WASHINGTON – President Obama's newfound, and welcome, backbone on tax policy and the so-called fiscal cliff was made in Brooklyn. The White House has now signaled that the president will veto any bill that does not allow the Bush-Cheney tax cuts for the rich to expire Dec. 31.
Obama's move came only days after Sen. Charles E. Schumer, D-N.Y., made a riveting speech at the National Press Club in which he said Congress, and Democrats in particular, should freeze the top income tax Clinton-era rate of about 40 percent.
Schumer, the Senate's third-ranking Democrat and a member of the Finance Subcommittee on Taxation, said bipartisan negotiations that would lower top rates in an overall tax reform bill are no more than “happy talk.” The senator's stand is a sobering dose of reality that required no small amount of courage. The lobbying and publicity engines of Wall Street, which is a big constituency of Schumer, has been firing louder and louder cherry bombs about an economic catastrophe they say will occur if the decade-old “temporary” tax cuts expire.
In this campaign, Wall Street is behaving no more responsibly than it was in its recklessness of 2005-2009 that worsened the Great Recession. Investors' eyes ought to be fixed instead on the larger calamity that Schumer sees. And that is the failure of the government to make meaningful reductions in the deficit and the $16 trillion national debt.
Schumer's intervention was timely, but not from just a political standpoint. The government revealed last Thursday it is borrowing 43 cents for every dollar it spends. Economist Ted P. Schmidt of Buffalo State College noted that heavy borrowing always takes place in down economies, and he lays much of the blame for the deficits on the Bush-Cheney tax cuts.
Very true. But this level of borrowing is historic and unsustainable.
Some commentators said Schumer's speech was a feint “from the left.” But it wasn't. Schumer agreed with Republicans that the corporate tax rate should be reduced, and he offered to discuss reforms in Medicare, the health insurance program. Schumer's main thrust was very similar to British Prime Minister David Cameron's speech to his Conservative Party last week when Cameron asked: What happens when people stop lending us money?
So Schumer's argument is more truly conservative than that of Republican presidential nominee Mitt Romney. He blithely campaigns for continued tax cuts for the rich, no big cuts in income support and greater spending on the military.
The core of Schumer's case is that the government suffers from epochal lows in tax revenues. Closing tax loopholes, as in the 1986 reform, won't do the job. Conditions have changed. He also cited a report from the non-partisan Congressional Research Service that said marginal changes in tax rates do not curb prosperity. The booms that took place after the tax increases of 1983 and 1993 prove this.
Republicans, including vice presidential nominee Paul Ryan, are willing to risk the nation's fiscal health on keeping a lousy four points in the tax rate for their richest friends.
Schumer's speech came on the heels of his announcement that he has persuaded Homeland Security Secretary Janet Napolitano to favorably consider prescreening incoming Peace Bridge trucks in Canada. This is a remarkable turn-around from her earlier opposition that was footed in hardened concrete. It is a testament to Schumer's energy and persistence. Where does it come from?
“God gave me a lot of energy,” Schumer said. “When I was running a mimeograph machine [in Brooklyn] to raise money to help my family, I swore that I would get a job I loved. I love this job!”