The big debate going on around President Obama's economic plan is not his seeming idea for a $600 billion demand-side stimulus. Surprisngly, at least to me, everyone seems to grant this idea. Rather, the conflictual question is about his tax plan -- is he going to repeal the Bush tax cuts for the investing class? The corporate tax rate, the top income tax rate, and the capital gains tax rate -- is he going to raise these? The investors want him to hold on to the current rates. But President Obama has hinted (actually he has more than hinted) that he will raise the top tax rates to the pre-Bush, that is, to the Clinton-era rates.
I love the fact that, as of right now, President Obama hasn't given in. According to his press conference today, President Obama still holds to the idea that the thing to do is pay for his stimulus plan with slightly higher tax rates for the investing class.
The reason I support raising the top tax rate -- and even raising the capital gains rate a few percentages -- is that the let-the-investors-build-our-economy argument has been proven to be hollow, at least for the moment. This argument is that President Obama's tax plan will cut out the investment class from its knees and bring wealth-creation to zero. To raise investors' taxes is to discourage them from investing in ways that would help us all.
This argument, however, holds little sway in a moment in which the investing class -- you know: companies like Citigroup, Goldman Sachs, JP Morgan, etc -- are pleading with the government to bail them out with more and more bailout money. In fact, it is because of the investing class, more than any other category of actors, that we have an economic crisis today that is threatening to challenge the Great Depression in social impact.
I say, pay for a demand-side stimulus with tax revenue taken from the supply-side. A few years from now, when the economy has stabilized -- and I think it will stabilize in a few years -- begin again to lower the supplier's tax rates, but with BUT WITH new regulations directly learned from the great financial collapse of 2008 so as to prevent another one.
In sum, I would support President Obama if he immediately repealed the Bush tax cuts for the investing class. I am a big supporter of the investing class. But we cannot reward them at a moment that they have put our country in such a crisis. Once they clean their house, a few years from now, then let's hope President Obama throws them a tax cut.