When Dan Pfeiffer, a senior adviser to President Obama, spoke at a Politico event last week, he was asked what would constitute success in 2013 for the White House. One of his answers was making headway to “rebalance our economy.” The goal, he said, is an economy that’s “not top down.”
Like their boss, Obama aides often speak in euphemisms. So here’s the translation: The Obama administration will continue to pursue redistribution of wealth and income, taking from the well-to-do and giving to the poor and middle class (at least to the lower middle class).
The president has his own way of touting redistribution. Whenever he uses the word “fair,” you can bet he’s really referring to redistribution. He talks of everyone getting a “fair shake” and a “fair shot.” In his State of the Union address in February, he insisted economic growth requires “everybody doing their fair share.” In his inaugural speech in January, he said a free market “only thrives when there are rules to ensure competition and fair play.”
But Obama’s emphasis on redistribution and his policies to further it create a problem that he either doesn’t recognize or, as I suspect, chooses to ignore. He insists economic growth is his “top priority.” Redistribution, however, is not the friend of growth. It impedes growth.
The most effective tool in spurring growth is private investment. Obama may not like it, but major investors tend to be well off. They have money to invest. Rather than encourage them to invest in growth and jobs, Obama does the opposite. By raising their taxes and leaving a strong impression he’d like to raise them even more, he discourages investment.
In the fiscal cliff deal, Obama not only hiked the top rate on individual income, he increased the tax rates on two incentives to invest, capital gains and dividends. In addition, in Obamacare, he imposed a new tax specifically on investment income. In effect, Obama is waging a war on investment.
“He’s not a pro-saving, pro-wealth president,” says Douglas Holtz-Eakin, the former director of the Congressional Budget Office. “So he can’t be pro-growth.”
Obama says he’s eager for bipartisan tax reform. And if he favored the traditional method of overhauling the tax code, that would put him on the side of growth. But instead of wiping out tax preferences and loopholes to broaden the base and lower tax rates, Obama wants to get rid of special breaks as a way to jack up tax revenues. Incentives for growth? Forget it.
The president has also endorsed entitlement reform. And at the Politico gathering, Pfeiffer boasted about Obama’s endorsement of “chained-CPI.” It would recalculate the rate of inflation and slightly restrain annual cost-of-living adjustments in entitlements, notably Social Security. “That is on the table and waiting for someone to come to take it,” Pfeiffer said.
There’s a reason no one has jumped at the chance. Obama’s price is sure to be high. As part of a deal on entitlements, Republicans would have to accept still-higher taxes. We don’t have to guess from whom Obama would want those revenues to come. On top of that, Pfeiffer suggested the well off would be expected to pay higher premiums for Medicare.
That deal might be worthwhile if chained-CPI would affect entitlements significantly. It wouldn’t. Social Security and Medicare are projected to spend more than $18 trillion over the next decade. According to Holtz-Eakin, chained-CPI would trim that by $280 billion, which he calls no more than a “rounding error.”
Obama’s own ideas for promoting growth indicate he’s a slow learner. He’s bent on pursuing the same policies that have produced the slowest economic recovery since World War II. The recession ended in June 2009, yet the economy has struggled with GDP growth averaging around 2 percent (only 0.4 percent in the fourth quarter of 2012).
The result is scary, as John Cassidy outlined in Fortune. Since the recession began in 2008, the working population—those employed or looking for jobs—has increased by 12.2 million. But in five years, the number of jobs has grown by only 1.4 million. Indeed, participation in the labor force actually shrank from 66.2 percent of the civilian population in January 2008 to 63.5 percent in February 2013.
In the face of this, Obama is proposing to pour money into roads, bridges, and other infrastructure. “There are few more important things we can do to create jobs right now and strengthen our economy over the long haul than rebuilding the infrastructure that powers our businesses and our economy,” he said in Miami in March.
Sorry, but there are many more important things. The roads and bridges panacea has never led to robust growth. It didn’t when the president and Democrats made it part of the $800 billion “stimulus” in 2009 and it’s unlikely to do so now. But it does thrill a Democratic interest group, organized labor.
There’s one more part to Obama’s current plan to increase growth, a punitive one. He would eliminate tax breaks for companies that send jobs overseas. The White House says Obama wants to lower the tax rate for manufacturers here to 25 percent from 35 percent. Manufacturers shouldn’t hold their breath. He’s been advocating a corporate rate cut for years, but done little to enact it.
Meanwhile, spending on food stamps and disability payments has soared. And later this year, Obamacare is to arrive in full force. It is supposed to give families earning as much as $80,000 a year a subsidy to buy health insurance.
Obama has paid practically no political price for redistribution and slow growth. He still talks about fixing the economy as if no one should have expected anything better. The public hasn’t rebelled, and Republicans have failed to make growth a salient issue. It’s time they did.