President Obama's tax compromise with both the Republicans and his balking Democratic Party is okay with me, under the circumstances. But it's just okay, and just for now. Those who have occasion to read my e-mails or blog posts know that I am sympathetic to the opinion voiced by President Reagan's budget director, David Stockman: our threatening, distended budget deficit has to be front-and-center as a national priority, and taxes will have to be raised to do that effectively, likely for both high-income and middle-income Americans. But I was reticent about his prescription for timing. He felt the economic recovery was sufficiently underway and no longer too fragile to raise taxes--and even if it was a close call, reducing the deficit now was so pressing, so important, that even a further short-term economic setback was worth the risk to him. As I have thought more about it, gathered more information and read more opinions, I must part ways with Mr. Stockman on timing.
On balance, I find myself in that camp with those who still find the economic recovery too fragile and unemployment too high to take spendable money out of people's hands when the economy, if anything, needs more stimulus. You also know that I view Fed chairman Ben Bernanke, a moderate Republican, as one of the more honest brokers in this whole process of stimulating and managing this slow, difficult economic recovery. And while he too believes the gaping budget deficit must be a top priority, he disagrees that taxes should be raised immediately. For him, the overall progress of the economic recovery is the first priority, and managing the deficit is an important component part of that--and one that if not managed timely and well will ultimately place us in economic peril. His well informed and experienced view is that the budget deficit must be successfully addressed as soon as practicable--social program spending must be made more cost efficient, and taxes must be increased--but not until the economy is strong enough to bear the impact and continue to grow.
On balance, I find myself in that camp with those who still find the economic recovery too fragile and unemployment too high to take spendable money out of people's hands when the economy, if anything, needs more stimulus. You also know that I view Fed chairman Ben Bernanke, a moderate Republican, as one of the more honest brokers in this whole process of stimulating and managing this slow, difficult economic recovery. And while he too believes the gaping budget deficit must be a top priority, he disagrees that taxes should be raised immediately. For him, the overall progress of the economic recovery is the first priority, and managing the deficit is an important component part of that--and one that if not managed timely and well will ultimately place us in economic peril. His well informed and experienced view is that the budget deficit must be successfully addressed as soon as practicable--social program spending must be made more cost efficient, and taxes must be increased--but not until the economy is strong enough to bear the impact and continue to grow.
If anything, Bernanke's opinions and Fed actions imply the need for more economic stimulus now to hurry the stronger economy required before social program reform can be meaningfully addressed, before taxes can be raised. I trusted Bernanke on TARP and the stimulus program for the same reasons I trust him today: depth of knowledge, experience and intelligence--and the credibility inherent in his organizational independence and personal character. He may not always be right, but he's as smart as anyone, and more credible and honest than most. And he is not alone in his view. A long list of seasoned, intelligent economic, government, and business professionals have reached and voiced a similar opinion.
Obviously, President Obama finds himself in the same camp. And I am persuaded that he is there not because he didn't negotiate hard enough or effectively enough to enforce the Democratic equity principle of the "rich" paying more taxes right now. In principle, I agree with that stand and I join the many others ready to pay more taxes. That's citizenship and patriotism, too. But now is not the time to advance a position on principle that runs the risk of stoking unnecessarily class antagonisms by unwisely setting up "taxing the rich" as a deal killer. Especially when the definition of rich does not resonate with a lot of professionals and small businessmen. Surely the Dems have got to be more practical than that--especially if they have any hope of bi-partisan work accomplishing anything for the country in the next congress.
No, too many Dems either failed to see the deal in the right light or, more likely, were too full of themselves, self-righteous or spiteful to deign to compromise with the Republicans. In the right light, this whole legislative package should be seen primarily as a kind of "stimulus" package--if not to add federal stimulus, at least not to take it away. That, I believe, was Obama's objective, and it appears he got the right deal done--despite many Democrats, including the abstaining lame-duck Speaker Pelosi. In the end, she just is who she is: a reliable, estimable social advocate and champion of the Democratic left wing, but not an effective leader in the difficult, often unsatisfying work of managing incremental legislative progress in a negotiated bi-partisan process.
And more, Obama negotiated other stimulative features. Most important as a practical, humane and political matter, as well as continuing stimulus, the extension of unemployment benefits was also won. And a temporary (2011 only) 2% reduction in social security taxes also adds a stimulative effect.
Now there are many--and principled, all--who believe that whatever good may have come of past economic stimulus, that time is past, and further stimulus will just be wasting financial resources and unnecessarily widening the deficit. They believe the economy must now heal itself and work its way back to health, however slowly that course may proceed. They want to raise taxes now, and for all--and they would be more vocal about social program reform, too, except that they have no confidence in the Congress addressing that anytime soon. As I indicated at the outset, I am sympathetic to that viewpoint; I live astride the alternatives, with one foot planted firmly in each camp. But, again, in the end, and as a matter of management humility and discipline, I am persuaded to defer to the most knowledgeable and credible voices, and the ones with the best track record. And right now, that means continuing to trust Mr. Bernanke. That's where my head, and more my heart, continue to find a measure of assurance and peace.
What is critical, of course, is that the deal has a reasonable sunset date. In two years, they will be able to take up the issue of tax increases again. By that time, it would seem much more likely the economy will be strong enough, and the circumstances clear enough, that taxes can be appropriately increased to play their needed role in meaningful deficit reduction. And that will likely mean tax increases for all Americans. Perhaps the Congress will even get religion about reforming social security, Medicare, and realistic coverage and cost efficiency for healthcare delivery. We can only hope. (Of course, at that time either President Obama or the standard bearer of GOP will enjoy the affirmation of the American electorate--one or the other--and that will shape the mandate and next steps for deficit reduction as much as anything else.)
And speaking of hope, do we dare take this surprising outbreak of bi-partisanship between Obama and the new Republican House as an example of what is possible over the next two years? Might government that actually serves the best interest of this country be a possibility? Sure, no one wins all or loses all. Incremental progress. I can live with that; the alternative is dysfunction and despair. Might the strengths and best ideas of Obama, the Republicans and Democrats find their way to synthesis, or at least prudent compromise, in advancing the country's agenda? Advancing America. Now there's a good idea. Dare we hope?
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