Citizens for Strength & Security

Aug 15 2008

The Best Laid Economic Plans Part II: Barack Obama

615px-President_Barack_Obama

Before you delve into this article, I wanted to make one thing clear about this issue, and it’s very important that everyone understand this. What we are talking about here, when you boil it down, are proposals for economic reform bills to be passed in Congress. It’s important to remember that the President has no authority to write law. As Jon Stewart wrote in “America: A Citizens Guide to Inaction“, “Though the President is very powerful, He cannot make laws. The president can suggest laws. The President can call individual congressmen and threaten, beg, and cajole them to make laws. The President can use the bully pulpit and appeal directly to the people to ask congress to make laws. The President can promise that if these congressmen pass the laws the President likes, he will make them a delicious sandwich. The President can hold his breath and pound his fist and threaten to run away, but the President cannot make laws. The President can observe a vexing situation that seems to run counter to common sense, shake his head and say aloud, “There ought to be a law”, but the President cannot make that law. The President cannot even write up that law and submit it with his name on it. The President needs someone in Congress to submit it for him. The President can only sit in his office and sign or not sign laws other people make. Sometimes this makes the President feel like a total p*ssy. Then the President realizes that he is Commander in Chief of the armed forces, and an island nation is about to get a can of police action opened up on them. This usually makes the President feel better.”

The division of power and checks and balances in the U.S. government, is such that only Congress can enact the kinds of reform that both of these candidates are suggesting. While the president can suggest these policy changes, they cannot force them. That being said, with a Democratically held Congress, the potential President with the most influence would probably be a Democratic President Obama, not a Republican President McCain. As I critique these plans, keep in mind that I’m not suggesting that either of these candidates has the power to implement a single “suggestion”, that they make. I am merely commenting on the policy positions themselves.)

(Obama’s top economic adviser is Jason Ferman)

Obama’s Plan:

Barack Obama

Invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, invest in low emissions coal plants, and begin transition to a new digital electricity grid. The plan will also invest in America’s highly-skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the first wave of green technologies that will be in high demand throughout the world. (Like McCain, Obama is writing checks that his office cannot cash. The President cannot write legislation, nor invest any money, unless authorized by Congress.)

Increase funding for federal workforce training programs and direct these programs to incorporate green technologies training, such as advanced manufacturing and weatherization training, into their efforts to help Americans find and retain stable, high-paying jobs. Obama will also create an energy-focused youth jobs program to invest in disconnected and disadvantaged youth.

Create new federal policies, and expand existing ones, that have been proven to create new American jobs. Create a federal Renewable Portfolio Standard (RPS) that will require 25 percent of American electricity be derived from renewable sources by 2025, which has the potential to create hundreds of thousands of new jobs on its own. Obama will also extend the Production Tax Credit, a credit used successfully by American farmers and investors to increase renewable energy production and create new local jobs. (Great Idea, but extremely optimistic and perhaps a bit overly ambitious)

New Jobs Through National Infrastructure Investment

Address the infrastructure challenge by creating a National Infrastructure Reinvestment Bank to expand and enhance, not supplant, existing federal transportation investments. This independent entity will be directed to invest in our nation’s infrastructure needs. The Bank will receive an infusion of federal money, $60 billion over 10 years, to provide financing to transportation infrastructure projects across the nation. These projects will create up to two million new direct and indirect jobs per year and stimulate approximately $35 billion per year in new economic activity. (This is a necessary plan that congress should rush through, no matter who the president is. As we witnessed with the tragic I-35W bridge collapse in Minneapolis last year, our infrastructure is crumbling.)

Note-(So far these plans have not been tax plans, they have been spending plans, and huge increases at that. Sen. Obama should focus on how we are going to get the money before he decides how we will spend it.)

Support Small Business

Eliminate all capital gains taxes on start-up and small businesses to encourage innovation and job creation. Support small business owners by providing a $500 “Making Work Pay” tax credit to almost every worker in America. Self-employed small business owners pay both the employee and the employer side of the payroll tax, and this measure will reduce the burdens of this double taxation.

Create a national network of public-private business incubators. Business incubators facilitate the work of entrepreneurs in creating start-up companies. Obama will invest $250 million per year to increase the number and size of incubators in disadvantaged communities throughout the country.

