Posts Tagged ‘taxes’

Can We Stop America’s Decline?

August 15, 2013

UnknownI’ve written about “Pakistan: The F**ked-Up Country.” America’s no Pakistan. But it sure is frustrating for optimists. Like Thomas Friedman and Michael Mandelbaum, whose 2011 book, That Used To Be Us, analyzes a group of key factors central to the miracle of America. And in every category, we’ve gone off the rails.

Our infrastructure grows seedy, with a huge backlog of postponed maintenance — never mind modernization. Investment in research and development shrinks. Education is inadequate for the competitive, high-tech, globalized marketplace. Cockeyed immigration policies shut out legions of motivated, brainy people we desperately need. We’re virtually ignoring climate change. We increasingly spend resources instead on burgeoning pensions, healthcare, and other “entitlements.”

In fact, we’re not paying for those either, going deeply into debt. How much can we actually borrow? Nobody can be sure, but we’re testing it, with borrowings already off the charts. There’s an old line about how one goes bankrupt: “at first gradually, then suddenly.” The “suddenly” comes when the world’s bond buyers decide we’re past the point of no return in managing (let alone repaying) our debt. imagesLike Wile E. Coyote in the old cartoons, running off a cliff and continuing till he realizes nothing holds him up. Then he drops like a stone.

We’re able to – for now – only because interest rates are at historic lows, since the market still considers U.S. bonds the safest anywhere. But if (when) that changes, interest costs on our vast national debt will go through the roof. We’ll be even deeper in the red – and deep in a vicious circle.

Economist Paul Krugman

Economist Paul Krugman

We’ll be Greeced. (Paul Krugman laughs this off. He’s wrong.)

As the authors explain, this is a stealth crisis. Americans are complacent, imagining we can just continue running as before. Like the proverbial frog in the pot coming to boil (love all these metaphors?), we don’t notice we’re being cooked. images-3That’s a big difference from past challenges – the Depression, WWII, the Cold War – wherein we knew we had to act. That past America that could come together, bite bullets, and do big things, seems gone.

Which leads to what is really our supervening problem, blocking action on all the others: our broken politics. We can no longer take any serious action because it’s always a battlefield in take-no-prisoners partisan war which, in a closely divided nation, neither side can win.

And, unlike the other mentioned problems, this one has no obvious answer. Its roots are deep and complex. It’s not only that each side brooks no compromise. Worse, each has locked itself into denial of reality. Republicans deny the reality that taxes must rise; Democrats, that entitlements must be cut. (The book calls them “reactionary liberals,” sacralizing all existing social programs and fantasizing their funding through merely taxing the richest a bit more.)

The looming failure of immigration reform is especially disheartening. This should be a no-brainer. That America can’t this done shows government is brain-dead.

images-5JFK said, “Ask not what your country can do for you, but what you can do for your country,” and we’d “pay any price, and bear any burden” to defend freedom. Such rhetoric invites derision today. Yet sacrifice is not impossible. Germany in 2003 was able to implement sweeping tax, regulatory, and labor reforms. It took real political courage and probably cost Chancellor Schroeder re-election. But it moved Germany, in a few years, from the bottom to the top for employment rates among rich nations. Why can’t America emulate that?

In fairness, the story isn’t all bleak. A key reason why we came out of the last recession while Europe remains quagmired is that we actually sorted out our banking sector problems much more expeditiously. (Technocrats did that, under the political radar.) And, to the systemic shock of 9/11, we reacted quite vigorously (indeed, overreacted).

America still has tremendous assets: relative economic openness, low corruption, strong rule of law, high social trust (contrast China in all these respects), and, most important, a lot of great human beings still filled with that great old American can-do spirit. Emblematic of this is the fracking revolution (typically hated by the left). Nothing government could do or not do would turn us into Pakistan. But staying Number One is another matter.

Americans are not a “chosen people” with God-given primacy. In many ways, we blazed a path much of Mankind has followed, but we can still be left behind, and that would be bad for the world. The Noam Chomskys who decry America’s global role are blind to how much good it does. The book’s authors see the U.S. effectively filling a world governance role, undergirding everyone’s prosperity. China won’t do this.

It’s customary in books like Friedman’s and Mandelbaum’s to offer solutions. I expected the usual laundry list of reforms that won’t happen. But instead they stressed a single idea I too have talked up. They quote Ohio Republican George Voinovich who, on quitting the Senate in 2010, said “we have to blow up the place.” Political “shock therapy” is what the authors prescribe, the political equivalent of the 9/11 shock. Specifically: a serious third party candidacy, representing a “radical centrism” that exposes the irresponsible denialism of the two other parties.

images-7This is not quixotic. What’s happened is that the two parties have come to be effectively controlled by minorities of intransigent ideological activists (through disproportionate primary voting, and just plain louder shouting). But they’re really only a small part of the whole electorate, which is still predominantly centrist and moderate. In fact, the baneful role of those zealots has undermined broader public loyalty to both parties, and consequently polls show more Americans now identify as independents than as either Democrats or Republicans.

