The surprise announcement Monday that President Barack Obama will back a full renewal of the Bush tax cuts is a major turning point for him.
It also is good for the country, and therefore I applaud him for it, especially since he courageously turned his back on the far left in Congress who are angry about his compromise.
Earlier this year, I wrote that renewing the Bush tax cuts would be critical for not only staving off economic disaster, but for Obama’s own re-election.
Indeed, had he moved to renew those tax cuts before the last congressional election, I believe the Democrats would not have suffered the humiliating setback they witnessed at the polls this past November.
Apparently Obama has learned his lesson.
His compromise deal with the Republicans is a fair one, renewing the cuts for all income tax brackets while keeping the 15 percent rate for capital gains and dividends.
He also agreed to cut payroll taxes temporarily. The GOP, in turn, agreed to extend unemployment benefits.
The Founding Fathers constructed a simple and profound system that promotes the idea of compromise. We are seeing this system at work now.
It is fair to say that the White House and congressional Democrats discarded compromise to push through the 2009 stimulus bill, now costing the public a staggering $800 billion-plus.
They later rammed through a gargantuan national healthcare system, breaking long-standing Senate rules on filibusters and reconciliation.
The Democrats have been quick to say that the Republicans have not been interested in compromise. This is only partly true.
Only after congressional Republicans were locked out of any input on both the stimulus and national healthcare did they decide to balk at later Obama overtures. Instead, they wisely decided to wait for the public to offer their judgment at the polls in November.
The people’s verdict was delivered.
My Republican sources tell me they were in fact anxious to work with the new president and congressional Democrats in crafting a stimulus program back in 2009. But the Republicans would have backed a program that was scaled down, something in the $500 billion to $600 billion range. They would have agreed to Obama’s plan for tax credits for lower-income workers and even the bailout to states and localities. In exchange, they wanted a much larger housing tax credit for home buyers and across the board tax cuts, as well as corporate tax credits — all to spur private-sector job creation.
The record is clear that Obama and the Democratic leadership would have none of it.
The result was that the mammoth stimulus bill did little to stimulate additional economic growth over the past two years.
But it was not a complete loss. It did keep unemployment from rising, largely by keeping government employees on the payroll.
Edward Leamer, a respected economist at UCLA’s Anderson School, told Newsmax that, in his estimation, only about $10 billion of the $800 billion of stimulus has actually stimulated the economy – largely a result of the relatively paltry $8,000 new homeowner tax credit included in the Obama bill.
So conservatives are wrong when they say the stimulus didn’t work. It worked by keeping the economy from declining precipitously. Nevertheless, the economy has stagnated, and chronic total unemployment still hovers at around 17 percent.
This recent olive branch from President Obama shows the president has turned over a new leaf. It demonstrates, for the first time, he is not encased in an ideological straitjacket, but open to pragmatic compromise.
The next step is for both parties to hammer out a plan to save the teetering U.S. economy.
The extension of the Bush tax cuts does little to stimulate the economy, as it mostly maintains existing tax cuts.
The Republicans, backed by the tea party movement, are quite focused on cutting federal spending, dramatically and across the board.
I have suggested, to the consternation of some, that draconian cuts now could throw the fragile economy over the precipice.
What Congress needs to do is promote legislation that grows the economy. More tax cuts are key and should be the number one priority.
Spending should be dealt with as part of a medium term restructuring plan. For sure there are billions in domestic and military spending that could be cut immediately.
But such cuts should be offset by equal or larger cuts in taxes for individuals and corporations. Today, individual Americans and our corporations are among the most taxed in the world. How can we spur economic growth under such conditions?
We can’t. Growth is key.
If a recovery were to take place, it’s vital for Washington to follow the example of both Ronald Reagan and Margaret Thatcher. Both avoided radical spending cuts. Instead, they focused on cutting the rate of growth of federal spending.
As the economy grew, government spending as a percent of GDP shrank and each nation’s debt became less burdensome.
Now is not the time for ideological drumbeating. The current recession is now the longest in U.S. history since the Great Depression.
If we act together, as the Founding Fathers envisioned, the system will work and economic calamity will be avoided.
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