Thursday, March 26, 2009

The Dirtiest Word In America

The dirtiest word in American society is not a four, but a five-letter word spelled t-a-x-e-s.

The mere mention of raising taxes by any politician is an automatic death sentence.

Give Republicans since the Reagan administration credit for transforming the meaning of taxes from a necessary evil to the horrors of Satan. Not to be outdone, most Democrats in Congress rubber-stamp the new translation because their constituents demand it.

Americans are a funny lot. They complain vociferously potholes in their streets are not filled in a timely manner. These same people protest municipal and county tax hikes to repair the roads.

The Parent Teachers Association, certainly a group associated with human values, motherhood and apple pie, protest in communities throughout the nation about state budget cuts in education that forces their children into classrooms of more than 40 kids. Yet, many of this same group, opposed higher property taxes at the local level and higher income taxes at the state level.

And, then, there are those on the receiving end who game the system and live by the credo that if the government is dumb enough to give money away, they'll take it. Specifically, a large group of these people bought homes during the subprime heyday with not enough money to afford the mortgage payments, both before and after the balloon payments came due. Loan predators took the commissions and left town.

It's only human nature to oppose taxes. No tax has been fair nor likely ever be.

With that in mind, the one question I had since Barack Obama burst on the national scene was how was he going to pay for all these great programs he proposes. Taxing the rich ain't going to cut it. Cap and trade carbon pollution permit fees only passes the cost on to the consumer.

We're starting to get the picture.

It was no coincidence Obama was playing nice nice with Congressional Democrats this week in efforts to win support for his $3.6 trillion budget package while at the same time lowering the rhetoric on Wall Street bubble busters.

The fact is Obama needs the budget passed and Wall Street to recover or he's toast. Forget the politics and look at the big picture as the president is so apt to do. Think of it this way:

If Wall Street recovers, credit begins flowing and jobs restored, that's revenue flowing into the U.S. Treasury by the train loads easing the burden of the prospects of raising taxes. Even that may not be enough.

The question then becomes who has the chutzpa to argue for a tax increase? Certainly the cry hasn't been heard from Congress.

Believe it or not, it came Thursday from -- you guessed it -- a liberal-leaning columnist for the Washington Post who may receive a lot of guff from his readers but sits in a safe seat not subject to re-election. Writes E.J. Dionne Jr.:

The debate on the budget is phony, the howling on deficits a charade. Few politicians want to acknowledge that if you really are concerned about long-term deficits, you have to support tax increases.

That's why the most significant moment of President Obama's news conference on Tuesday was not his dodge of a question on AIG but his defense of the least popular tax increase in his budget: limits on the benefits wealthier taxpayers get for their charitable contributions and mortgage payments.

It has been a long time since a president was willing to defend raising taxes. You have to go back to Bill Clinton and his 1993 budget. The consequences for Democrats who voted for that budget -- no Republicans did -- were grave. Republicans swept the 1994 elections and held on to the House for 12 years.

No wonder politicians are so phobic about taxes.

Although Dionne suggests Obama commit political suicide by recommending a broad-based tax increase, he offers no other argument than justifying the charitable and mortgage deductions capped at 28% for the affluent.

Every budget analyst knows this, and every politician knows that it's far easier to bemoan deficits in the abstract than to risk spending cuts or tax increases that hurt sizable groups of voters. "There are no more low-hanging fruit," says Tom Kahn, the staff director for the House Budget Committee. "The low-hanging fruit have already been picked. Any tax increase or spending cut is going to trigger opposition from somewhere."

Dionne concludes his column with some salient points.

The larger problem is the emptiness of all the howling over the long-term deficits. Nibbling away at bits of Obama's proposed budget will do very little about them. Talk of "entitlement reform" is empty unless we have health-care reform -- and unless we acknowledge that we will never cut Medicare and Social Security enough to close the budget gap.

In fact, Social Security is more important than ever, now that the value of so many 401(k)s has plummeted.

The task of those who genuinely care about deficits is to make the world safe for tax increases. Under current conditions, it's a whole lot easier for politicians to talk a lot about deficits, and then just let them grow.

Obama is one cagey dude when he talks about the rich paying their fair share, meaning those earning more than $250,000 annually. Actually, HE isn't raising their taxes from a rate of about 35 to 39%. He's simply allowing the Bush tax cuts to expire for that group next year.

In fact, few (payroll taxes to name one) of Obama's programs whether it be energy, climate change, education and health care impose higher taxes directly on the consumer. Rather, consumers will be hit with higher costs passed on to them by their providers of health, electricity and energy corporations. Of course, no one knows at this stage how the budget will look after Congress takes a whack at it.

Politically, Obama is starting to get hit from friends and foes alike for warming to Wall Street demands.

Dean Baker, co-director of the left-leaning Center for Economic and Policy Research, tells the Washington Post:

"He hurts himself enormously by being seen as associated with the bankers. Purely pragmatically, you have an opportunity here where these Wall Street guys are really hated, they've been a really pernicious presence in the economy for a quarter-century, and the idea of jumping on them when they're down makes a lot of sense. This idea that they're going to help things -- well, they're not our buddies. There's a real fundamental conflict there, and he's hoping he can paper it over."

And, from the right, the Post story reports:

Michael Maslansky, a Republican-leaning pollster, questioned whether Obama could succeed in channeling public anger toward his longer-term goals after having initially helped stir the anger with his vow to retrieve the AIG bonuses. It would have been truer to Obama's approach if he had right away put the episode in the context of his overall agenda, Maslansky said.

"It was a strategic mistake," Maslansky said. "He's supposed to lead, to skate to where the puck is going to be. Going after the bonuses was looking backwards. He should have said right away, 'These bonuses are the last gasp of a dying culture.' He would've been much better off if this AIG thing hadn't become such a big issue. . . . Now the White House says, 'Wow, they really are angry, they have the pitchforks out, and they're trying to kill the people I need [to fix Wall Street].' And the American people are watching and asking, 'Is he a populist, or is he a cool, collected leader?' "

And, the view from academia:

Georgetown University historian Michael Kazin said the approach Obama has settled on is the best available: sharing the public's ire, but not inflaming it further, which would not be his style, and instead directing it to his plans. "It wouldn't be convincing if he came on as a real populist and also probably not necessary," Kazin said. "What he's got to do is depend on his strengths in sort of calmly explaining things to people and telling them, 'I've got this.' "

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