James Pethokoukis

Politics and policy from inside Washington

Is Obama ignoring Wall Street?

Oct 1, 2009 13:10 UTC

This from Ed Yardeni, keying off a recent Charlie Gasparino’s column:

There is no one in the Obama administration like Robert Rubin, who had the ear of President Clinton. Rubin convinced Clinton that the Bond Vigilantes would riot if he pursued policies that would lead to a structural federal deficit, i.e., one that would widen despite a growing economy. So far, the Bond Vigilantes haven’t gone on a rampage despite projections of $10tn in deficits over the next 10 years. So it is no wonder that Obama’s political advisors are acting as though they’ve been handed a blank check by the bond market. However, the longer they ignore the economic advisors, the greater is the likelihood that the blank check will bounce.

Me: Indeed, at a think tank conference I attended yesterday, both Rubin and Roger Altman expressed great concern about the deficit. They definitely seemed to want budgetary action sooner rather than later. Actually, they implied financial markets will demand it.

Obama’s not-so-secret plan to raise taxes

Oct 1, 2009 03:18 UTC

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. Connect the dots:

1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A VAT is a kind of consumption tax.

3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

Obama’s campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. It’s the economic “consensus” — and this was true even before the financial meltdown and recession — that rising entitlement costs would eventually mean a higher tax burden for the American people.

Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What’s more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans.

And it’s also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. Conservative economist Bruce Bartlet puts it this way, “As a broad-based tax on consumption, it creates less economic distortion per dollar of revenue than any other tax–certainly much less than the income tax.” Indeed, a VAT is part of cash-strapped California’s newly proposed tax reform.

Liberals love the idea of a VAT because it’s, well, so European — also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.

See, even after the recession, there might be a 6 percentage point difference between what Uncle Sam spends as a percentage of GDP and what it takes in. Liberals like Krugman have no problem with making up that difference purely through higher taxes, even though that translates into raising the national tax burden by at least a third. And that, even though such a massive hike might well have a crushing effect on growth.

Obama wants a VAT? First, it should be part of broader tax reform, including getting rid of capital gains and corporate taxes. Second, it should accompany an Economic Bill of Rights much like Ronald Reagan used to suggest. Its elements: a) a balanced budget amendment, b) a line-item veto, c) a spending limit such as inflation plus population growth, d) and a two-thirds vote in the House and Senate for any tax increases. (Reagan also wanted a prohibition on wage and price controls. That would likely kill ObamaCare.)

And come to think of it, let’s cut spending and streamline government before cash-strapped, wealth-reduced taxpayers are forced to pony up a penny more, OK?



Posted by Ron | Report as abusive

Will financial markets force a $400 billion tax hike or a VAT?

Sep 30, 2009 16:51 UTC

So I am at this CAP thing on the deficit where talk of higher taxes was hot and heavy. Both Robert Rubin and Roger Altman both seemed to imply that the financial markets will force action sooner rather than later on the deficit — and that means higher taxes.

Outside WH adviser and CAP president John Podesta was talking up the VAT over the weekend, and Altman said today that the WH will have to start doing $500 billion to $700 billion a year in annual deficit reduction during this term. Maybe $400 billion of that should come through higher taxes such as a national VAT.

Definitely the Wall Street guys seemed more worried than the academics like Alan Blinder or Laura Tyson about the near-term importance of deficit reduction. Blinder, also former Vice Chair of the Fed, says he could envision the dollar crashing because of American fiscal problems. And Tyson though the balance-sheet recession and expiration of the Bush tax cuts would mean slow growth ahead for the US economy.


It could have aided dilute not just racism as is taking place now but also homophobia. The guy has a lot more talent than any other idol I’ve observed. He places inside a 100% effort into all his performances unlike Kris.

Is Obama planning a VAT surprise for America?

Sep 28, 2009 13:34 UTC

So John Podesta, co-chairman of Obama’s presidential transition team, says a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A few thoughts:

1) Podesta is also president of the George Soros-funded Center for American Progress, a liberal think tank closely allied with the White House.

