What Should Obama Do Now?

by Michael Sean Winters

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President Obama’s midday speech did not have its desired, immediate effect of calming the markets. They tanked anyway. Words will no longer suffice to end the skittishness of the markets. But, the president did say something that was consequential yesterday. He announced that in the next few weeks, he would present a proposal to address the next round of budget negotiations, mandated by last week’s agreement to raise the debt ceiling.

One of the most effective Republican talking points in recent weeks has been that the President and the Democrats in Congress have failed to present a plan of their own. Of course, it was slightly disingenuous of Speaker John Boehner and Majority Leader Eric Cantor to level this charge: After all, they had been in negotiations with the president in which he had been very specific about his proposals. Nonetheless, the charge stuck, not least because the President’s budget proposals back in February were a joke, a fact made evident by the failure of even one senator to support it. And, the GOP could rightly argue that they had not only proposed a plan that would lower the deficit, but the plan, known as the Ryan budget, had already passed the House of Representatives.

So it did, and now it is time to make the GOP pay for that budget vote. The Ryan plan, among other things, would turn Medicare into a voucher program. Ask any senior what they think of the plan and you will get an earful. A similar outcry among seniors beat back President George W. Bush’s proposal to privatize Social Security. But, alas, ideologues never learn and the desire to privatize what most Americans – to say nothing of the rest of the industrialized world – understand to be a government function continues to be the GOP’s greatest mistake.

The president should draft a plan that mirrors exactly what he would propose if he had a Democratic majority in the House and a filibuster-proof majority in the Senate. Such a proposal will not be enacted this year, to be sure. The eventual compromises will take place. But, once those compromises are reached, the president can say, “I had to compromise because you, the American voters, gave us a divided government. But, my campaign for re-election is a referendum on where we should lead the country. If you vote for me, and give me enough Democrats in Congress to pass legislation, we will protect Medicare from the cuts we have had to accept in this compromise. The GOP wants to rollback health care reform. I want to rollback cuts in Medicare, and pay for it by instituting a surtax on millionaires that will fully fund Medicare. If you are making a million dollars, you are doing well enough to help pay for Medicare.” The president must begin to frame the next election as a choice: continuing tax cuts for the super-rich or protecting Medicare.

President Obama should also announce that he will not extend the Bush tax cuts for the wealthy after they expire next year. If the GOP insists on keeping them, then everyone’s taxes will go up because the Bush tax cuts also included middle class tax cuts. The people will have a choice in 2012, but in the meantime, the president will have set down a marker. If the GOP wants to fight him on it, they will need to defend these highly unpopular tax cuts for the super-rich.

The president will also need to explain – again and again – to the American people the way marginal tax rates work. If the Bush tax cuts for those making more than $250,000 expire, what does that mean? If someone makes $300,000, they do not pay the higher rate on the entire $300k. They pay it only on their income above $250,000. That is to say, someone making $300k would pay an extra 4 percent on $50,000. That comes to an additional $2,000. Is that truly a “job-killing tax increase?”

President Obama should also propose raising the cap on Social Security taxes. I would prefer that Social Security taxes be applied to all income, not just to wages, but I understand how difficult that would be to sell. He should defend the home mortgage interest deduction, on one home only, not on pricey vacation homes, and there should be a cap on the amount of the mortgage interest that can be deducted. Again, if you can afford a multi-million dollar home, why do you need a federal subsidy.

Another issue that is finally on the table is the Pentagon budget, and here the president did obtain a big battering ram from the debt ceiling negotiations. If the select committee fails to reach a compromise, or if their compromise fails to pass Congress, the Pentagon stand to face across-the board- budget cuts that newly installed Secretary of Defense Leon Panetta has already opposed. So, if the Pentagon stands to lose $600 billion over ten years if the negotiations fail, the president should task Panetta with finding, say, $400 billion in cuts to the budget that the military can live with. That translates to $40 billion per year and it is difficult to believe that the bloated Pentagon budget cannot be cut by that amount, especially as the war in Iraq ends and the war in Afghanistan continues to wind down. As I have written before, the Pentagon should also look into closing many of its foreign military bases, and, if needed, bringing those bases back to U.S. soil. A military base produces a lot of additional economic activity in its immediate environs, and with advances in technology, and the evaporation of the threat of Soviet Communism, there is not need to have so many bases in Europe when we are closing bases here in the U.S.

And, of course, the president should propose the kind of balanced approach to corporate tax reform – eliminating loopholes and lowering rates – that Speaker Boehner came close to accepting last month during negotiations on the debt ceiling. The Republicans may not agree to more than the $800 billion increase in revenue that was on the table then, but that is $800 billion the select committee of Congress does not have to find elsewhere.

There is a short-term need to fulfill the mandate established by the debt ceiling bill. Before Thanksgiving, the select committee must devise a proposal. The key is that the president be willing to compromise in order to get an agreement from that committee, but that he stake out his positions with sufficient clarity that he is not wedded to the parts of that compromise that are repugnant to Democrats. That is how you make the 2012 election a referendum on the next four years, not on the previous four years. He must keep his eye on the long-term battle to define the choice the voters will make in 2012. He just be prepared to defend those social programs that are the pride of the Democratic Party and, indeed, the entire country.

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