A pathetic ‘tax cut’

O’s sad gambit

John Podhoretz

So we have come to this: President Obama is now treating not raising taxes as though it were the same as providing a tax cut. Gene Sperling, his top economic adviser, even dared to refer to Obama’s proposal yesterday of a partial one-year extension of the Bush rates as a “tax break.”
Up is down. 2+2 = 5. Leave a tax rate intact and it’s the same as cutting taxes. No wonder the White House believed not buying a health-care policy should be considered an economic activity to be taxed and penalized.
Action, inaction; what’s the difference? In one case, you’re being a bad citizen and deserve to get slammed. In the other, you’re being a wonderful president and deserve to get re-elected.

People often describe such logic as Orwellian, but in truth, you have to go back to the comedienne Gracie Allen for such a priceless example of corkscrew thinking.
But of course logic has nothing to do with it, and whatever Obama is, he isn’t dumb. This is a piece of election-year gamesmanship — and as such, it’s a decent gambit. The president can claim, as he did yesterday, to be a great friend to the middle class that has taken such a beating during his presidency.
It’s also an interesting gambit, because it reveals something about the way Obama likes to “cut” taxes. “I’ve cut middle-class taxes every year that I’ve been president — by $3,600 for the typical middle-class family,” he said yesterday.
Those cuts are a blend of one-time subsidies, credits here and there, shifts in college-loan programs, and piecemeal temporary policy like a cut in the payroll tax in 2011 and 2012 that can’t be continued if we’re even going to try to keep pretending that Social Security and Medicare are paying for themselves.
These aren’t cuts in anyone’s tax rate. They are a kind of rebate system, a giveback from Uncle Sam. And that is the key to understanding Obama’s method.
The president wants the public to think Washington is somehow cutting them a break, tossing them their own money back in a benevolent, paternalistic, top-down manner — sort of like your dad letting you access a little bit of the dough in the savings account in which you put your bar mitzvah money.
The president doesn’t want Washington to collect less in the form of taxes, which is the initial purpose of keeping tax rates low. (In theory and in practice, if the economy responds positively to those lower tax rates, it will collect more in taxes later, which is what has happened in every decade since the 1980s.)
No, Obama wants Washington to gather the tax dollars and then give a bit of it back. That way, he can claim to be cutting taxes without actually reducing government’s reach into your pocket.
Note what the president said yesterday: He wants a one-year extension of the current tax rates for people earning less than $250,000 per year; for Americans and small businesses that earn more, the tax rate would rise by 14 percent.
This follows his agreement with the Republican Congress at the end of 2010 to maintain all current tax rates for two more years. Having promised in 2008 that he wouldn’t raise taxes on the middle class, Obama was in a weak position in 2010 as the Bush tax cuts were expiring — to do nothing would be to assent to a colossal tax hike. Republicans wanted the tax cuts maintained across-the-board. They wouldn’t agree to a partial deal — and Obama, with his eye on 2012, was forced to go along.
Now it’s 2012, and he is back to offering the same deal to Republicans. Only this time, he wants them to say no to him so he can say they want to raise taxes on the middle class.
Like I say, it’s a pretty good gambit on the surface. But the riposte from Mitt Romney and the Republicans is a clear one: At a time when the economy appears to be slowing, the president wants to raise taxes by $700 billion, and some part of that tax hike will hit small and medium-sized businesses just when the country needs them to be adding to their workforce.
According to the conservative economist Douglas Holtz-Eakin, “His own Treasury has the information showing that 53 percent of small-business income reported by sole-proprietorships, partnerships, and other ‘pass-through’ businesses is taxed in the top two brackets.”
Still, Obama needed a talking point on taxes and the economy, and he got himself one. I mean, he has to say something, right?