Hedgies vs Obama

By Felix Salmon
December 9, 2011
claims not to understand why hedgies are so critical of Barack Obama: after all, they've done pretty well for themselves over the past three years. But maybe this chart, from Thomas Piketty and Emmanuel Saez, might help him out:

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Jim Chanos claims not to understand why hedgies are so critical of Barack Obama: after all, they’ve done pretty well for themselves over the past three years. But maybe this chart, from Thomas Piketty and Emmanuel Saez, might help him out:

SaezFig1(1).gif

What we see here is the very strong correlation between tax cuts for the rich (on the x-axis) and increased wealth for the rich (on the y-axis). This correlation comes as no surprise, of course. But Obama doesn’t want tax cuts for the rich: he wants to roll their taxes back to Clinton-era levels. Instead, he wants lower taxes for the middle classes, which won’t help hedge fund managers at all.

As Piketty and Saez note, lower top marginal tax rates don’t translate into higher growth — which means that the extra wealth going to the 1% really is a zero-sum game, and being taken out of the pockets of the 99%.

SaezFig2(1).gif

But it’s hard for a gazillionaire to come out and say that he wants more of everybody else’s money. So instead we get this kind of thing, wherein Leon Cooperman pulls out every rhetorical trick in the book in an open letter to Barack Obama:

What I can justifiably hold you accountable for is your and your minions’ role in setting the tenor of the rancorous debate now roiling us that smacks of what so many have characterized as “class warfare”. Whether this reflects your principled belief that the eternal divide between the haves and have-nots is at the root of all the evils that afflict our society or just a cynical, populist appeal to his base by a president struggling in the polls is of little importance. What does matter is that the divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them. It is a gulf that is at once counterproductive and freighted with dangerous historical precedents. And it is an approach to governing that owes more to desperate demagoguery than your Administration should feel comfortable with.

The first thing to note, here, as Piketty and Saez show, is that the 1% are not actually the people “best positioned to help” the 99%. When the 1% do well, the 1% do well. But that rising tide is nowhere to be seen.

But there’s another question raised by Cooperman’s letter, and Andrew Ross Sorkin phoned up Cooperman to ask it. What, exactly, is he referring to when he talks about Obama’s “divisive, polarizing tone”? Go on, take a guess. Here’s the answer:

“What pushed me over the fence was the president’s dialogue over the debt ceiling,” Mr. Cooperman said, explaining that just when it seemed like a compromise was near, President Obama went on national television and pressed harder on “millionaires and billionaires,” a phrase that has stuck in the craw of many of the elite. For example, Mr. Cooperman zeroed in on what he described as the president’s belittling remarks about taxing the wealthy: “If you are a wealthy C.E.O. or hedge fund manager in America right now, your taxes are lower than they have ever been. They are lower than they have been since the 1950s. And they can afford it,” the president said back in June. “You can still ride on your corporate jet. You’re just going to have to pay a little more.”

This just doesn’t make sense. Cooperman supported Obama in the 2008 election, when he trotted out the line about “tax cuts for millionaires and billionaires” many times. And the corporate-jet line was a specific reference to a specific tax break which Obama wanted to abolish as part of the deal.

I think the real reason that Cooperman has started throwing his toys out of the pram right now is Occupy Wall Street — a movement which is more opposed to Obama than aligned with him. But saner heads, like venture capitalist Nick Hanauer, understand that higher taxes on millionaires and billionaires are a necessary part of any successful fiscal policy going forwards:

Without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.

That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.

And that’s what has been happening in the U.S. for the last 30 years.

Rich businesspeople like me don’t create jobs. Middle-class consumers do, and when they thrive, U.S. businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.

So let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business.

Hanauer’s absolutely right: the idea that millionaires (that is, people with seven-figure incomes) are job creators simply isn’t borne out by any empirical evidence whatsoever. And I particularly like NPR’s idea of asking the GOP to point to a single business owner who would hire fewer people if the top marginal tax rate were to go up. Astoundingly, in a country of 300 million people, they couldn’t find a single one.

So while people like Cooperman are interesting as a political phenomenon, their rhetoric doesn’t stand up to scrutiny. I do, however, continue to wonder at the ability of the Republican Party to sell higher incomes for the 1% to the public as a whole. Is there any other country in the world where a major political party panders so cravenly to such a tiny base — and gets broad political support for doing so?

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