Labor

Raise the minimum wage, index it to inflation and increase the Earned Income Tax Credit. (This is a great idea, and would eliminate the need to address this issue every 10 years. With the increased money in the economy and the lifting of wages, more tax revenue would be earned by the government. The downside is that it may cause an unintended effect in the form of inflation, the way that introducing two people per household made it so both people HAD to work in order to get ahead. More money in the economy equals higher prices. Also I’m sure employers would pass on the added cost of business to the customer in the form of higher prices. Either way, it’s going to cause at least some inflation, but by indexing the minimum wage to inflation, I believe it will eventually settle. *I’m no economic scholar, and maybe someone can correct me, I’m just using my limited logic.)

Address Predatory Credit Card Practices

Create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card’s features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.

Create a Credit Card Bill of Rights to protect consumers. The Obama plan will:

  • Ban Unilateral Changes
  • Apply Interest Rate Increases Only to Future Debt
  • Prohibit Interest on Fees
  • Prohibit “Universal Defaults”
  • Require Prompt and Fair Crediting of Cardholder Payments
    (It’s about time, though I don’t know if congress could fight the massive lobbist effort that would come to bear if they did propose this system. Let’s all hope, for the good of the economy, that they can.)

Reform Bankruptcy Laws

Reform our bankruptcy laws to protect working people, ban executive bonuses for bankrupt companies, and require disclosure of all pension investments.

Cap interest rates on payday Loans to 36% and require lenders to provide clear and simplified information about loan fees, payments and penalties during the application process.

Encourage banks, credit unions, and community development financial institutions to provide affordable short-term and small-dollar loans and to drive unscrupulous lenders out of business.

Create an exemption in bankruptcy law for individuals who can prove they filed for bankruptcy because of medical expenses.

(Great proposals, but passing legislation in order to keep people from making stupid choices seems less effective then just outlawing the payday loans themselves.)

Restore Fiscal Discipline to Washington

Reinstate PAYGO rules which require new spending commitments or tax changes to be paid for by cuts to other programs or new revenue. (This is a no-brainer that, under President Clinton, led us to one of the most prosperous times in U.S. history. It should be noted that President Clinton’s reduction in military spending did help trim the budget, a move that some say resulted in an undermanned military.)

Protect tax cuts for poor and middle class families, but reverse most of the Bush tax cuts for the wealthiest taxpayers.

Slash earmarks to no greater than year 2001 levels and ensure all spending decisions are open to the public.

Ensure that federal contracts over $25,000 are competitively bid and increase the efficiency of government programs through better use of technology, stronger management that demands accountability and by leveraging the government’s high-volume purchasing power to get lower prices.

Stop funding wasteful, obsolete federal government programs that make no financial sense, end subsidies for oil and gas, eliminate subsidies to the private student loan industry which has repeatedly used unethical business practices, and tackle wasteful spending in the Medicare program.

Make the Tax System More Fair and Efficient

Give the Treasury Department the tools it needs to stop the abuse of tax shelters and offshore tax havens and help close the $350 billion tax gap between taxes owed and taxes paid.

Level the playing field for all businesses by eliminating special-interest loopholes and deductions, such as those for the oil and gas industry.

On July 24th, 2008 Terry Gross of NPR’s Fresh Air interviewed Obama’s economic advisor Jason Ferman.

Terry Gross started the interview by asking, “What does Sen. Obama say about what the government role should be, in bailing out such institutions [Bear Stearns and Freddie Mac] and if there should be more regulation of these institutions in return for the help the government has given?”

Ferman responded, “Well first Terry, Barack Obama thinks, also, we should be worried about people who are too little to fail.” “If you’re a homeowner and you’ve been foreclosed upon, that’s enormously difficult for you. It’s happening to 7,000 homeowners everyday, and it has repercussions beyond that individual family, to the whole community, and the national economy and hurts all of us, whether or not we are directly effected or not.” Continuing Ferman stated, “Then when you look at the financial sector we’re going to need to make some major regulatory changes, going forward, to reflect the increased complexity of these institutions, the fact that many more institutions have access to federal borrowing than had them in the past. That’s a real privilege, but in exchange for that privilege, we need to know what those institutions are doing, and we need to place some limits on what those institutions can do when they take gambles that heads they win tails the tax payers loses.”

