tax the rich." Read how Juan Peron ruined Argentina's economy in less than a generation by doing exactly what Obama is doing -- going around to the wealthiest corporations and saying, "They can afford to buy gold-plated insurance for their employees, why can't every small business do the same?" Hence, Obamacare.

Adding up the numbers, as Charles Krauthammer has done, would convince any intelligent person that raising taxes on the rich can make only the slightest dent in a $1.4 trillion annual deficit and a $14 trillion national debt. "If you collected all the corporate jet taxes and oil depreciation allowances for 100 years, you wouldn't cover the amount that Obama added to the national debt last February," he said on Fox News. But that's not really what Democrats have in mind. In their hearts, they have become convinced that Reaganomics never worked and that only a small minority at the top ever benefitted from that 25-year run of prosperity. Therefore the only way to restore justice to this country is to tax the rich into submission.

The origin of this delusion lies in a simple change made in the tax code in the Tax Reform Act of 1976. Until that point, corporate tax rates had been lower than personal income taxes. You may recall in the early 1980s there was a big movement afoot of doctors and lawyers incorporating themselves in order to lower their tax rate. All this changed after 1986. Now small corporations and start-up businesses began unincorporating and filing under Subchapter S in order to get the lower personal income tax rate. This lumped $5 million computer start-ups and even some $10 million banks in the same pool with retail clerks working 30 hours a week or teenage busboys reporting income from a summer job.

Now enter two French Marxists, Thomas Picketty and Emmanuel Saez, who parachuted into Berkeley in the 1990s and -- without ever taking a look at the country around them -- started parsing the nation's personal income tax returns. Treating $10 million banks and teenage busboys on the same plane, they soon discovered -- mon dieu! -- that the United States had about the same income disparities as Old Russia. Their work has been the touchstone of liberals ever since. Paul Krugman rarely goes a month without mentioning P&K. In order to disabuse yourself of this delusion, you have to read Alan Reynolds' Income and Wealth, which lays the whole thing out in excruciating detail.

But none of this is going to deter the Democrats. They are hell-bent on restoring income equality by taxing "millionaires and billionaires" to death. What they are going to hit, instead, is small businesses, which just happen to be responsible for half the new job creation in the country year after year. Going after these "rich" taxpayers is only going to make unemployment worse and prolong the recession.

SO WHAT CAN REPUBLICANS do to dramatize all this to the American public? Here's what I would suggest. I think the Boehner & Company should publicly offer the following deal to President Obama: "In the interest of avoiding a disastrous default and risking a lowering of the nation's credit rating, we will agree to your 'tax on millionaires and billionaires' plus the longer depreciation allowances on jets and other provisions designed to extract more money from businesses. In exchange, we ask you to agree to all the spending cuts we have outlined, including the initial steps toward reforming entitlement programs, along the lines outlined by Paul Ryan's 'Roadmap.'

"However, we do this only as a 15-month experiment leading up to the 2012 election. Should these tax increases and spending reductions immediately set off a Reagan-like boom that raises growth rates above 2 percent and lowers unemployment below 7 percent, we will be happy to vote for you in your 2012 re-election. If, however -- as we thoroughly anticipate -- these tax increases only further stifle small business and keep unemployment and economic growth at or near their present levels, then we will ask the American people to elect an all-Republican Congress and a Republican in 2012. If they do, we solemnly swear to repeal these new tax rates, jettison Obamacare, level personal incomes taxes at a lower rate with fewer deductions, bring corporate taxes into line with the rest of the world, ease government regulations, end the effort to run the economy through Washington, and do all the things necessary to turn America once again into a young and vigorous nation."

By November 2012 I suspect more than half of America will agree that the time has come for Obama to go. 

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About the Author

Green Lantern is the pen-name of an East Coast writer.