Robert B. Reich's Blog, page 155

Why Democrats Should Disregard Bill Clinton's Endorsement of Obama's Tax Deal

Bill Clinton seems the perfect validator for Barack Obama — which is why the President is utilizing the former president for selling his tax deal. After all, the economy boomed when Clinton was president and 22 million net new jobs were created. What's more, Bill Clinton was reelected — even though he lost both houses of Congress in the 1994 midterms.

But the analogy falls apart as soon as you realize Clinton's economy was vastly different from Obama's. The recession Clinton inherited was relatively small, and caused by the Fed raising interest rates too high to ward off inflation. So it could be reversed by the Fed lowering interest rates — as the Fed did in 1994. By 1995, the so-called "jobless recovery" had morphed into a full-blown jobs recovery. By 1996, at pollster Dick Morris's urging, Clinton could proclaim to the American people "you've never had it so good, and you ain't seen nothing yet."

The Great Recession has been far larger, caused not by the Fed raising interest rates but by the bursting of a giant housing bubble. In 2008, the biggest asset of most middle-class people, upon which they borrowed and that they assumed would be their nest eggs for retirmenet, collapsed. Housing prices continue to fall in most parts of the country. The Fed has lowered interest rates all it can, and unemployment remains sky high.

Bill Clinton presided over an economic boom engineered by Fed chair Alan Greenspan, who felt confident he could drop interest rates far lower than anyone expected without risking inflation. The result was 4 percent unemployment in many parts of America, as well as the best jobs recovery in history.

The price Greenspan exacted from Clinton — and a resurgent Republican congress demanded — was a balanced budget. As a result, Clinton had to give up much of his "investment agenda" in education, infrastructure, and other long-neglected means of building the productivity of average working Americans. The economy enjoyed a huge cyclical recovery.

But the economy's underlying structure remained as it had been before, including stagnant wages for most Americans. Within a few years the middle and working class was treating their homes as ATMs, borrowing trillions of dollars in order to maintain their standard of living, and at the same time demand enough goods and services to keep almost everyone in jobs.

Those days are over. The Democratic Party can no longer ignore critical investments in the productivity of average workers. Nor can it ignore the increasing concentration of income and wealth at the very top, and the inability of America's middle and working class to get the economy moving again.

The GOP hasn't changed their story or their strategy since the 1990s. It's the fault of big government. That was false then, and it's false now. The structural problems are now much worse, and the cyclical recovery from the Great Recession pathetically anemic.

If the Democratic Party has stood for anything over the years it is to maintain and restore upward mobility for the majority of working Americans, ensure that the playing field isn't tilted in the direction of the privileged, and limit the power of the richest among us to entrench themselves and their heirs into a semi-permanent plutocracy.

Continuing the Bush tax cuts of 2001 and 2003, including a sharp cut in the estate tax, violates these core principles. Doing so in the midst of an economic emergency that demands bold measures to rescue America's vast middle and working class adds further insult. For President Obama and former President Clinton to tell America there's "no other choice" or that "this is the best we can do" — when Democrats remain putatively in control of the House, Senate, and the presidency — is misleading.

I admire Barack Obama and Bill Clinton. I advised the former and worked for the latter. They are good men. But they have either been outwitted by the privileged and powerful of America, or seduced by those on Wall Street and the executive suites of America into believing that the Republican nostrums are necessary, or succumbed Democratic advisors who think in terms of small-bore tactics rather than large and principled strategies.

I urge congressional Democrats to remember the larger principles — not in order to be purist or make the perfect the enemy of the better, but to move toward an economy and a society that we believe in, that reflects the needs of the vast majority of Americans at this difficult time.

Why Bill Clinton's Favorable View of Obama's Tax Deal Should Be Disregarded

Bill Clinton seems the perfect validator for Barack Obama — which is why the President is utilizing the former president for selling his tax deal. After all, the economy boomed when Clinton was president and 22 million net new jobs were created. From a more narrow political perspective — and this is important to Democrats in Washington — Bill Clinton was reelected, even though he lost both houses of Congress in the 1994 midterms.

