by Eric Martin
At some point in tonight's debate, John McCain will falsely accuse Barack Obama of planning to raise taxes on most, if not all, Americans (I expect a rehash of the debunked tax raise on families earning over $42,000 claim - McCain's not one to let fact checkers interrupt his flow). McCain will follow this allegation with a plaintive warning to the American people that raising taxes costs jobs. "We know this," McCain will say with saddened expression.
Obama should take a cue from Bill Clinton's convention speech on how to answer. An oversimplified list of points to hit: First, Obama should set the record straight quickly about the true nature of his tax plan: cuts for the middle and working classes, taxes increases for the wealthiest tax bracket.
Then Obama should remind people about the last time the GOP tried to scare the public about a presidential candidate that would, supposedly, raise taxes and in the process lose jobs. It was 1992, and the candidate was Bill Clinton. Republicans said Clinton's plan was going to wreck the economy. But Bill Clinton raised taxes on the wealthy, cut taxes on the middle class, and the economy boomed like never before (exaggerated for effect). This helped to balance the budget and create a surplus.
Eight years later, a new Republican candidate appeared on the scene who said that the way to create jobs and keep Bill Clinton's strong economy going was to give the wealthiest Americans massive tax cuts, while leaving the middle and working classes out. He said tax cuts wouldn't widen the deficit. That candidate was George Bush. Those policies did not work, and today we are experiencing the culmination of eight years of that approach.
John McCain wants to continue the Bush administration's economic policies of giving massive tax cuts to the wealthiest Americans, while trying to scare the American people about a Democratic candidate's plan for the economy...[INSERT CONCLUSION]
Obama would be well served by attempting to reveal these "tax raising/lost jobs" charges for what they are: scare tactics that mask a dysfunctional economic policy that has been driven by two, and only two, ideas for the past quarter of a century (tax cuts for the wealthiest, and widespread deregulation). These dual panacea are evoked regardless of the changing context and exigencies, and regardless of the ability of these sacrosanct principles to generate a strong economy.
For example, early on in Bush's tenure, the argument to cut taxes was based on a strong economy: there was a danger of paying off the debt too quickly and, when there is a surplus, the money should be doled out via tax cuts. When the economy took a downturn, then the need to provide a stimulus was used to justify another round of tax cuts. When the economy continued to sag, a stimulus package of tax cuts was prescribed by GOP physicians. Most recently, in response to a credit market crisis, the GOP thought long and hard about the complex nature of the problem and decided upon...more tax cuts!
The results have been consistently underwhelming. But that's to be expected from an economic policy that refuses to account for the complexity of obstacles and refuses to adapt to changing circumstances. Francis Fukuyama (my favorite recovering neoconservative) discusses this narrow minded fetishism in an interesting piece in Newsweek. These paragraphs are relevant to the current post (and the rest of the piece is worth the read):
Ideas are one of our most important exports, and two fundamentally American ideas have dominated global thinking since the early 1980s, when Ronald Reagan was elected president. The first was a certain vision of capitalism—one that argued low taxes, light regulation and a pared-back government would be the engine for economic growth. Reaganism reversed a century-long trend toward ever-larger government. Deregulation became the order of the day not just in the United States but around the world. [...]
Prior to the 1980s, conservatives were fiscally conservative— that is, they were unwilling to spend more than they took in in taxes. But Reaganomics introduced the idea that virtually any tax cut would so stimulate growth that the government would end up taking in more revenue in the end (the so-called Laffer curve). In fact, the traditional view was correct: if you cut taxes without cutting spending, you end up with a damaging deficit. Thus the Reagan tax cuts of the 1980s produced a big deficit; the Clinton tax increases of the 1990s produced a surplus; and the Bush tax cuts of the early 21st century produced an even larger deficit. The fact that the American economy grew just as fast in the Clinton years as in the Reagan ones somehow didn't shake the conservative faith in tax cuts as the surefire key to growth. [...]
The second Reagan-era article of faith—financial deregulation—was pushed by an unholy alliance of true believers and Wall Street firms, and by the 1990s had been accepted as gospel by the Democrats as well. They argued that long-standing regulations like the Depression-era Glass-Steagall Act (which split up commercial and investment banking) were stifling innovation and undermining the competitiveness of U.S. financial institutions. They were right—only, deregulation produced a flood of innovative new products like collateralized debt obligations, which are at the core of the current crisis. Some Republicans still haven't come to grips with this, as evidenced by their proposed alternative to the bailout bill, which involved yet bigger tax cuts for hedge funds. [...]
Still, another comeback rests on our ability to make some fundamental changes. First, we must break out of the Reagan-era straitjacket concerning taxes and regulation. Tax cuts feel good but do not necessarily stimulate growth or pay for themselves; given our long-term fiscal situation Americans are going to have to be told honestly that they will have to pay their own way in the future. Deregulation, or the failure of regulators to keep up with fast-moving markets, can become unbelievably costly, as we have seen. The entire American public sector—underfunded, deprofessionalized and demoralized—needs to be rebuilt and be given a new sense of pride. There are certain jobs that only the government can fulfill.
Reminding people of the contrast between the economy of the Clinton years and the economy of the Bush years would be wise. Especially in the context of shooting down the same GOP scare tactics that were mustered in 1992 to convince Americans that Clinton's policies would wreak the type of economic disasters that the GOP has actually brought about.
While Obama's facing a familiar line of attacks that have proven succesful in the past, he has the advantage that history - recent history - is on his side. Use it.
[UPDATE: More on the Fukuyama piece from Cernig, though he focuses more on the foreign policy half of Fukuyama's thesis.]