Wednesday, April 13, 2011

The President's Budget Speech

You have to give President Obama credit. He did give a very good speech on the budget. It was very good to see President Obama unequivocally say that he would not allow the Bush tax cuts to be renewed for those making over $250,000 again. I don't see how we can say we are going to make massive spending cuts harming the poor and the middle class, but at the same time we can afford to continue to pay for financially reckless tax cuts for those at the top of the income ladder. It is good that Obama finally drew a line in the sand. One of this White House's weaknesses in terms of communication is sometimes playing its cards way too close. By drawing a few lines in the sand, the White House reassures his base that not everything is up for negotiation.

I am also glad to see Obama come out and say that Representative Paul Ryan's plan is simply not serious.

I also think the idea of looking carefully at tax expenditures and further simplifying the tax code along the way is a great one.

Now, I do not agree with everything in the President's speech. In particular, I disagree with this part:
Others will say that we shouldn’t even talk about cutting spending until the economy is fully recovered.  These are mostly folks in my party.  I’m sympathetic to this view -- which is one of the reasons I supported the payroll tax cuts we passed in December.  It’s also why we have to use a scalpel and not a machete to reduce the deficit, so that we can keep making the investments that create jobs.  But doing nothing on the deficit is just not an option.  Our debt has grown so large that we could do real damage to the economy if we don’t begin a process now to get our fiscal house in order.
I will admit to being one of those who thinks that deficit reduction should wait until the economy has fully recovered. It really is difficult to see what exactly has to be done before we even know what revenues are likely to look like. For example, if unemployment settles down at a long-term trend of 6% instead of 5%, this would imply a much different sort of budget situation. If economic growth after the economy has recovered is higher or lower than expected, this would imply a much different sort of budget situation. Finally, I think there is a real risk that budget cuts now could really slow down the economy and delay recovery. I think the longer term impacts on growth of a an unnecessarily delayed recovery could be significant, given the impacts on people's skill sets of long term unemployment. So, I still don't think this is the time to address budget deficits. However, if I did think this was the time, there is much to like in Obama's approach.

A final point. If Obama wants greater support from his base and independents going into the next election, he will need to learn how to be a more aggressive negotiator going forward. No one wants a President who does not seem like he knows what he wants and who doesn't know how to lead. Unfortunately, that is the impression that President Obama has sometimes given. So, it is important for the President to get out there and be more publicly involved in these sorts of negotiations going forward and emphasize that although he is flexible, there are some lines in the sand that he will not allow to be crossed. I understand that President Obama wants to appeal to independents as well as to his base. One thing he should keep in mind is that independents appreciate strong leadership too; what they do not like is extremism. There is no reason that President Obama cannot cultivate an image as a stronger leader which would be pleasing to both his base and independents while also cultivating an image of reasonableness. These are not mutually exclusive.

Overall, the President gave a really good speech. We will see how he follows through.

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