2)  It’s consensus among centrist economists, like those in the White House, that America will need to raise taxes to cover budget shortfalls and a VAT is the most efficient way of doing this.

3) At the G20, Obama promised more coordinated economic policies, including having the US lower its borrowing and consume less. This could be done via a VAT, which would also let the US have more tax synchronization with other OECD countries.

4) It seems like the WH is staring to redefine its pledge not to raise taxes on those making less than 250k as applying only to income taxes.

Bottom line: These Podesta remarks sure sound like a trial balloon by the White House.



I would be such an American, that is in favor of a VAT tax. The economy of the United States is hemmorraging money and will continue to do so, as baby boomers increase SS, Medicare, etc. obligations. Throw in additional spending measures, and revenues are greatly needed.

I am aware of many other individuals that are in support of a VAT. Perhaps out of necessity, rather than affection, but support nonetheless.

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10 reasons why the US economy will stay weak

Sep 25, 2009 18:28 UTC

From David Goldman’s Inner Workings blog (the actual post of chock full of charts, expanded explanation):

10. Exports are down by a quarter from their June 2008 peak.

9. Credit growth remains negative.

8. Weakness in existing home sales show that despite record low mortgage rates, screaming bargains in lower-priced homes, and tax breaks, the housing market continues to weaken.

7. The Fed’s Household Wealth Survey for the second quarter sounds impossibly optimistic.

6. Total consumer credit outstanding is still falling, and at the fastest rate since World War II.

5. Business are still reducing inventories, and at the fastest rate on record.

4. The Fed is caught between a rock and a hard place. Monetary stimulus remains out of control.

3. Dollar devaluation has helped about as much as it’s going to.

2. The effect of fiscal stimulus will come to an end: no more cash for clunkers, bailouts of bankrupt municipalities (by taking over their spending requirements), tax subsidies for mortgages, and so forth.

1. Barack Obama. By toying with a trade war with China in order to appease his organized-labor constituency, Obama has taken a giant step away from a prospective solution.


Capable, intelligent, pragmatic, and sincere? Are you kidding me? Those terms usually are not consistent with socialism. You might want to study up a little.

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How to kill a democracy

Sep 25, 2009 17:27 UTC

The Tax Foundation does the math:

New reports from the Tax Foundation show that President Obama’s policy proposals will increase the financial dependence of middle-income Americans on the federal government.

“Attempts to put ‘price tags’ on health care and cap-and-trade proposals vary among government agencies and think tanks,” said Tax Foundation President Scott Hodge, “but one vital question has been left unanswered: Counting all federal taxes and spending, how would these policies affect American families’ financial ties to the government? The foundation’s new ‘fiscal incidence model’ answers that question.”

“Currently the bottom 60 percent of the income spectrum receives more in federal spending than they pay in federal taxes,” said Hodge. “By 2012, if President Obama’s proposals on taxes, health care and climate change become law, the bottom 70 percent of American families will, as a group, be receiving more in federal spending than they pay in federal tax.”

Even if none of Obama’s policies becomes law, the extent of current income redistribution is remarkable: The top-earning 40 percent of families will transfer $826 billion to the bottom 60 percent in 2012. If Obama’s policies become law, the federal government will redistribute nearly $1 trillion from the top-earning 30 percent of families to the bottom 70 percent (those earning up to $109,000).

Me: I don’t think this is either a) sustainable, b) good for future economic policy or c) good for American democracy


probably because it
a)will eventually eat up the 61st %’s wealth so they rely on the government, then the 62nd, then the 63rd…
b)removes incentive to be in the top 40%, and encourages people to stay poor
c)people who need the government to survive would have a hard time voting against the dominant party for fear of losing their entitlements

Can Obama spend US back into prosperity?

Sep 22, 2009 18:07 UTC

Presidents, particularly Democrats it seems, love to try and attach catchy titles to their agendas. FDR’s New Deal and JFK’s New Frontier made for powerful branding. Bill Clinton’s New Covenant, not so much.