But the analogy falls apart as soon as you realize Clinton's economy was vastly different from Obama's. The recession Clinton inherited was relatively small, and caused by the Fed raising interest rates too high to ward off inflation. So it could be reversed by the Fed lowering interest rates — as the Fed did in 1994. By 1995, the so-called "jobless recovery" had morphed into a full-blown jobs recovery. By 1996, at pollster Dick Morris's urging, Clinton could proclaim to the American people "you've never had it so good, and you ain't seen nothing yet."

The Great Recession has been far larger, caused not by the Fed raising interest rates but by the bursting of a giant housing bubble. In 2008, the biggest asset of most middle-class people, upon which they borrowed and that they assumed would be their nest eggs for retirmenet, collapsed. Housing prices continue to fall in most parts of the country. The Fed has lowered interest rates all it can, and unemployment remains sky high.

Bill Clinton presided over an economic boom engineered by Fed chair Alan Greenspan, who felt confident he could drop interest rates far lower than anyone expected without risking inflation. The result was 4 percent unemployment in many parts of America, as well as the best jobs recovery in history.

The price Greenspan exacted from Clinton — and a resurgent Republican congress demanded — was a balanced budget. As a result, Clinton had to give up much of his "investment agenda" in education, infrastructure, and other long-neglected means of building the productivity of average working Americans. The economy enjoyed a huge cyclical recovery.

But the economy's underlying structure remained as it had been before, including stagnant wages for most Americans. Within a few years the middle and working class was treating their homes as ATMs, borrowing trillions of dollars in order to maintain their standard of living, and at the same time demand enough goods and services to keep almost everyone in jobs.

Those days are over. The Democratic Party can no longer ignore critical investments in the productivity of average workers. Nor can it ignore the increasing concentration of income and wealth at the very top, and the inability of America's middle and working class to get the economy moving again.

The GOP hasn't changed their story or their strategy since the 1990s. It's the fault of big government. That was false then, and it's false now. The structural problems are now much worse, and the cyclical recovery from the Great Recession pathetically anemic.

If the Democratic Party has stood for anything over the years it is to maintain and restore upward mobility for the majority of working Americans, ensure that the playing field isn't tilted in the direction of the privileged, and limit the power of the richest among us to entrench themselves and their heirs into a semi-permanent plutocracy.

Continuing the Bush tax cuts of 2001 and 2003, including a sharp cut in the estate tax, violates these core principles. Doing so in the midst of an economic emergency that demands bold measures to rescue America's vast middle and working class adds further insult. For President Obama and former President Clinton to tell America there's "no other choice" or that "this is the best we can do" — when Democrats remain putatively in control of the House, Senate, and the presidency — is misleading.

I admire Barack Obama and Bill Clinton. I advised the former and worked for the latter. They are good men. But they have either been outwitted by the privileged and powerful of America, or seduced by those on Wall Street and the executive suites of America into believing that the Republican nostrums are necessary, or succumbed Democratic advisors who think in terms of small-bore tactics rather than large and principled strategies.

I urge congressional Democrats to remember the larger principles — not in order to be purist or make the perfect the enemy of the better, but to move toward an economy and a society that we believe in, that reflects the needs of the vast majority of Americans at this difficult time.

America's Future in the Global Economy: This Week's Words and Deeds

On Monday, the same day the White House was finalizing its $900 billion tax deal with Republicans, the President gave an important address at a vocational technical school in North Carolina.

It was his clearest statement yet about the challenges America faces in the global economy. The United States has gone from 1st to 9th place among nations in the percentage of its population that graduates from college, he noted. We now rank 24th in the portion of our children who have a high school degree. Our infrastructure is crumbling.

"The most competitive race is between America and our competitors around the world," he said. "In the race for the future, America is in danger of falling behind."

