Let me alert the readers of our blog to what may become a major breakthrough for the Obama administration as it struggles to overcome both the far-reaching economic crisis and the crippling effects of the long political march to the right over the last thirty years.
President Obama, in the name of containing deficits, has called for taxing investment income from the multi-trillion hedge funds and private equity partners at standard income tax rates (which he further proposes to raise to 39.6 percent for the highest incomes) as against the present "capital gains" rate of a maximum of 15 percent.
According to press reports, both Democratic party congressional leaders and of course the Republicans have opposed that, but it would be an enormous step forward if it or something like it could be adopted soon. It is something that the entire left, including those who have been "tailing" the right by criticizing the administration for this appointment or that failure to deliver on specific election promises in a moths (as if nothing seriously had changed in Washington except that there is a new President to negate) should get behind and get behind now.
President Obama is defining this policy in terms of necessary deficit reduction (a way to contain deficits that will inevitably mount in the next few years and hopefully, given overall economic growth connected to this major re-taxation of the wealthy and capital sharply reduce the annual deficit) This is very wise, given the present popular hostility to finance capital combined with the traditional fear of runaway deficits which the Republicans, who created the runaway deficits in the past, are now exploiting
It is a major step in reversing the Reagan and post Reagan detaxation policies which, along with a multiplying of pre Reagan military spending has given us both the mounting inequality(and stagnating real purchasing power) and more than ten fold increase in deficits over the last thirty years.
On this issue, President Obama at this point is well to the left of his party's congressional leadership, as the Roosevelt administration found itself often to the left of the Democratic party majority in Congress. These political leaders, even those considered progressives, are much more beholden to finance capital in a direct way (through those who fund their campaigns) then is the President, which was true in the New Deal era especially, but not so clearly in recent decades, when conservative Democratic Presidents, Carter and Clinton, found themselves in conflict from the right with their own congressional leadership .
President Obama will also discuss savings of 90 billion from the withdrawal from Iraq (although critics are already pointing rightly to have that will connect up with the expansion of involvement in Afghanistan).
While the administration is also advocating cuts that will be criticized, what the President is calling for in effect might be called "smart Keynesianism," as against the mishmash of military Keynesianism and Friedmanite monetary policy and virtual worship of anti-regulation policies that the Reagan and Bush administrations pursued. It is "smart Keynesianism "in that it stresses health care, education and energy, as the areas to protect and seeks to use progressive tax policies to produce the counter-cyclical effects that will reduce unemployment and thus reduce payments from unemployment insurance and other public assistance funds while at the same time raising significantly more revenue from capital to put back into the public sector, not vice versa, which was the policy that characterized the Reagan and Bush years and, in a less direct way, the Clinton years.
Along with the Rescue Plan, this call for a return smart and I would say sane policy on the taxation of finance capital may be the most important initiative that the Obama administration has made. It deserves our wholehearted support right now.