From the August 24, 2008 Sunday Times (London)
August 26, 2008
by Irwin Stelzer
Pity your poor correspondent. While you are reading this I am working my way through Denver airport — on the very day that thousands of Democrats are descending on this mile-high city to attend their convention (party conference) and crown the media’s adored Barack Obama as their man to take on John McCain in the fight for the White House.
Some are in an ebullient mood, others are in need of what Hillary Clinton calls “catharsis”. They are her defeated troops, sullen not only because they lost, but because they are convinced the media and the structure of the primary system tilted the playing field unfairly against their candidate. Hell hath no fury like a Clinton — or Clinton supporter — scorned, so some of Hillary’s troops say they will sit out the election battle.
To dissuade the Clintonites from a course of action that could tip the election to McCain, Obama caved in and agreed to allow Clinton’s name to be placed in nomination at the convention, gave her a prime-time speaking slot, and put icing on the cake by giving her husband another prime spot on the following night, leaving Joe Biden, the poor vice-presidential nominee, with the unenviable chore of following that showman.
We now know what Obama has in store for the American economy. Let’s start with energy. His is the traditional Democratic tilt in favour of renewables, ethanol and conservation. But with the polls showing that more than 70% of Americans favour opening offshore America and federal lands to drilling, Obama panicked. He now says he will go along with a comprehensive deal that includes new taxes on oil companies in return for a relaxation of restrictions on offshore drilling, so long as it is done in an environmentally sensitive way, which means that there will be no offshore drilling. Environmental groups, armed with a cadre of lawyers skilled at drawing out procedures for granting drilling permits, can stall development at least for a decade.
As for nuclear, Obama says he does not oppose building new plants so long as the waste-disposal problem is solved. Which he makes sure it will not be by opposing the opening of the Yucca Mountain nuclear waste repository in Nevada. All in all, Obama’s plan to get America off foreign oil in 10 years is no plan at all. Solar, wind and corn are no match for Saudi oil when moms fill their tanks en route to picking up the kids at school.
More likely to become reality are Obama’s plans to radically alter the nation’s tax structure. He wants to satisfy two constituencies. The first is the broad middle class, which he defines as families earning less than $250,000 a year, and individuals earning less than $200,000. The second is the business community, whose leaders are a source of funds, a flow of economic information, and whose support reassures voters that a candidate, especially one from the left-leaning Democratic party, is not likely to lay rough hands on the American economy.
To satisfy the first constituency Obama plans to redistribute wealth from the “rich” to the middle class. The top tax rate will go from 36% to 39.5%. Tax rates on dividends and capital gains will rise from 15% to 20% on individuals who are making more than $200,000 a year and on families earning more than $250,000, and 10 years hence payroll taxes on earnings above $250,000 will rise significantly. The estate tax would rise to 45% on estates that are valued at more than $7m per couple.
In addition to funding a variety of programmes — renewable-energy and infrastructure projects are on a long list — the money raised would go to individual workers ($500 each) or working couples ($1,000) and, to quote his economic advisers Jason Furman and Austan Goolsbee, to fund tax cuts for “low- and middle-income seniors, home- owners, the uninsured and families sending a child to college or looking to save and accumulate wealth”. Just about everyone, it seems, except for the high- earning businessmen that make up the second constituency Obama is wooing. For them, higher taxes are in store.
But for the captains of industry whose endorsement Obama seeks — he recently held a private “I’m here to listen” lunch with the chief executives of Ford, JP Morgan Chase, Aetna and half a dozen other company bosses — such tax rises are unlikely to affect their standard of living. All are well paid; none would suffer if tax rates were raised, especially since pliant boards are often ready to make up any losses. And for the prize catches of all — the likes of Warren Buffett, Bill Gates and hedge-fund managers and private-equity entrepreneurs — the tax increases won’t put a dent in their petty-cash drawers.
What the Illinois senator has not considered is the effect of his plan on the macroeconomy — among other things, on small entrepreneurs’ willingness to take risks for the lower after-tax returns that will be on offer by an Obama administration. But that is of less concern to him than “fairness”, the lodestar he has chosen to follow as he leads America into a new era.
Obama is getting a more-than-respectful hearing, despite his populist calls for a windfall tax on oil companies, his protectionist opposition to Nafta (the North American Free Trade Agreement) and other trade deals, and his support for legislation to eliminate the secret ballot in union-recognition elections. After all, McCain might be a staunch supporter of free trade and low taxes, but he has attacked both big oil and big pharma for what he considers extortionate prices, and often taken stands uncongenial to big business. “Unpredictable,” the titans mutter, shaking their heads and zipping their wallets.
Whether Obama can bring big business, the super rich and middle class into his coalition, to offset his weakness with the lower-income, blue-collar workers who preferred Hillary Clinton’s earthiness — a shot and a beer — to Obama’s metropolitan chardonnay- and-cheese, we will find out not in Denver, but 72 days from now, when the ballots are cast — unless the counting takes as many weeks as it did in 2000.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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