Tuesday, September 20, 2011

Obama's class warfare or just plain fairness?

Business Times - 21 Sep 2011

Obama's class warfare or just plain fairness?

With his debt-reduction plan, he hopes to change the terms of the debate over fiscal policy


AFTER months of urging Congress again and again to start doing something about America's ballooning federal deficit, US President Barack Obama decided that it was time for him to set the agenda and provide some leadership on the issue.

US lawmakers may not be ready to come up with a concrete plan to put America's fiscal house in order. But Mr Obama made it clear on Monday that he had a debt-reduction plan. He challenged Republicans on Capitol Hill and those who are hoping to get him out of the White House next year to a fight over the nation's social and economic priorities.

He framed the debate thus: Who would have to carry the main burden of balancing the budget? The struggling middle class and the poor or the country's millionaires and billionaires?

The plan that Mr Obama outlined calls for a US$3 trillion saving, including US$1.5 trillion in new revenue generated largely by higher taxes on the wealthiest Americans as well as an increase in premiums on the government-backed medical insurance programme for individuals with higher incomes starting in 2017.

'We are not going to have a one-sided deal that hurts the folks that are most vulnerable,' Mr Obama said at a media event in the Rose Garden at the White House during which he offered a strong defence of tax hikes on the highest earners. Cuts in government spending alone 'will not solve our fiscal problems', he said. 'We can't just cut our way out of this hole,' he added.

'It's going to take a balanced approach,' Mr Obama concluded. 'If we're going to make spending cuts - many of which we wouldn't make if we weren't facing such large budget deficits - then it's only right that we ask everyone to pay their fair share.'

And in an indication that he was ready to battle the Republicans by promoting a progressive social-economic agenda while portraying his rivals as the political allies of the rich, Mr Obama promised to veto any debt-reduction legislation that cuts benefits while failing to include higher taxes on the wealthy.

'I will not support any plan that puts all the burden on ordinary Americans,' he said.

The message to the Republicans was concise and clear: I will not support a plan that makes deep cuts in government-financed social-economic program-mes for the elderly, the poor and the middle class without raising taxes on wealthier Americans and corporations.

In the aftermath of the angry partisan exchanges during the negotiations over the debt limit, Mr Obama seemed to have abandoned his gentlemanly approach towards the Republicans. No more talk about a vague 'grand compromise' on the deficit. Instead, the president sounded blunt and specific. He proposed US$310 billion in new cuts to some of the federal healthcare programmes as well as US$270 billion in other cuts in government spending.

But the most contentious part of his plan that is bound to lead to major political and legislative warfare with the Republicans was the proposal for US$1.5 trillion in new tax revenue that would be financed mainly by the wealthiest Americans and corporations.

'Middle class families should not pay higher taxes than millionaires and billionaires,' Mr Obama said, suggesting that he intended to embrace this message during the election campaign next year. 'That's pretty straightforward. It's hard to argue against that.'

And as he drew a sharp contrast between his approach and that of the Republicans, Mr Obama said that he would allow all the 2001 and 2003 tax cuts to expire at the end of 2012 if Congress is not able to reach an agreement on a comprehensive reform of the tax code.

In a way, what Mr Obama is hoping to achieve is nothing less than changing the terms of the debate over fiscal policy from one focused on the need to cut spending on federal social-economic programmes to one that recognises the need to provide for new government revenues by taxing wealthy Americans.

While the Republicans have been trying to mobilise public support by blaming government spending for the nation's economic ills, Mr Obama wants Americans to pay more attention to the way the current tax system is eroding the standard of living of the middle class while providing even more sources of wealth for the wealthiest Americans and the big corporations.

'Anyone who has signed some pledge to protect every single tax loophole so long as they live, they should be called out,' Mr Obama said. 'They should have to defend that unfairness, explain why somebody who's making US$50 million a year in the financial markets should be paying 15 per cent on their taxes when a teacher making US$50,000 a year is paying more than that, paying a higher rate. They ought to have to answer for that.'

The White House and the Democrats will not succeed in resolving their differences with the Republicans over fiscal policy before next year's election. While Mr Obama and his aides are not excluding the possibility that the Democrats and the Republicans would be able to come up with short-term measures to stimulate the economy, they also want to make sure that voters blame the Republicans' insistence on protecting the interest of their wealthy supporters for the legislative deadlock over the budget in Washington.

The Republicans are confident that voters would blame Mr Obama for failing to accelerate the economic recovery and help create new jobs. They have depicted Mr Obama's plan as nothing more than political histrionics and an attempt to ignite 'class warfare'.

'Veto threats, a massive tax hike, phantom savings and punting on entitlement reform is not a recipe for economic or job growth, or even meaningful deficit reduction,' said Senate Minority Leader Mitch McConnell, in response to the plan outlined by Mr Obama.

'Pitting one group of Americans against another is not leadership,' insisted the Speaker of the House of Representatives, John Boehner, a Republican.

It is too early to predict whether Mr Obama's strategy would succeed in improving his chances of getting re-elected for a second term, or even whether his new message of 'fairness' for the middle class would overwhelm the effective campaign against him and his 'tax-and-spend' policies that the Republicans have been conducting against him. But it is a debate that will be central to next year's elections.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

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