Oct. 11 (Bloomberg) -- Election campaigns are about promises: the more grandiose, the better.
Who can forget President Barack Obama’s June 2008 speech, telling a rapt audience that future generations would look back at his victory in the Democratic primaries as “the moment when the rise of the oceans began to slow, and our planet began to heal”? If only he had substituted “deficit” for “oceans.”
Candidates love to promise the moon -- at minimum, a colony on it -- and the stars. Years ago, they could avoid mentioning the cost. Nowadays, the U.S. is in such a deep fiscal hole that a candidate would appear to be out of touch if he didn’t invoke “shared sacrifice” or pay lip service to reducing the deficit.
Yet that is where they draw the line and limit the specifics. Which is why I’m here to tell you five things the 2012 Democrats don’t want you to know. (Next week, it’s the Republicans’ turn.)
No. 1: The president doesn’t create jobs.
“Pass this bill now,” Obama exhorted a joint session of Congress on Sept. 8, 2011, in a nationally televised address. He was referring to his proposed American Jobs Act, which he said would put people back to work by paying businesses -- giving them a tax break -- to hire new workers.
Now that makes sense! Neither the Republican-controlled House nor the Democratic-controlled Senate had much interest in what was dubbed “son of stimulus.”
Experts were quick to crank up their models and pump out estimates. The bill would create 1.3 million jobs by the end of 2012 at a cost of only $450 billion, or $346,153 per job. Far simpler just to cut a check to those folks.
If the government could create jobs, the U.S. would be at full employment all the time. That doesn’t mean the occupant of the Oval Office has no influence. The president creates an environment for job creation by encouraging entrepreneurship and working with Congress to craft a favorable tax and regulatory backdrop. Bashing business, be it insurance companies, banks or oil producers, for short-term gain isn’t the way to win friends and influence people. And it’s hardly an inducement for the private sector.
No. 2: Middle-class taxes are going up.
Unless the U.S. generates a lot more wealthy Americans -- unless we can “grow the rich,” so to speak -- raising taxes on upper-income earners won’t solve the deficit problem. The top 10 percent already pay 70 percent of the federal income tax. The Buffett rule, which would impose a minimum 30 percent tax rate on millionaires, would raise less than $50 billion over 11 years, according to Congress’s Joint Committee on Taxation. (That assumes the Bush tax cuts expire and the alternative minimum tax isn’t indexed for inflation.)
Even Obama’s proposed 2013 budget, which limits the rate of itemized deductions, would raise $520 billion of revenue over 10 years, according to the committee’s estimates.
Given the federal government’s predilection for spending every dime that comes in (and more), the awful truth is that the government will have to trickle down the income ladder to scoop up the revenue needed to reduce the deficit.
It’s true that the recession and subpar recovery depleted the Treasury’s coffers. Tax receipts as a share of gross domestic product plummeted to a six-decade low of 15.1 percent in 2009 and 2010 and are inching back slowly.
The government needs to raise additional revenue: It can enact higher tax rates or eliminate loopholes (preferable). Federal outlays peaked at 25.2 percent of GDP in 2009 before dipping to 24.1 percent in the following two years. That gap is unsustainable and will have to be plugged with both spending cuts and revenue increases that ensnare the middle class.
No. 3: “Forward” is really backward.
The Obama campaign adopted “Forward” as its slogan for the 2012 election and features it prominently at events. As a rallying cry, it’s not much better than backward.
“Forward” was a favorite term of Marxists. Think Lenin’s “Spring Forward” and Mao’s “Great Leap Forward.” When Lenin started his own underground newspaper in 1905, he called it Vperyod (Forward). “Forward” is still popular nomenclature for socialist publications.
Someone on Team Obama either doesn’t know history or has a warped sense of humor. If the president’s advisers were looking to counter the accusation that Obama is a socialist, invoking Lenin was a bad choice.
No. 4: Medicare, not Granny, is going over the cliff.
Forget the back-and-forth accusations about which party plans to raid Medicare to the tune of $716 billion and deprive seniors of their due. Democrats still want us to believe Medicare as we know it can be preserved. It can’t. It has been running a cash-flow deficit since 2008 and will go broke in 2024. Medicare can be reformed, retooled or revamped, but it can’t continue in its present state.
Like health care for the non-elderly, Medicare’s costs are being exacerbated by the fee-for-service structure. Just recently we learned that electronic health records, an initiative subsidized by the government, are making it easier for providers to overbill for services. Oops. Hospitals received $1 billion more in Medicare reimbursements in 2010 than in 2005 just by jiggering billing codes, according to a recent New York Times expose.
Health-care reform without a change to the fee structure is folly. That applies to Medicare as we know it and to Medicare 2.0.
No. 5: A Volt in every driveway?
The 23 million unemployed and underemployed Americans must be wondering about all the fuss over a $40,000 plug-in hybrid car. Hoping to turn that fuss into sales, General Motors cut the sticker price on its Chevy Volt by 25 percent.
With an array of government subsidies and tax credits for GM and its suppliers -- and even a hefty tax credit for buyers - - the Volt has literally been willed into existence. With the nation awash in cheap natural gas, it seems like an odd time to throw money at an electric car. We really can live without a Volt in every driveway.
I could go on, but confronting five truths in a single sitting is probably more than the Democrats can handle.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg View columnist. The opinions expressed are her own.)
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