4th Oct, 2010

Pelosi Cuts Off Bush Tax Cuts Debate Wounding Obama and the Democratic Party

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Nancy Pelosi and Herbert Hoover

At 1:04 a.m. the morning of September 30, the Democratic Party, the Obama Presidency and Liberal America were given the last rites.  Nancy Pelosi also all but insured she will be a lame duck speaker even if the Democrats retain control of the House.

The occasion was a seemingly routine vote on whether to adjourn the House until after the November elections, but the real issue behind this vote was whether to extend the Bush tax cuts for the rich. Pelosi cast the rare deciding vote from the speaker’s chair resulting in a 210-209 squeaker. Rather than risk a vote on the tax cuts, Pelosi decided to punt.

Pelosi’s single vote is testimony to her waffling on this issue, to the inability of the White House to rally its supporters and to the inability of the Democratic Party to stand for principles. The postponed vote and the indecision put the Democrats in a difficult position since without a vote the well-oiled GOP propaganda machine will ramp up its fear tactics, shouting that the postponement means the Democrats are going to raise everyone’s taxes, not just those of rich people.

The casualties could include candidates such as Tarryl Clark, the Minnesotan who has been running a spirited campaign against well-financed Republican wingnut Michelle Bachmann.  It doesn’t take a advertising genius to write the ads.

Had Pelosi voted to continue the session it could have turned this campaign into a genuine contest of ideas. The argument that the recess was needed in order to allow vulnerable Democrats to campaign holds little validity since Pelosi controls the gavel and the Democrats the agenda.  With any thought, the Democrats could have produced a carefully-coordinated campaign that turned up the heat on the Republicans, while still allowing their own candidates time to campaign.

The Fallacy

Evidence and statistics from a wide variety of sources agree that extending the Bush tax cuts will do little to help the economy, but politicians pay them little attention. No reputable study favors extending tax cuts for the rich.  America now has descended so far into absurdity that what a moderate like Eisenhower favored is dismissed as ultra-liberalism while what Herbert Hoover believed would end the Great Depression has become the accepted approach to dealing with the Great Recession.

In a concise op ed piece in the New York Times, William Gale of the Tax Policy Institute explained why extending the Bush tax cuts is “The Least Effective Stimulus.”

Economic research over the past decade can explain why extending the original Bush tax cuts is not good stimulus policy. After the tax rebates in 2001, 2003, and 2008, households appear to have spent in relatively short order somewhere between 25 and 67 cents more for each dollar of tax cut. This makes tax cuts in general – even the parts of those tax bills that were intended to stimulate – a relatively weak way to help the economy compared to increases in government purchases, for which each dollar of increased deficit turns into an additional dollar of spending.

Also, high-income households are less likely than low-income households to spend much of their rebate. The Bush tax cuts in general – and tax cuts that only benefit high-income households in particular – favor the wealthy, and so are a particularly poor way to stimulate a weak economy.

In a 2003 article, “The Tax Cut Con,” Paul Krugman examined tax policy and its impact. He noted that for most Americans the share of income they pay in taxes has not changed much since the Nixon Administration. On the other hand the top tax rate is now half what it was in the 1970s.  Krugman concluded:

At this point, one must be blunt: the selling of the tax cuts has depended heavily on chicanery.

So why do tax cuts continue to attract supporters? An intriguing 2004 paper by Larry Bartels, “Homer Gets a Tax Cut,” suggests some reasons.

The results of my analysis suggest that most Americans support tax cuts not because they are indifferent to economic inequality, but because they largely fail to connect inequality and public policy.  Three out of every four people say that the difference in incomes between rich people and poor people has increased in the past 20 years, and most of them add that that is a bad thing—but most of these people still support Bush’s tax cuts and the repeal of the estate tax.

The People

Yet recent surveys consistently show that Homer does get it. The American people do not want a return of Hooverism, but in this era of Faux News no one is listening to the American people.  An NBC News/Wall Street Journal Poll conducted this past week found that 49% of Americans oppose extending tax cuts for the rich. Most of the other recent polls on the economy can be found at PollingReport.com.

A CNN Poll conducted at the same time found that 41% of Americans blamed the Republicans in Congress for the country’s economic problems as opposed to 35% for the Democrats and 19% for both equally. That same poll found 52% opposed making tax cuts for the rich permanent.

These numbers have stayed relatively stable over the past year, but recent trends suggest they may be moving more in the GOP’s favor.  A main reason for that can be found in polls about the Obama Administration’s handling of the economy.

An August Newsweek poll found that 55% of Americans thought the administration was not spending as much time as it needed on the economy.  CNN polls show an increase in the number of Americans giving the administration a negative vote on its handling of the economy.