But the President's tax deal makes it harder for the United States to get back on top. By extending the Bush tax cuts to the wealthy, shrinking the estate tax, and freezing discretionary spending (on everything except defense), he's leaving almost nothing for education and infrastructure.

And by embracing deficit reduction while agreeing to $900 billion in tax breaks — the lion's share for the rich — he's making education and infrastructure spending sitting ducks for a Republican congress intent on shrinking the size of government.

The states — many of them broke — are still firing teachers, doing away with pre-school programs, and raising tuitions and fees at public universities. And now that the stimulus is about over, there won't be any more money to rehabilitate the roads, bridges, sewers, and energy systems that are still falling apart all over America.

"We can win the competition," the President said, Monday. His words were inspiring. But his deed that day, approving a tax deal that continues George W. Bush's fiscal policies, makes that goal harder to achieve.

Why the Tax Deal Confirms the Republican Worldview

Apart from its extraordinary cost and regressive tilt, the tax deal negotiated between the President and the Republicans has another fatal flaw.

It confirms the Republican worldview.

Americans want to know what happened to the economy and how to fix it. At least Republicans have a story – the same one they've been flogging for thirty years. The bad economy is big government's fault and the solution is to shrink government.

Here's the real story. For three decades, an increasing share of the benefits of economic growth have gone to the top 1 percent. Thirty years ago, the top got 9 percent of total income. Not they take in almost a quarter. Meanwhile, the earnings of the typical worker have barely budged.

The vast middle class no longer has the purchasing power to keep the economy going. (The rich spend a much lower portion of their incomes.) The crisis was averted before now only because middle-class families found ways to keep spending more than they took in – by women going into paid work, by working longer hours, and finally by using their homes as collateral to borrow. But when the housing bubble burst, the game was up.

The solution is to reorganize the economy so the benefits of growth are more widely shared. Exempt the first $20,000 of income from payroll taxes, and apply payroll taxes to incomes over $250,000. Extend Medicare to all. Extend the Earned Income Tax Credit all the way up through families earning $50,000. Make higher education free to families that now can't afford it. Rehire teachers. Repair and rebuild our infrastructure. Create a new WPA to put the unemployed back to work.

Pay for this by raising marginal income taxes on millionaires (under Eisenhower, the highest marginal rate was 91 percent, and the economy flourished). A millionaire marginal tax of 70 percent would eliminate the nation's future budget deficit. In addition, impose a small tax on all financial transactions (even a tiny one — one half of one percent — would bring in $200 billion a year, enough to rehire every teacher who's been laid off as well as provide universal pre-school for all toddlers). Promote unions for low-wage workers.

But here's the obstacle. As income and wealth have risen to the top, so has political power. Money is being used to bribe politicians and fill the airwaves with misleading ads that block all of this.

The midterm elections offered dramatic evidence. NBC news reported shortly after Election Day, for example, that Crossroads GPS, one of the biggest Republican secret-money organizations, got "a substantial portion" of its loot from a group of extremely wealthy Wall Street hedge fund and private equity managers. Why would they sink so much money into the midterms? Because they've been so strongly opposed to a proposal by congressional Democrats to treat the earnings of hedge fund and private equity managers as ordinary income rather than capital gains (subject to only a 15 percent rate).

In other words, the problem isn't big government. It's power and privilege at the top.

So another part of the solution is to limit the impact of big money on politics. This requires, for example, publically-financed campaigns, disclosure of all sources of political spending, and resurrection of the fairness doctrine for broadcasters.

It's the same power and privilege that got the Bush tax cuts in the first place, and claimed the lion's share of its benefits. The same power and privilege that got the estate tax phased out.

Get it? By agreeing to another round of massive tax cuts for the wealthy, the President confirms the Republican story. Cutting taxes on the rich while freezing discretionary spending (which he's also agreed to do) affirms that the underlying problem is big government, and the solution is to shrink government and expect the extra wealth at the top to trickle down to everyone else.  

Obama's new tax compromise is not only bad economics; it's also disastrous from the standpoint of educating the public about what has happened and what needs to happen in the future. It reenforces the Republican story and makes mincemeat out of the truthful one Democrats should be telling.