Barack Obama seems to be going with “New Foundation,” the title of a big-think economy speech from last spring. As the President said back then with biblical flair: “We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity.”

As a follow up, the White House’s National Economic Council, headed by Lawrence Summers, just released a new white paper that fleshes out how the administration plans to create that “new foundation.” In a post on the official White House blog, Summers says the government needs to take an active role in strengthening America’s “economic ecology.”

But let’s examine the diagnosis before we turn to the prescribed treatment. The most important statistic for analyzing a nation’s economic strength is worker productivity. And since 1995, U.S. worker productivity has increased at a terrific annual rate of about 2.6 percent.

But is that somehow a phony number, a mere derivative of the equity and housing bubbles? The White House doesn’t seem to think so. As economic adviser Jared Bernstein told me recently, “There is nothing that’s changed in the basic underlying productivity and strength of the American workforce and the American economy. [Productivity] remains in that kind of post –’95, elevated, 2 ½ percent range.”

In other words, Obama actually inherited an economy with a pretty solid foundation, though clearly one with some cracks. And don’t forget that despite the financial crisis, the World Economic Forum still recently ranked the American economy as the second-most competitive in the world, far in front of major competitors such as Germany and France.

The key, then, is to build on America’s existing strong foundation of innovation-driven productivity. Summer’s NEC makes a variety of recommendation such as increased government investment in education, infrastructure and basic research. And as long as that spending is limited to the “building blocks” of economic growth as opposed to picking winners, Uncle Sam might actually do some good here.
Unfortunately, the White House has been picking winners in a sort of an ad hoc industrial policy. Maybe the banks were too big too fail, but GM and Chrysler?

And why should the tax code continue to favor the housing sector? Is building bigger homes and vacation getaways the best use of American capital? Yet there is little evidence the White House plans on changing that sector’s privileged position.

And the President continue to favor the idea of high-speed rail, a favorite of unions and green activists, despite numerous studies questioning the economic benefit of such a system in the vast, spread-out United States.

The administration also seems to be making a bet that higher taxes on small businesses, investment and higher incomes will have limited or no negative effect on the nation’s entrepreneurial climate.

Finally, any productivity guru will tell you that perhaps the most important thing a country can do to boost innovation and economic efficiency is keeping markets open. Or to use the favorite phrase of Diana Farrell, former director of the McKinsey Global Institute and now a Summer’s deputy at the NEC, “creating maximum competitive intensity.” Obama’s tire tariff doesn’t seem to qualify as a pro-innovation measure by that standard.

So by all means, repair some bridges and spend more bucks at federal labs. But innovation and productivity involve a whole lot more.



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My chat with White House economic adviser Jared Bernstein

Sep 17, 2009 13:50 UTC

I recently had the opportunity to sit down and chat with Jared Bernstein, the chief economic policy adviser for Vice President Joe Biden. Here are some major excerpts of what Bernstein had to say about healthcare reform, the Obama stimulus, the deficit and the future of the American economy.

You have strong ties to liberals. Is it a public healthcare option or nothing for them?
I think it’s a mistake to think that the progressive community writ large is coming from a position of public option or nothing. People who have been following this for decades recognize the historic opportunity at hand and are much more interested, just like the president, in a mechanism to induce competition and lower cost than one specific option.

The recession is worse than the administration predicted. So shouldn’t the stimulus be bigger?
I think the stimulus had to be big enough to offset what has turned out to be the deepest recession since the Great Depression yet not too big such that it would have fiscal effects that were more than we or the Congress were willing to sign off on. We wanted to craft the largest, most diverse package that the market, both political and …

Are you talking more about voter reaction to big deficits or financial market reaction?
The latter. Our goal, in the context of fiscal rectitude, you want a stimulus that gets into the system, ramps up quickly, gets the job done and gets out. We have a massive job to get done here given the depth of the recession, and therefore we passed the largest stimulus in the history of the country. But that doesn’t give you carte blanche to disregard the deficit impacts. And so getting the recovery act up into the system, ramped up, helping to offset the losses, generate GDP growth, create and save jobs — we are very pleased to see that in action, though we’re not out of the woods yet.