The Squandered Opportunity

Barack Obama, like all new presidents, swept into office with a window of opportunity to enact his agenda.  On the bad advice of former Clinton staffers Lawrence Summers and Tim Geithner along with the still simmering bitterness of the Clintonites over their health care debacle, Obama decided to tackle not the economy but the most divisive issue in American politics next to abortion – health care.

To show how much power Obama had at the time he even managed to pull some of the Republicrat Blue Dogs with him on this issue. The Republicans could not kill the health-care bill despite distorting its consequences with a multimillion dollar ad campaign and flying in operatives to disrupt town hall meetings on the bill.

As anyone could have predicted, the Obama Administration and the Democratic Party emerged from this badly wounded. The final bill was a phone book-thick document of too many compromises and a page-long list of new commissions and committees that few of us had time to read. Those of us that did found it contained ambiguous provisions and postponed the centerpiece of health care reform–the infamous pre-existing condition penalty.

The result has been that instead of revolutionizing health care, the bill has produced confusion. Part of it was Obama’s fault, for instead of leading the charge for specific solutions he punted to a dysfunctional Congress and Nancy Pelosi.

Meanwhile neither the stimulus package, much of which is expiring nor the financial “reform” bill dealt with systemic problems in the economy such as stagnating wages, mortgage foreclosures, the repeal of the Glass-Steagall Banking Act and the law-breaking banks that violating the Riegle-Neal Act governing market share.

This inability to deal with fundamental causes produced a report this year by the Roosevelt Institute which stated:

Eighteen months after the most devastating financial crisis since the Great Depression, our financial system remains critically flawed. The United States has not yet enacted the financial reforms necessary to repair the broken financial system.

The Great Communicator

When Barack Obama was first elected, I suggested that he had the potential to become a Democratic Ronald Reagan because of his ability to rally grassroots support with rhetoric. Ronald Reagan was a master at calling on the public to support his initiatives when it looked like Congress might waffle on them. Reagan would take to the airwaves to plead his case and within hours congressional mailboxes and telephones would be swamped.

With his sophisticated use of the Internet Obama captured the Democratic nomination and the White House, so logic suggested that he would be able to rally this constituency to help pass much-needed legislation. Instead those in charge of the Obama Internet constituency have flooded e-mail boxes with irrelevant spam that has obscured the real issues and made it difficult to rally the troops when it really mattered.

Instead of giving Reagan-like speeches that drew a line in the sand and called for public support, Obama began to seem more like the Great Obsfucator than the Great Communicator. Once marvels of rhetorical excellence, his speeches became models of indecisiveness.

That is until that tax cut issue. In a September 8 speech in Parma, Ohio Obama showed his old rhetorical power:

I ran for President because for much of the last decade, a very specific governing philosophy had reigned about how America should work:  Cut taxes, especially for millionaires and billionaires.  Cut regulations for special interests.  Cut trade deals even if they didn’t benefit our workers.  Cut back on investments in our people and in our future -– in education and clean energy, in research and technology.  The idea was that if we just had blind faith in the market, if we let corporations play by their own rules, if we left everyone else to fend for themselves that America would grow and America would prosper.

I ran for President because I believed that this kind of economy was unsustainable –- for the middle class and for the future of our nation.  I ran because I had a different idea about how America was built.  (Applause.)  It was an idea rooted in my own family’s story.

With all the other budgetary pressures we have -– with all the Republicans’ talk about wanting to shrink the deficit — they would have us borrow $700 billion over the next 10 years to give a tax cut of about $100,000 each to folks who are already millionaires.

Interestingly, FDR historian David Woolner finds that the renewed aggressiveness in the Parma speech is reminiscent of Franklin Roosevelt’s 1934 push in the midterm elections.  Woolner points out that Roosevelt faced opposition from within his own party, Republicans and right wing types reminiscent of the Tea Party that threatened to derail the New Deal.

FDR knew that in spite of this marked improvement, millions of unemployed Americans (with no unemployment insurance yet in place) continued to suffer. He knew that this suffering left them in a state of fear and uncertainty about the future, and he understood that he could not take the 1934 election for granted.

Roosevelt embarked on a campaign that took him across the country to defend his programs.  Then as now, the opposition pushed for less government. FDR countered with words remarkably like Obama’s:

To do so, he said, would be to return the nation to the “old law of the tooth and the claw” so that once again the “unregulated wild-cat banking of a century ago could be restored; that fraudulent securities and watered stock could be palmed off on the public; that stock manipulation which caused panics and enriched insiders could go unchecked.”