The President's Last Stand Is No Stand At All: Why the Tax Deal is an Abomination

The deal the President struck with Republican leaders is an abomination.

It will cost $900 billion over the next two years — larger than the bailout of Wall Street, GM, and Chrysler put together, larger than the stimulus package, larger than anything that's come out of Washington in years.

It makes a mockery of deficit reduction.

Worse, the lion's share of that $900 billion will go to the very rich. Families with incomes of over $1 million will reap an average of about $70,000, while middle-class families earning $50,000 a year will get an average of around $1,500. In addition, the deal just about eviscerates the estate tax — yanking the exemption up to $5 million per person and a maximum rate of 35 percent.

And for what?

Wealthy families won't spend nearly as large a share of what they get out of this deal as will middle-class and working-class families, so it doesn't do much to stimulate the economy.

The deal further concentrates income and wealth in America — when it's already more concentrated than at any time in the last 80 years.

The bits and pieces the President got in return — extended unemployment benefits, a continuation of certain small tax benefits for the middle class — are peanuts. After last week's awful jobs report, Senate Republicans would have been forced to extend unemployment insurance anyway.

It's politically nuts. Polls showed most Americans are against extending the Bush tax cuts for the wealthy.

It would have been a defining issue for the President to use to show whose side he's on (the middle and working class) and whose side the Republicans are on (not the middle and working class). And given that the House turns over to Republicans in January, the President probably won't have another chance like this one.

It loses him even more of his "base" — by which I mean people who think of themselves as Democrats and are committed to the ideal of equal opportunity and don't want the nation to become even more of a plutocracy.

It makes him look weak — Republicans got everything they wanted. And when a President looks weak, he is weak.

House and Senate Democrats should reject this abomination.

The President should get himself new advisors. 

The American Jobs Emergency Requires Action

This is not a recovery. It's a continuing jobs emergency and it demands action.

We learned this morning that unemployment rose to 9.8 percent in November and employers added only 39,000 jobs. Private employers added 50,000 — the smallest gain since January. Government employment continued to shrink.

We're heading in the wrong direction. In October, the jobless rate was 9.6 percent, and employers added 172,000 jobs. Private-sector job growth totaled 160,000.

At this rate unemployment won't return to its pre-recession level for more than a decade, if ever.

Over 15 million Americans were jobless in November. This doesn't include those who are working part-time but would prefer to work full time. Nor does it include a record 1.3 million who are too discouraged even to look for work.

Nor does it take account of the fact that most families are dependent on two breadwinners. So to figure out the true impact on most families, all these numbers have to be doubled.

Nor does it reflect the fact that the level of unemployment tracks level of education. Only 5 percent of those with college degrees are now unemployed, while more than 20 percent of everyone else is without work.

Maybe that's why Washington doesn't get it. The Washington echo chamber is filled with college degrees.

The Big Money economy on Wall Street and in corporate suites doesn't get it, either. They're doing marvelously well because they're tied to rapidly-growing markets in China, India, and Brazil.

But the Average Worker economy on Main Street continues to wallow.

The Problem

Let's be clear about this. The problem is lack of sufficient demand for workers. 

There are only four sources of demand. The biggest source is American consumers, who comprise about 70 percent of economic activity.

But the vast American middle and working class can't and won't buy enough to get people back to work. They're still under a huge debt load.

Even if and when they pay it off, their buying days are gone. The Great Recession took away their last means of coping with years of stagnant wages — going deeper into debt by using their homes as collateral. The housing bubble burst, and home prices continue to drop.

The second source of domestic demand is business. But businesses won't hire more workers without more customers. 

(Republican supply-siders say businesses are not hiring because they're uncertain about the effects of the new health care law and don't know how much taxes they'll have to pay. This is political claptrap. Supply-siders also say businesses would start hiring if their taxes were lower. But businesses are sitting on almost a trillion dollars of cash. They don't need lower taxes in order to hire more Americans. They need more American customers.)