One thing to consider is that at this point we have obligated about 35 percent of the stimulus, so you’ve got two-thirds left to do. And that is really important because this unemployment rate is going to go up before it starts coming down.

There was no conceivable stimulus package that would have filled up the hole we were in. I think the best package any government would have implemented would have offset some of that pain and set up for a robust recovery moving forward. And I think that’s where we are.

So were you seeing the boundaries where any gain from a bigger stimulus would be offset by higher interest rates?
I would say it this way: We went into this with a two year program in mind. We didn’t want this to have long tails such that it would dribble out into years three and four. We wanted to cut significantly the deficit that greeted us at the door in our first term. Given those constraints, a stimulus package of almost $800 billion was as far as we thought we could legitimately push it. So was $787 billion exactly the right amount? Of course no one could say. But from where I am sitting right now, it appears to have been the right size to pull the economy back from the brink, ramp up and then leave the system in such a way as to help bring the deficit down by the end of our first term.

By itself, the stimulus isn’t a huge addition to our overall liabilities.
If you look at the fifty-year budget shortfall, the recovery act explains three percent. Clearly that is being driven by something else and that something else is healthcare.

Do you think the economy is suffering from what economists call hysteresis, such that the economy has snapped and we’ll get long-term, high unemployment? After all, it’s not like people can go back to being mortgage lenders or working for the Big Three in vast numbers.
I don’t think so. Some of what you are describing is a speculative bubble, and that is something we don’t want to get back to. But there is nothing that’s changed in the basic underlying productivity and strength of the American workforce and the American economy. [Productivity] remains in that kind of post –’95, elevated, 2 ½ percent range and has been a real important boost for the economy.

The president has said that this next expansion can’t be one built on froth and bubbles and excessive speculation and has to built on innovation. And one of the areas he touts in that regard is energy. That is a critical insight, and historically government has played a role in precisely moments like this in helping to incentivize and stimulate innovation, whether it’s railroads or transistors or the Internet or, now, green technologies.

We want to make sure the right incentives are in place for the market to move in that direction. But this president is not at all engaged in five-year plans. This is incentives, say, through the tax code like the investment tax credit. This is training programs and education programs to give people the skills they need to enter this sector. This is not the government creating these sectors by any means. This is the government incentivizing private capital.

When should people begin to really worry about the federal budget deficit, if not now?
There are times to worry deeply about the deficit and times to worry deeply about the economy. But if the economy is not moving strongly in the right direction, the deficit will suffer as a result. If there is something out there that is potentially creating a huge kink in the hose so that the economy just can’t reach its natural potential, you better deal with that kink — and that’s healthcare One of the great visions of this president is that he’s not waiting until healthcare is absorbing 30 percent of our economy. He’s trying to get a jump on this. It is an absolutely critical piece in unleashing the potential of the economy.There is no way you are going to rationalize your debt in the long run if your economy is in the kind of shape it would have been in if we hadn’t taken these steps to get from where we were, barreling toward the cliff, to a point where the private sector kicks in, takes over and we fade out.

But will government have to spend a lot more money on transforming the economy?
We spend about $8 billion on high-speed rail and a similar amount on the grid. You don’t build a a high-speed rail system or a smart grid in the United States of America for that amount of money. What you do make is a downpayment and create some first move advantage — you sink some of the sunk costs, you incentivize private-sector capital sitting on the sidelines that may be waiting to see where this is going. That is the role of government, not to build this stuff by ourselves.

What about a second stimulus?
We envision a public sector that kicks in when the private sector is on the mat, and then we get out of the way. But our work is nowhere near done until we have robust monthly job growth. I was asked if we were happy about that 200,000 monthly job loss. We’ll be happy when we’re adding 200,000 jobs. It’s natural to ask if we are going to need a second stimulus. It is simply too early to say. None of us have a crystal ball and none of this inconceivable. But I get the sense that when the stimulus fades, we should get the private sector kicking in and picking up the slack as the public intervention unwinds. If that is the case, we won’t need a second stimulus. And if it’s not, that is something we’ll have to look at.

