State of the Union: GOP to block Obama’s massive tax-cut compromise

During his State of the Union address tonight, President Obama will propose a series of massive tax cuts for families, the poor, and even the rich. These changes would mark a major compromise with the GOP, abandoning for the sake of modest reforms the far more ambitious agenda advocated by his own voters.

But Republicans are already planning to block the deal, calculating that by even rejecting advantageous bills they can portray the President as ineffective. It’s a strategy that’s proven politically successful in the past, but that in the long term can only paralyze a country governed by two parties for the foreseeable future.

So Obama’s tax proposal marks a major crossroads in our politics. Will Americans expect the GOP to at least pass a substantively Republican bill, even if it happens to be proposed by a Democrat? Or will we resign our government to absolute gridlock?

The best-case scenario

Obama may be proposing tonight’s tax-cuts, but it’s hardly the preferred outcome of the American left:

  • One great approach would resemble the tax rates under Republican President Dwight D. Eisenhower during the 1950s – the decade of the most widely shared prosperity in American history. Under his plan, people earning more than $400,000.00 a year paid a marginal income tax rate of 92%.
  • An even better option, of course, would be a wealth tax set at 100% for assets exceeding $10 million dollars, setting an basic cap on the amount of the commonwealth that any one person can hoarde for themselves.
  • At the very least, Obama could implement a plan that learns from one of the healthiest economies in the world: Sweden’s. There, individuals pay an extremely modest 56% tax on income exceeding $278,000.00.

These are all obvious and rational solutions, but the important thing is to bear in mind the baseline: pulling in enough revenue to cut our deficit and fund a functional, effective government. Without that minimal amount of income, we face an increasing deficit and national resources that will deteriorate for want of investment.

The Republican compromise

Measured against that minimal baseline, Obama’s tax plan is a monumental compromise with Republicans.

Instead of pulling in more taxes to cut the deficit and fund the government, Obama is slashing the left’s ask all the way down to revenue-neutrality – that is, calling for no net increase in taxes. Instead of calling for 92% or even 56% rates, Obama would keep rates where they are at 39.6%. Instead of a Carter-level maximum capital gains rate of 39.9% — or even a Clinton-level rate of 29.2% — Obama is calling for a Reagan-level rate of 28%.

In addition to those cuts, Obama proposes a tradeoff that should satisfy both parties, and that guarantees the revenue-neutrality of his plan. First, he proposes closing a loophole that lets the rich avoid paying any taxes on the appreciation of assets that they will one day will to their heirs. Second – when the government bails out giant banks with loans—we’re talking banks with over $50 billion in assets — Obama proposes taxing those funds at a modest .07%.

In exchange, Obama offers multiple credits to reduce taxes on the middle class and poor. First, a tax credit for married couples when both spouses have jobs; second, tax-credits for low-wage workers; third, a $3,000 tax credit to parents earning less than $120,000.00 annually; and fourth, a expansions and simplifications of existing student loan and financial aid programs.

America’s response

Unfortunately, Obama’s proposal bears the signature hallmark of a grand compromise: it is so fair and reasonable that it will satisfy no one. But the reactions will be profoundly different.

Get ready for instant howls of betrayal and frustration from the American left, which after six years is finally losing patience with President Obama’s endless pandering to the pragmatic center. These kinds of technocratic, finely-tuned compromises may play well with the prestige media and the ivory tower historians, but they completely abandon even the most modest progressive aspirations. There is nothing in Obama’s plan about reparations or basic income, or even a minimal attempt to increase revenue.

Republicans, meanwhile, will do what they always do: drop the baseline of what qualifies as a “reasonable” tax rate in order to somehow spin Obama’s tax cuts as tax hikes. They’ll cloud the issue by floating “alternative” proposals that all depress revenue by using magic, completely unrelated words like “opportunity” and “freedom”.

And then, as usual, the left will capitulate and back Obama’s plan for the sake of compromise. But will Republicans meet us in the middle? If history is any indication, we shouldn’t be optimistic.

Photo: President Obama addresses Congress during his 2014 State of the Union address. []