The third source of domestic demand is net exports. But they're going nowhere. Although China, India, and Brazil are buying goods and services from American companies — and thereby boosting US profits — those US companies are making most of what they sell there in those countries. GM is selling more cars in China than in the US now, and manufacturing them in China.

That leaves the fourth source of domestic demand — government. But it's not nearly filling the gap. To the contrary, state and local governments are broke, and are cutting spending and raising taxes to the tune of over $110 billion this year. The federal government's much-maligned stimulus is about gone (almost all economists believe it saved over 3 million jobs).

The Fed is pumping $600 billion into the economy, but without an expansive fiscal policy this is only fueling speculation.

Instead, austerity and deficit reduction are the new buzz-words in Washington, as well as in Europe — which is absurd given what's happening to the economy.

Republicans won't even vote to extend unemployment benefits for the record number of Americans — almost half the unemployed — who have been out of work for six months or more. Starting today, 800,000 of the long-term unemployed lose their benefits. Unless Congress moves quickly, by the end of December, 2 million more will lose them.

What must be done

Extend unemployment benefits. Not only do unemployment benefits help families who are hurting; they also put money into their pockets that they'll then spend — and their spending will keep other Americans in jobs.

I was on television yesterday debating a Republican who insisted unemployment benefits deter the jobless from finding work. Another partisan bromide. When, as now, five people are out of work for every job opening — and when, as now, unemployment benefits in most states are a small fraction of someone's former wage — it's bizarre to argue that unemployment benefits are causing unemployment.

Create a new WPA and National Infrastructure Bank. Not only do we need extended unemployment benefits. We need a new WPA, modeled after the WPA of the Great Depression, to put jobless Americans to work. We need a national infrastructure bank to rebuild our crumbling highways and water and sewer systems, thereby putting additional people back to work.

Cut payroll taxes and enlarge the EITC. We should exempt the first $20,000 of income from the payroll tax, thereby putting more money into the pockets of lower-wage workers — which they'll spend. We should extend the Earned Income Tax Credit — a wage subsidy — upward through the middle class, and reduce taxes on everyone up to $80,000 of income.

How to pay for this. Not in 70 years has so much of the nation's income been at the very top. Pay for all of this with a 2% surcharge on incomes between $1 million and $2 million, a 3% surcharge on incomes between $2 million and $5 million, and a 5% surcharge on all incomes over $5 million. Add in a .5 percent transaction tax on all financial transactions. 

Why Would Republicans and Conservative Dems Ever Agree?

They'll agree to measures like this when they understand that our choice is either such reforms or continued economic stresses for millions of American families — stresses that will translate into an ever angrier and more divisive politics.

(When I wrote my new book "Aftershock," I hoped what I saw unfolding would not become the new reality. It is.)

They'll agree when they see that we can not go back to the old "normal" of an unprecedented concentration of income and wealth at the top, because that old normal got us into the present fix.

It undermines the purchasing power of the rest of America. It invites speculation on Wall Street.

And it translates into extraordinary political power of a moneyed elite hell-bent on gaining even more power and wealth, and preventing the rest of America from flourishing.

But why would this moneyed elite ever agree? They'll agree when they understand this is a lousing strategy for even for them.

Those at the top would do better with a smaller share of a booming economy that elicits a positive politics, than they will do with an ever-larger share of an anemic economy that fuels the politics of anger.

They should convey this message to their bought-for representatives in Congress.

Why Obama Should Extend the Bush Tax Cut to Everyone -- and Why That's Exactly His Proposal, Stupid

The President should propose that the Bush tax cuts be extended for EVERYONE — but only on their first $250,000 of income.

Hey, wait a minute. That's exactly what he is proposing. EVERYONE gets a continuation of the Bush tax cuts on the first $250,000 of their incomes. If your income is $251,000, you'll get the Bush tax cut on $250,000 of it. Only $1,000 would be taxed at the higher Clinton rate.

