With a chip on his shoulder larger than his margin of victory, President Obama is approaching his second term by replicating the mistake of his first.
Then his overreaching involved health care — expanding the entitlement state at the expense of economic growth. Now he seeks another surge of statism, enlarging the portion of gross domestic product grasped by government and dispensed by politics. The occasion is the misnamed “fiscal cliff,” the proper name for which is: the Democratic Party’s agenda.
For 40 years the party’s principal sources of energy and money — liberal activists, government employees unions — have advocated expanding government’s domestic reach by raising taxes and contracting its foreign reach by cutting defense.
Like other occasionally numerate but prudently reticent liberals, Obama surely understands that the entitlement state requires raising taxes on the cohort that has most of the nation’s money — the middle class.
Many have suggested increasing revenues by capping income-tax deductions. This would increase that tax’s progressivity, without raising rates that would dampen incentives. Obama’s compromise may be: Let’s do both.
Those proposing higher taxes on the wealthy note that when the income tax began in 1913, the top rate was 7 percent. But in 1917, war brought a 67 percent rate. Between 1925 and 1931, the rate was 24 percent or 25 percent, but in only five of the subsequent 80 years — 1988-92 — was the top rate lower than it is today.
Yet, because lower rates reduce incentives to distort economic decisions, they promote growth by enhancing efficiency. Hence restoration of the higher rates would be a giant step away from pro-growth tax reform. And restoration of the Clinton-era top rate of 39.6 percent would occur in the very different Obama era of regulatory excesses and ObamaCare taxes. Hence Republicans rightly resist higher rates.
Given liberals’ fixation with the affluent paying their “fair share,” it might seem peculiar that they are so vehemently against Paul Ryan’s “premium support” proposal for Medicare. Their recoil is, however, essential to the liberal project.
Ryan’s idea is that people should shop for health insurance, with government subsidizing purchases by the less affluent. This would introduce what soon will be inevitable — means testing. But liberals reject it with a word the incantation of which suffices, they think, as an argument — “voucher.”
This is peculiar because perhaps the most successful federal program of the 20th century was essentially a voucher program. The purpose of the 1944 GI Bill of Rights was to facilitate demobilization by helping men and women acquire educations and buy houses — and hence form families. The government didn’t build universities or houses. It, in effect, gave individuals conditional cash — vouchers — by helping to pay for home loans and college tuition.
Liberals’ strenuous objection is that vouchers empower individuals to make choices. It is the business of the liberals’ administrative state, staffed by experts, to make choices for inexpert individuals.
This is why, while Democrats in Washington are working to reduce the portion of Americans’ private income that is disposed of by private choices, two tentacles of the Democratic Party — the Indiana and Louisiana teachers unions — are in their states’ courts waging futile fights against school-choice programs, lest thousands of low- and moderate-income parents be as empowered as millions of demobilized servicemen were.
Washington’s contentiousness about the “cliff” is producing a blizzard of numbers. The argument, however, is not about this or that tax rate but about the nature of the American regime. When the GOP House majority acts as though it has a mind — and a mandate — of its own, this is not Washington being “dysfunctional,” it is the separation of powers functioning as the Founders intended.
Their system requires concurrent congressional majorities — one in the Senate, with its unique constituencies and electoral rhythms, another in the House, with its constituencies and rhythms. And at least 219 of the 234 House Republicans won in November by margins larger than Obama’s national margin.