There was a great deal of media-hype over President Obama’s deal with the lame-duck congress on the Bush tax rates, in December 2010. Pundits praised Mr. Obama for his political sagacity in extracting a limited tax agreement from the outgoing Congress, before the newly-elected, more conservative Congress could take office. The lame-duck deal included a two-year extension of the Bush rates. Pundits called this a “victory” for Mr. Obama, since he thwarted conservative moves to make the Bush rates permanent.
I refer here to the “Bush rates,” not the “Bush cuts.” Calling them “cuts” preserves the fiction that the tax rates inherited from the Clinton administration were the true norm, and that Mr. Bush did something unproductive that needs to be corrected. Mr. Obama has been pushing this canard for years.
In the aftermath of the triumphant lame-duck session – labeled by media as (arguably) the “most productive lame-duck congress ever” – newly elected representatives and senators took their seats with a somewhat faded glory. Many had run on a platform of “making the Bush ‘cuts’ permanent,” but that signal issue had apparently been snatched away in overtime. At this writing, the 112th Congress has exerted no more effort on making the Bush tax rates permanent. The issue has gone off the radar screen. This is a crucial mistake by the GOP in at least two ways.
The Economy. Although political and media figures have characterized the tax-issue as “solved,” it is no such thing. The truth is that the two-year extension is only a temporary palliative for an ongoing uncertainty that will bedevil business for most of 2012, if not 2011 as well. From the start, the Obama administration has demonstrated a peculiar obtuseness about business which can be ascribed to either stupidity or malicious intent, depending on the observer’s political proclivities.
Freshmen studying Business 101 learn that uncertainty is the bane of business planning, and therefore of business itself. Businessmen cannot invest, expand, pursue new markets and hire more employees if they can’t predict the taxation climate for at least the near term. Knowing this for the longer term is even better, of course, but most businessmen will settle for a visible horizon of three or four years.
When the Bush tax rates were still scheduled to end on December 31, 2010, business was dead in the water. Mr. Obama and his inner circle raged over the fact that business was sitting on $2 trillion in cash, but refused to expand and hire new workers. The compelling fact that business was paralyzed due to uncertainty about future tax rates seemed entirely lost on the Obama government. Uncertainty stemming from the complex Obamacare law only added to business-slowing uncertainty.
While the lame-duck tax deal did furnish a two-year window of certainty for business, the post-2012 future still looms beyond the horizon, dark and unknown. Two years is too short a time for businessmen to plan for investment expansion. 2012 could be a repeat of the 2010 drama over the Bush rates. After 2012, everything could turn back into a pumpkin again. Until the certainty-horizon can reach out farther than two years, business will remain in the doldrums. I’m not sure Mr. Obama sees this.
Mr. Obama’s fundamental misunderstanding of business has seldom been displayed as clearly as in recent days, when he addressed businessmen at a U. S. Chamber of Commerce gathering. While promising to create a better climate for business by lowering taxes and removing vexing regulations, Mr. Obama also hammered the liberal refrain that business needs to “give back” to the country by creating new jobs and hiring new workers.
Here the president displayed his true ignorance of what business is and does. Business does not have to “give back,” in conformity with some altruistic liberal agenda. Business already “gives” to its community and to the entire country by providing quality, fairly priced products or services. This makes a company profitable and enables it to stay in business. It can thus employ people who become taxpayers and self-supporting citizens. Their earnings support other commerce in their communities. This is how business gives back to the country.
Someone needs to instruct Mr. Obama that the first priority of business is doing its particular job well, not simply hiring workers. To be productive in this way, business needs a stable, predictable tax-environment, including lower business taxes. The USA’s corporate tax-rate is one of the highest in the world. A reduction is needed to help business to compete, internationally. And all of the Bush rates must be made a permanent part of the tax code. Congress should move on this without delay.
Political. The new GOP majority in the House of Representatives should hold Mr. Obama’s and his party’s feet to the fire on the tax issue. An immediate push to reduce taxes and cement the Bush rates in place would place congressional Democrats and Mr. Obama in the unpleasant position of either caving on a key liberal premise (higher taxes), on one hand, or opposing legislation that would clearly help the economy, on the other. The former would agitate the Democrats’ left wing; the latter would demonstrate the correctness of Republican policy for restoring the economy.
Perhaps Republican leaders are holding the issue of cementing the Bush rates in their “vest pocket” until 2012, when a presidential veto might damage Mr. Obama’s re-election prospects. By proposing the legislation closer to the election, they might feel emboldened to add other choice Republican initiatives – e.g., cuts of certain liberal programs or major surgery on Obamacare (including retraction) – and dare Mr. Obama to use his veto-pen.
This might work, but it could also backfire. It would be a game of political “chicken.” Mr. Obama is a formidable communicator who is notoriously good at casting his controversial actions in high-minded prose that gets rave reviews from Big Media. A national veto-speech in which he caricatured Republicans as “enemies of progress” or “destroyers of our children’s future” is conceivable. Republicans need to be wary when they go head-to-head with the big guy.
Failure to solidify the economy by making the Bush rates permanent would almost certainly be laid to Republicans’ charge – nor would the blame be entirely misplaced. Republicans had four good years in which to get it done (2002-’06). They had congressional majorities and they had the presidency. Yet no serious effort was made to log-roll with Democrats on other issues, in order to gain the votes needed to remove the time-limit from the Bush tax-rates.
Republicans simply dropped the ball on this. If they drop the ball again, voters might not trust them with governing for some time. Indeed, the presidential election of 2012 might hinge on it. Politics is the “art of the possible.” It’s also the arena of rhetorical combat and the place of strange bedfellows. Republicans need to use all possible tools to get these needed tax-reforms done. Failure is not an option.