How would you divvy up credit for avoiding an outright depression between the Federal Reserve, the stimulus and the economy naturally bouncing back?
The way to think about the interventions is that they attack different parts of the problem. The financial interventions have really helped to begin to thaw the credit markets. But supply without demand is like being dressed up with nowhere to go. So the recovery act created more money for consumers through tax cuts and other payments and the direct infrastructure spending. So I think it’s the combination of helping to loosen the log jam of credit while at the same giving a real solid Keynesian boost on the demand side. They both played a considerable role.

Despite the economy stabilizing, unemployment is still high and home values are still way down. Plenty of folks are pretty worried about the future. What should they know?
The president and vice president understand what folks like that need, which is a vibrant private sector economy where credit flows freely, responsibly, transparently — but an economy where growth is not about asset bubbles that serve the precious few but much more broadly-shared prosperity. This administration is devoted to boosting human capital — the education and training people need — but at the same time incentivizing investment in areas where this economy has to grow — green technologies, healthcare , the smart use of energy, advanced batteries. These are the growth sectors of the future. The government can’t and has no desire to run these sectors. But we can certainly play a role. Hopefully that gives people hope that their leaders get it. But I don’t expect people to feel better about this economy until a) it is growing and b) they are share in the growth.


Dear Bernstien:

Previously, I had forwarded some documents to your supervisors. To no avail. niether has had the audacity to correspond. Today, I stand before you and ask you to inquiry about Omerta’s Business Plan/ Proposal for the stimulas package. Such was mailed to President Obama: CERTIFIED MAIL 7009 1410 0001 7575 7839: and Secretary Duncan: CERTIFIED MAIL 7009 0960 0000 2313 9568. Such proposal is only requesting what am I missing in oreder to be granted a portion of the stimulus. Please, findtime to let me know the circumstances of this matter.

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Obama forgets to talk about unions when speaking to union

Sep 15, 2009 16:53 UTC

It was at this point during the president’s Ohio speech to GM workers today that I thought he was going to talk about card check: “And yes, just in case you were wondering …”

But instead he talked about this:

… we are fighting for an America where no American should have to worry about going without health insurance or fear that one illness could cost them everything. “

Me: Not a good sign for card check, or unionism in general, I would think. I mean, he doesn’t even mention the word “union” — at least in his prepared text.


Very well put. He stated that “we” are fighting for…. I don’t know who “we” are, but it’s not me. After his congressional speech failed miserably last week, I don’t think we have to worry about the government taking control of our healthcare any time soon.

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Will Obama kill all the Bush tax cuts?

Sep 7, 2009 15:11 UTC

Might the POTUS get rid of all the Bush tax cuts, even the ones for the middle class? Larry Summers certainly has hinted at this. And I missed this one from the WaPo a couple of weeks back:

As president, Obama has called for maintaining some of those policies –he would extend some of the Bush tax cuts beyond their 2010 expiration date, for example. But in light of the new deficit figures, Orszag hinted that Obama may revisit some of those decisions when he submits his next budget in February.“Whatever their cause, the administration is very concerned about those outyear deficit figures,” Orszag said, “and getting those deficits under control is a top priority of this administration.”


In recent history the government spends beyond its receipts and turns to the taxpayer and tells him it is his fault because he isn’t paying enough. The answer in Washington and the state capitals is always the taxpayer must pay more tax, work harder, volunteer more and cut back on his lifestyle.
It is time for the taxpayer to tell Washington and their states that we pay too much, it is time for government to cut its lifestyle, quit building grandiose legacies to themselves, serve the people and lift the burdens they keep strapping on people’s backs.
The so called social welfare programs even place great burdens on the backs of the people they are supposed to help. They hold these people down while distributing the cost burden to the producer.
It is enough: it is time to free this people from the gifts of government. Let government protect us from invasion and let us make our living and our choices without their interference.

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