The Speaker

Unfortunately the most dysfunctional speaker in American history did not get the message. A wealthy Californian with money in real estate, Nancy Pelosi had little allegiance to and even less concept of the average American. Her main interest appeared to be staying in power.

I use the past tense because it is pretty clear after the election she will be gone if the Democrats still control the House. Unless the Democratic Party manages an unexpected upset, there will be blame to assess and at the top of that list is Nancy Pelosi.

Nancy Pelosi has been a problem for Barack Obama ever since he won the election.  Scarcely was the ink on the ballots dry, than Pelosi announced that the number one legislative priority would be children’s health care before Obama had even announced his legislative agenda. With this gesture Pelosi signaled that she had little regard for Barack Obama.  Since then Pelosi has become the Democrats’ Newt Gingrich, a speaker who polls routinely rate as one of the least popular congressional leaders.  This has produced a bumper crop of Republican ads trying to link Democratic candidates to the “Pelosi agenda.”

Now she has given the ad writers more ammunition by pulling the rug out from under Barack Obama and the Democratic Party, depriving them of one issue that could help them hold serve in the coming elections. The debacle leading up to that vote is a great example of Pelosi’s failure to lead. Over the past month she has waffled over whether there would be a vote on tax cuts for the rich. The headlines tell the story with The Hill writing “Pelosi Dances Around Tax Cut Question” and Reuters stating “Pelosi Hedges on Timing of Bush-era Tax Vote.

The Consequences

Because of Pelosi’s waffling, the Democrats appear indecisive, with little unity and less leadership. This is in stark contrast to their Republican rivals who have managed to vote as a solid block on virtually every important measure.  When voters enter the booth in a few weeks which lever will they pull — the Republican or the Democrat?  There is little doubt that many will see one party as a party of principle and the other a herd of cats with no common goals or ideals.

At some point a political party has to stand for something or else it is nothing more than a weak confederation whose only purpose is to win elections. Eventually the public will become disgusted with the entire spectacle. Ask the Whigs.

As Barack Obama pointed out in his September 8 speech, for William Jennings Bryan, Woodrow Wilson, Franklin Delano Roosevelt, Harry S. Truman, and John F. Kennedy, the Democratic Party represented the Fogotten Americans, the worker who does his or her job and struggles to make it from paycheck to paycheck.  At its heart the party was about maintaining a level playing field.  That philosophy runs through the speeches of Wilson, Roosevelt, Truman and Kennedy.

The Litmus Test

The extension of the Bush tax cuts for the richest Americans is probably the most important litmus test for the Democratic Party in a generation.  In short, anyone who does not support repealing those tax cuts does not deserve to be called a Democrat.

For the party, the consequences of this bill extend far beyond a measure which everyone admits will not be enough to tame the deficit. This is a matter of principle as much as it is a matter of economics and the American people recognize it as such.  Wilson, Roosevelt, Truman and Kennedy would find it preposterous that their party is not waging a vigorous campaign against restoring those tax cuts.

Favoring tax cuts for the rich is not a core Democratic value.  It is not a core American value.  After all we fought a revolution over what amounted to tax cuts for the rich.

A New Ball Game

In an interview this weekend, Pennsylvania Governor Ed Rendell best described the mess Pelosi left over tax cuts for the rich:

I think Republican polls showed it. Absolutely it was in favor of eliminating, letting the Bush tax cuts on people who earn more than $250,000 expire, and at the same time holding those tax cuts in place for the middle class, maybe not for the next ten years, but for until the economy recovers. I think people wanted that and I think our guys were too afraid of the rhetoric and they assume that people will say, oh, you raised taxes. Well, sure we raised taxes, but we didn’t raise taxes on you, ma’am. In fact, the Obama stimulus plan cut your taxes. We raised taxes on people who can afford to pay taxes.

As for Pelosi, Conservative commentator Michael Barone wrote Pelosi’s vote could be “her last hurrah.” He wrote of the fateful vote:

Pelosi had effectively lost control of the House. So she decided to shut it down and let Democrats go home and try to salvage their seats.

There is still over a month to go in this election.  As David Woolner suggests, Barack Obama will need to mount an FDR-like campaign to save his Presidency and his Congressional majority.  The good news for Democrats is that there is still no more compelling speaker than Barack Obama. If he can give that Parma speech over and over again maybe the dire predictions can be avoided. David Woolner writes:

In such a climate, President Obama’s decision to counter the fear mongering and red-baiting tactics of his more extreme opponents is not just the right thing to do for the country. It may also prove to be good politics.

Also maybe we can avoid a Republican Congress that would subject us all to the Laugher Curve in the midst of these troubled economic times. It would the the equivalent of using gasoline to put out a fire.

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