In a 75-minute meeting Sunday night, President Obama once again demanded that more than $1 trillion in tax increases be part of any deficit reduction package attached to a vote on the debt ceiling. In the session, Obama rejected a Republican proposal to seek $2.5 trillion in spending cuts and reforms, and insisted on higher taxes on businesses and wealthy individuals.
It’s a curious position, given the anemic economic growth and rising unemployment. And it’s even more curious considering that Obama himself has warned about the deleterious effects of raising taxes in a struggling economy.
In August 2009, on a visit to Elkhart, Indiana to tout his stimulus plan, Obama sat down for an interview with NBC’s Chuck Todd, and was conveyed a simple request from Elkhart resident Scott Ferguson: “Explain how raising taxes on anyone during a deep recession is going to help with the economy.”
Obama agreed with Ferguson’s premise – raising taxes in a recession is a bad idea. “First of all, he’s right. Normally, you don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes. So I guess what I’d say to Scott is – his economics are right. You don’t raise taxes in a recession. We haven’t raised taxes in a recession.”
Todd reminded Obama that he had promised to raise taxes on “some of the wealthiest” Americans.
Obama responded by reiterating his opposition to tax hikes during a recession and making an argument about timing. “We have not proposed a tax hike for the wealthy that would take effect in the middle of a recession. Even the proposals that have come out of Congress – which by the way were different from the proposals I put forward – still wouldn’t kick in until after the recession was over. So he’s absolutely right, the last thing you want to do is raise taxes in the middle of a recession because that would just suck up – take more demand out of the economy and put business further in a hole.”
When Obama warned about the consequences of raising taxes, the economy was moving away from recession—growth in the fourth quarter of 2009 was nearly 6 percent. Today, however, economic growth has slowed to less than 2 percent. Even before the horrible June jobs report, economists were warning about the “substantial” possibility of a double-dip recession. Many others agreed after the news last week. “In addition to the shock value…we need to seriously question whether a double-dip is there,” David Ader, chief treasury strategist at CRT Capital, told CNBC. “I would say it’s back on the table.”
If raising taxes in a recession would be “the last thing you want to do,” wouldn’t raising taxes in a struggling economy teetering on a double-dip be the second last thing you’d want to do?
Obama made a similar argument in December, when he signed the bipartisan tax relief agreement – a deal that maintained Bush tax rates (even for the wealthy) and included additional tax breaks for businesses. “Millions of entrepreneurs who have been waiting to invest in their businesses will receive new tax incentives to help them expand, buy new equipment or make upgrades – freeing up other money to hire new workers.”
If Obama was right and the tax breaks in that deal freed up money for job creators to hire new workers, isn’t the reverse true? Isn’t it the case that new taxes on entrepreneurs and other job creators will leave them with less money to hire new workers? And wouldn’t raising taxes on the “wealthiest” just “put business further in a hole,” as Obama believed just two years ago?
His economics were right. So why the change?