Tuesday, February 14, 2012

The Obama Administration's semantic pivot from tax-cutting to progressivity

I've been too busy over the last couple of days to take a close look yet at the Obama Administration's budget proposals (though I hope to address this oversight shortly), but I gather that, in at least one key respect, they are using a budgetary baseline of current policy, rather than current law.

This baseline choice pertains to what people still commonly call the "Bush tax cuts" - rate cuts for individuals that were adopted in 2001 but officially scheduled to expire after 2010, and that more recently were extended two years so that they would expire after 2012. As the Administration's Budget says at page 201, their "adjusted baseline assumes that these tax rate changes are made permanent." The Congressional Budget Office, by contrast, assumes in its budgetary baseline that current law remains in force, meaning that all of the tax cuts are assumed to expire, and budgetary "changes" are measured relative to that.

One semantic consequence of the current policy baseline choice is that the Obama Administration cannot credit itself with "tax cuts" by reason of its support for extending the expiring lower tax rates for people who earn less than $250,000. A second is that the Administration is avowedly seeking to "raise taxes" on people earning more than $250,000, for whom the 36% and 39.6% rates that were ostensibly eliminated in 2001 would reemerge in 2013, rather than keeping those taxes the same (as would follow if one used a current law baseline). And a third is that the Administration can credit itself with deficit reduction by reason of permitting the high-end brackets to increase, rather than facing the question of how it proposes to pay for extending the lower-tier tax cuts.

The politics behind the semantics are clear enough, and to me not wholly unwelcome. The Administration is evidently less afraid than it used to be of Republican attacks based on the usual rhetoric about "job creators" and the supposedly endless need for enacting new tax cuts whether affordable or not. In a post-Occupy Wall Street political environment, it apparently does not entirely mind being charged with plotting a huge tax increase for the top 1 percent.

In addition, the Administration is trying to cut itself some budgetary slack so that it cannot be attacked as harshly on this front. Even this I quasi-welcome, because I believe that short-term budget policy ought to respond to our horrendous (even if very modestly improving) unemployment situation - though I remain very highly concerned about the long run picture (which the Administration when its performance is being evaluated, like the Republicans when they are discussing tax revenues, has a political incentive to sweep under the rug).

But it is not an enormously healthy thing when baseline choices have such a large effect on how fixed sets of policy options are described and (presumably) perceived.

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