So why have Republicans been able to say Obama and the Democrats don't want to extend the Bush tax cuts to everyone?

Call it another White House and Democratic communications failure.

The Truth About the Federal Budget Deficit That Noone Is Willing to Tell

Rarely before in American history has there been more disconnect between Washington and the rest of the nation. Washington is obsessing about the projected federal budget deficit. Everyone else in America is worried about jobs.  

To get jobs back we'll need more federal spending, not less — at least over the next few years. Consumers can't and won't spend, banks can't and won't lend, big companies won't invest in new capacity, and state and local governments are broke. Unless the federal government fills the gap we'll continue to suffer near double-digit unemployment and slow growth.

Don't get me wrong. The projected federal budget deficit will be a problem eventually. So it's prudent to take steps so the federal government doesn't go broke in the future.

But the President's deficit commission is all over the map.

Let's be clear about the long-term deficit problem.

It's not Social Security. Social Security's shortfall is modest. It arises because so much income has gone to top earners in recent years that the payroll tax covers a smaller percentage of overall income than was planned for. I should know. I used to be a trustee of the Social Security trust fund.

The obvious answer is to lift the cap on income subject to Social Security payroll taxes, now $106,800, to about $150,000.

Nor is the real problem Medicare. It's what lies behind Medicare's projected growth: the explosive growth in medical costs.

Attempts to cap Medicare without dealing with the underlying problem of soaring medical costs — as the deficit commission recommends — will cause a firestorm. Sarah Palin's "death panel" scare was nothing compared to what will happen if Medicare payments are capped yet the underlying drivers of health-care costs aren't addressed. 

Over the next three decades, drug costs are projected to soar. New medical equipment, diagnostic tests, and complex procedures will rise into the stratosphere.

The answer is to finish the job of reforming health care. How? Let Medicare use its bargaining leverage to get low-cost drugs and supplies. End health insurer's immunity from antitrust laws. Allow the public to buy health insurance from a Medicare-like public option. And award plans that focus on disease prevention rather than expensive diagnostics and procedures.

Everything else the deficit commission recommends is peanuts compared to taming health-care costs.

By the way: In Washington's zest to cut the budget deficit, let's not shoot ourselves in the feet. In coming years the nation should be spending more, not less, on education, infrastructure, and basic research. These are critical to our future economic growth.

Without growth, the deficit will become an even larger share of the total economy. And then we're really in trouble.

The Big Economic Story, and Why Obama Isn't Telling It

Quiz: What's responsible for the lousy economy most Americans continue to wallow in?

A. Big government, bureaucrats, and the cultural and intellectual elites who back them.

B. Big business, Wall Street, and the powerful and privileged who represent them.

These are the two competing stories Americans are telling one another.

Yes, I know: It's more complicated than this. In reality, the lousy economy is due to insufficient demand – the result of the nation's almost unprecedented concentration of income at the top. The very rich don't spend as much of their income as the middle. And since the housing bubble burst, the middle class hasn't had the buying power to keep the economy going. That concentration of income, in turn, is due to globalization and technological change – along with unprecedented campaign contributions and lobbying designed to make the rich even richer and do nothing to help average Americans, insider trading, and political bribery.

So B is closer to the truth.

But A is the story Republicans and right-wingers tell. It's a dangerous story because it deflects attention from the real problem and makes it harder for America to focus on the real solution – which is more widely shared prosperity. (I get into how we might do this in my new book, Aftershock.)

A is also the story President Obama is telling, indirectly, through his deficit commission, his freeze on federal pay, his freeze on discretionary spending, and his waivering on extending the Bush tax cuts for the rich.

Most other Washington Democrats are falling into the same trap.

If Obama and the Democrats were serious about story A they'd at least mention it. They'd tell the nation that income and wealth haven't been this concentrated at the top since 1928, the year before the Great Crash. They'd be indignant about the secret money funneled into midterm campaigns. They'd demand Congress pass the Disclose Act so the public would know where the money comes from.