The Obama tax plan as stated by Ferman on Fresh Air:

The Obama plan includes a very large tax cut for middle class families, while families making more than $250,000/Year would be paying slightly higher taxes. Tax credits for health care would negate increases for wealthy families, and actually decrease taxes.

These tax cuts would be paid for by a set of spending reductions, starting with ending the war in Iraq. We are spending $10Billion a month in Iraq. Even budgeting very conservatively we could save $90Billion a year by 2012, probably more.

Other ways we could save tax dollars:

Private plans within Medicare get huge subsidies. (Move subsidies down so they are competing on a level playing field with public plans.)
Banks that make Student loans get over subsidized.
We can reform farm payments to our wealthiest farmers.
Cut back on earmarks
Reform Procurement
End “no-bid” contracts
Most of the conservative estimated $90Billion in savings would go back to national security, (transferring troops back to Afghanistan, increasing the size of our standing army with more Special Forces, army and marines [some places where we are short right now], and foreign assistance for winning the Hearts and minds of countries around the world.) The focus is on taking the $90Billion that we have been using in Iraq and put it into areas that we have been seriously neglecting over the last 8 years and that will better promote our national security.

“How does Obama propose fixing Social Security now that the baby-boom [generation] is starting to collect, to keep it solvent?” Terry Gross asked. The paraphrased answer was:

It’s our most important public program and important that we protect it not just for people today, but for generations to come.
For a lot of middle class families, Social Security is their only source, or the overwhelming majority of income and not something that we should want to burden those people with in the course of adjustment of the system.
Look at people making over $250,000/Year and ask them to pay a bit more and that money would go into SS. Wants to work with congress on a bi-partisan basis to determine how much more.
Terry Gross asked, “Obama has said that he would bring down health insurance premiums by $2500 for the typical family and that his plan will be in place by the end of his first term as president. How would he accomplish that?” Ferman’s paraphrased answer was:

There are a lot of different causes of rising health costs, one thing that we will need to do is to take on some of the insurance companies who are responsible for some of these increases in cost. (reducing the over payments to private plans in Medicare, tell them they have to cover everyone who shows up, [the administrative sections that determine if you will get insurance in the first place when you apply costs a lot, this is different then claims management]. (Terri Gross than changed the subject.)

Below is an Independent review of both plans by Leonard Berman the director of the Tax Policy Center. (A Joint venture of the Urban institute and the Brookings institute).

Berman stated, “Sen. McCain would basically extend all of President Bush’s tax cuts, and he also has cuts for businesses, and instead of eliminating the estate tax, he would cut it somewhat. Sen. Obama would extend most of the Bush Tax cuts, That would otherwise expire at the end of 2010, but he would raise tax on high income people. Return the levels of tax to what they were before 200, and he has a bunch of tax cuts targeted at low and middle income people. So for example the middle 20%, say middle class tax payers, under Sen. McCain they would get a $1400 tax cut, under Sen. Obama, they’d get a $2100 tax cut in 2012. The bottom 20%, these are pretty low income people, making less than $19,000 a year, they’d get an average tax cut of about $100 under Sen. McCain’s plan, and almost $700 under Sen. Obama’s plan. So there is a big change in the tilt in the tax schedule. There’s a big cut at the bottom for Obama and a big increase at the top, and under McCain there’s a tiny, tiny cut at the bottom and huge cuts at the top.”

“When you look at the bottom line of each of those plans do they generate an equal amount of money in taxes?” Asked Gross.

“No. Sen. Obama’s plan would add up to about $2.8 Trillion in tax cuts, over the next ten years. Sen. McCain’s plan would add up to about $4.2 Trillion in tax cuts. When you add the interest that would accrue, we are talking about an increase in the national debt of about $5 Trillion under Sen. McCain’s plan, and about $3.4 Trillion under Sen. Obama’s. I should point out that the candidates object to my saying that because they both say that they are going to cut spending, and if they do the situation will be better. They won’t be generating such large deficits. A lot of people are skeptical about their claims of spending cuts, but all of our numbers are just looking at the tax side.”

(The numbers and statements in this article were based on www.barackobama.com, and by an interview of Obama senior economic advisor Jason Ferman on July 24th, 2008 by Fresh Air host Terry Gross.)

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