Obama the Silent Tax Cutter
The one thing most voters know about President Obama is that he wants to raise taxes on wealthy individuals and corporations. Republicans have blocked him at every turn, but he continues to talk about changing public policy so that billionaires pay more.
Obama has invested so much time demonizing the Bush-era tax cuts for the rich that he has obscured the true narrative of his presidency. Class-war rhetoric aside, Obama is one of the most prolific tax cutters in recent history, with a record that puts him squarely alongside that of George W. Bush.
Crunching the numbers at the liberal think tank the Center for American Progress, analyst Michael Linden found that if one compares the cost of tax cuts in just the first four years of Bush’s term (2001–04) to the first four years of Obama's (2009–12), Obama’s tax cuts are bigger. The value of the Bush tax cuts were about $475 billion in those first four years, or about 1.1 percent of GDP. Obama’s total about $1 trillion, or 1.6 percent of GDP.
Obama has cut taxes to lower levels than Bush did, says Linden. This is because, of course, Obama thus far has extended all of the Bush tax cuts and then cut taxes on top of that. His original stimulus bill in 2009 had $290 billion in Making Work Pay tax cuts. His speech Thursday night before Congress advocated for another $175 billion in payroll tax cuts, which come on top of $110 billion from last December’s budget deal. Speeded-up expensing for business adds another $10 billion or so.
All in all, Obama is responsible for many billions in tax cuts, yet the popular perception is that he has raised taxes.
“It drives me crazy,” says Michael Ettlinger, vice president for economic policy at the Center for American Progress. “People have this bizarre notion he’s raised taxes when he’s a big tax cutter.” Ettlinger says the White House is guilty of “political malpractice” by getting caught up in a discussion about extending the Bush tax cuts when rhetorically it could have focused on extending the Obama tax cuts in the Recovery Act that were expiring at the same time.
Unlike the Bush tax cuts, which were served up in a single wallop on April 15, the Obama tax cuts are what economist Jared Bernstein calls “slow drip.” Paychecks fluctuate enough that workers didn’t really notice the boost in take-home pay of roughly $1,000 over the year. In three months, if Congress does nothing to extend the payroll tax cut, every paycheck will shrink, a message Obama will be taking to the voters as he presses for passage of the American Jobs Act.
Obama may finally have beaten Republicans at their own game. A party that prides itself on advocating for tax cuts will have a hard time lining up against the extension of the payroll tax and other business sweeteners larded into the jobs bill. Obama’s embrace of tax cuts seems to fly in the face of Democratic orthodoxy, but liberal economists say the president’s approach has been much more strategic and is about trying to get money into the pockets of the middle class to boost the economy.
“It doesn’t come from the same place as Bush or Reagan, whose economic philosophy is no tax is a good tax, and that particularly targeted tax cuts for wealthy individuals and corporations brought good things,” says Chuck Marr, director of federal tax policy at the Center for Budget and Policy Priorities.
Obama doesn’t get credit for the tax cuts he has put in place, in part because he hasn’t cut income taxes broadly, as Bush and Reagan did. There’s also what economist Bernstein calls the Republican noise machine. Bernstein was at the White House working for Vice President Biden until earlier this year, and he points out how the Republicans are always complaining about the high corporate tax rate, which was in place well before Obama took office. “It has nothing to do with President Obama, but people associate it with him,” says Bernstein.
The political branding of Obama as just another tax-and-spend liberal has been effective, despite facts that tell a different story. The GOP portrays the health-care reform legislation as a job-killing bill that raises taxes. Repealing the Affordable Care Act is a centerpiece of every Republican’s campaign rhetoric. The legislation does raise taxes but not until 2018, and then on taxpayers who earn more than $250,000. There will also be a tax on so-called Cadillac care, or insurance plans that cost $25,000 or more. “Republicans act as if it started yesterday and hit everybody,” says Bernstein.
Maybe that’s the rub. Obama may be a bigger tax cutter than Bush for the moment, but looking ahead 10 years, as the Center for American Progress did, if you take all of Obama’s specific proposals and add them up, his total net tax cuts come to about $2.2 trillion, less than the $2.3 trillion cost over 10 years of the Bush tax cuts. Based on Obama’s Thursday night speech and positions he has taken before, the president sees tax cutting as a temporary tool to get the economy going again, not as an economic philosophy.