About two years ago, President Obama argued, “The last thing you want to do is to raise taxes in the middle of a recession, because that would just … take more demand out of the economy and put businesses in a further hole.” It is, of course, a sort of Keynesian argument, which Republicans used to support: if the economy is lacking in demand, put more money in consumers’ pockets, and as they spend, the private sector will have more customers.
The GOP no longer buys into this sort of thinking — many Republicans are now quite eager to raise middle-class taxes, for example — but the right used to find this approach to tax policy compelling. They still voted against all of the many tax cuts Obama signed into law, of course, but they used to like the underlying point.
As it turns out, conservatives were quite excited about the president’s two-year-old line yesterday, arguing that it contradicts the White House’s new debt-reduction plan. If Obama said in 2009 tax increases are forbidden during a recession, why is Obama trying to raise taxes on the wealthy now?
If only the right paid closer attention to policy details.
For one thing, the economy isn’t contracting, so this “middle of a recession” argument is plainly wrong. For another, even in the event Obama’s proposed tax increases on the rich were to pass, they wouldn’t take effect until 2013. Ezra Klein had a good item setting the record straight.
[T]he question is whether you think the economy will be in recession in 2013. In the event that it is, I’m sure the Obama administration would agree that 2013 isn’t a very good time to raise taxes, and austerity should wait until the economy strengthens. Either way, it’s Obama’s 2013 tax hike proposal.
Right now, the Obama administration wants to cut taxes and increase spending on jobs programs. That’s what that whole American Jobs Act thing is about. So there’s nothing inconsistent in the Obama administration’s position — unless, that is, their plan passes, the economy falls into recession in 2013, and they don’t change course.
As for the Republicans who are happily latching onto Obama’s admonition that now is not the time to “take more demand out of the economy” but are simultaneously arguing for sharp spending cuts and resisting temporary tax cuts, well, they’ve got a bit more ‘splaining to do.
I’d note a couple of other things for context. First, raising taxes during economic downturns isn’t necessarily an automatic drag on the economy. Reagan raised taxes in 1982 when unemployment was much higher than it is now, and still saw a recovery in 1983. Clinton raised taxes in 1993, when the recovery was still pretty shaky, and the economy still boomed.
And second, conservatives should try not to embrace and reject Keynesian principles at the same time. If the right believes it would hurt a fragile economy to raise additional tax revenue, why does the right also believe it would help a fragile economy to impose austerity measures that weaken demand and cut spending? This may be too much policy depth for the typical Republican to appreciate, but it sounds like they’re saying boosting demand is both a good idea and a bad idea simultaneously.