They'd introduce legislation to curb Wall Street bonuses – exactly what European leaders are doing with their financial firms. They'd demand that the big banks, now profitable after taxpayer bailouts, reorganize the mortgage debt of distressed homeowners. They'd call for a new WPA to put the unemployed back to work, and pay for it with a tax surcharge on incomes over $1 million.

They'd insist on extended unemployment benefits for log-term jobless who are now exhausting their benefits. And they'd hang tough on the Bush tax cuts for the wealthy – daring Republicans to vote against extending the cuts for everyone else.

But Obama is doing none of this. Instead, he's telling story A.

Making a big deal out of the deficit – appointing a deficit commission and letting them grandstand with a plan to cut $4 trillion out of the projected deficit over the next ten years — $3 of government spending for every $1 of tax increase – is telling story A. 

What the public hears is that our economic problems stem from too much government and that if we reduce government spending we'll be fine.

Announcing a two-year freeze on federal salaries – explaining that "I did not reach this decision easily… these are people's lives" – is also telling story A.

What the public hears is government bureaucrats are being paid too much, and that if we get the federal payroll under control we'll all be better off.

Proposing a freeze on discretionary (non-defense) spending is telling story A. So is signaling a willingness to extend the Bush tax cuts to the top. So is appointing his top economic advisor from Wall Street (as apparently he's about to do).

In fact, the unwillingness of the President and Washinton Democrats to tell story B itself promotes story A, because in the absence of an alternative narrative the Republican story is the only one the public hears.

Obama's advisors explain the President's moves are designed to "preempt" the resurgent Republicans – just like Bill Clinton preempted the Gingrich crowd by announcing "the era of big government is over" and then tacking right.

They're wrong. By telling story A and burying story B, the President legitimizes everything the right has been saying. He doesn't preempt them; he fuels them. He gives them more grounds for voting against raising the debt ceiling in a few weeks. He strengthens their argument against additional spending for extended unemployment benefits. He legitimizes their argument against additional stimulus spending.

Bill Clinton had a rapidly expanding economy to fall back on, so his appeasement of Republicans didn't legitimize the Republican world view. Obama doesn't have that luxury. The American public is still hurting and they want to know why.

Unless the President and Democrats explain why the economy still stinks for most Americans and offer a plan to fix it, the Republican explanation and solution – it's big government's fault, and all we need do is shrink it – will prevail.

That will mean more hardship for tens of millions of Americans. It will make it harder to remedy the bad economy. And it will set Republicans up for bigger wins in the future.

The Showdown On Tax Cuts for the Rich

The President met with Republican leaders at the White House this morning to talk about whether the Bush tax cuts should be extended to top taxpayers, at Republicans want.

 

No decision has been reached, but this is the first test of the President's resolve with the new Congress — and he should be tough as nails. The economics and politics both dictate it.

  

Taxpayers in the top 1 percent don't need it (they are now getting almost a quarter of all national income, the highest percent since 1928).

 

They don't deserve it (they got the lion's share of the benefits of the 2001 and 2003 Bush tax cuts, and have had no reason to expect a continuation of their windfall).

 

They won't spend it to stimulate the economy (top earners save a much higher proportion of their income than the middle class).

 

And giving it to them blows a giant hole in the budget (the Joint Tax Committee estimates the cost of extending the Bush tax cuts for the top 1 percent to be $61 billion in 2011 alone.)

 

In political terms, a strong stand enables the President to clearly demonstrate who's side he's on (the working and middle class that's still bearing the brunt of this lousy economy) and who's side the Republicans are on (the powerful and privileged who brought much of this on, and who are now doing just fine).

 

The only compromise he should be prepared to make is to extend the Bush tax cuts to the bottom 99 percent (rather than the bottom 98 percent), and for two years rather than ten.

The top 1 percent begins at around $500,000 rather than $250,000.

 

This would allow the President to even more sharply illustrate the extraordinary concentration of income at the top, while robbing Republicans of their debating point about small business (just about all small business owners with payrolls earn under $500,000).