The book’s authors don’t expect their candidate to win. Instead, they say, if she got a sizable vote, that would provide the political shock to blow up the system’s ice blockage, with both main parties scrambling to regain those votes.

images-4However, if most independents (and some others) voted for the third candidate, she would win. I cite again the Ross Perot example. His 1992 presidential campaign was just what the authors have in mind, stressing (with pie charts and graphs) our budgetary/deficit problem – which has since hugely worsened. And, despite being a damaged, goofy candidate, Perot got nineteen percent of the vote. That was actually, in a three-way race, more than halfway toward winning.

Imagine a candidate who treated American voters as adults, called out both the Democrats and Republicans for their failure to do so, and sensibly explained why painful sacrifices on taxes and entitlements are unavoidable. That candidate could have a huge impact. Especially with no incumbent running. And especially if he were well-financed, and a credible, compelling personage who would command attention.images-6

I nominate Bill Gates.

State of the Union: US: Sweden

February 15, 2013

imagesSo the President gets up there and unveils a host of big new government programs. Then he says they won’t add a dime to the deficit. That would be true only if:

a) They don’t pass Congress, or
b) Taxes are raised, or
c) Other programs are cut

As to (c), of course the President has proposed no such cuts. In fact, after years of talking about a balance of tax hikes and spending cuts, and indeed campaigning on that issue, Obama in the recent fiscal cliff deal got taxes raised without any spending cuts at all.

Cartoon by Eric Allie,

Cartoon by Eric Allie,

This he actually thought was a glorious triumph; liberals are cock-a-hoop that they’ve really stuck it to Republicans.

The Pre-K education proposal epitomizes how they think. Pre-K is actually desperately needed to help disadvantaged kids who are otherwise being done down by crappy schools. But does Obama’s proposal target those kids? No. It’s “universal.” Which means that just like Medicare and farm subsidies and so many other government programs, it will mainly give yet more welfare to the affluent, with the disadvantaged getting only a lesser share of the benefits.

This is not the time to be adding a big new “universal” federal program.

Whatever benefit it may buy will be more than wiped out when the shit hits the fan and our economy sinks under the weight of unsustainable debt. That’s true of all Obama’s economic initiatives. They will all come to nothing and worse if we don’t tackle the one big monster looming on the horizon, our debt. Eyes closed to this, Obama is taking us down the road to ruin.

images-3It doesn’t have to be this way. The Economist recently ran an illuminating survey of the Nordic countries. Remember Sweden, the poster boy for a tax-and-spend “social welfare” state, of cradle-to-grave government cosseting, soaking up the lion’s share of GDP? Well, it’s not your father’s Sweden anymore. That model, the Swedes and other Nordics realized, was doomed, so they reformed; in The Economist’s words, they “put an end to the region’s magical thinking about welfare.”

So they enacted sweeping pension and benefit reforms and put their budgets in balance; Sweden reduced national debt from 84% of GDP in 1996 to 49% in 2011; government’s share of GDP fell by a whopping 18 percentage points. The Nordic countries have also become much more enthusiastic toward the free market and entrepreneurialism, moving their economies away from statism. They embrace free trade and resist the siren song of protectionism. The Swedes now even let private companies compete with government bodies to provide services; a majority of new kindergartens and health clinics are being built by businesses, and citizens can shop around.

images-5This includes school choice; Sweden is now the world’s leading adopter of vouchers. Almost half its schoolkids are in non-public classrooms. And the most comprehensive study of the results shows great performance improvement – especially in the public schools, which competition has forced to raise their game. (Milton Friedman, father of the voucher concept, said the point was not that privately-run schools would be better; rather, all types of schools would be better if they must compete.)

Finland too is a hotbed of educational success. Interestingly, Finland spends proportionately less on schools than America, and teacher pay is relatively low. Yet Finland attracts high quality teachers by giving them something more valuable than money: respect, and thus a high degree of autonomy and responsibility for what they do in class.

So, does all this reform throw granny over the cliff, as in liberal nightmares? No. As I keep saying, rich countries have plenty of money to take care of the needy; it’s welfare for the rich that’s bankrupting us. Nordic budgets have not been balanced on the backs of the disadvantaged. What they have done is to create the conditions for everyone to flourish. And, by all accounts, their populations are quite happy with the change, facing the future with a positive attitude.

images-4Why can’t America get its act together like that? Yes, I know all about our frozen politics and the influence of special interests (like the teachers’ unions). But Sweden and Finland were not utopian paradises free of such societal baggage. Those fat and happy with their old paternalistic policies were equally wedded to them. But their special pleading was overcome. It takes leadership and grit. I continue to believe Americans would support sensible reforms like the Nordics, if only some real leadership were shown.

I guess we’ll have to await another president. Let’s hope it won’t be too late.

Who was America’s Worst President?

January 12, 2013

During the holidays my sister-in-law got me into a heated discussion on how I could possibly have voted for such a flawed, problematic bumbler with weird religious beliefs, rather than the cool, cerebral, eloquent golden boy Obama.

What is remarkable about the recent “fiscal cliff” deal is that while during the earlier negotiations, President Obama offered relatively piddling spending cuts, the Republicans actually wound up getting even less – zero, in fact. And correspondingly, Obama actually wound up getting less in added tax revenue than Republicans had earlier offered.* These tax increases too are piddly – and, astoundingly, are offset by a new round of tax breaks for corporations which Obama – yes, Obama – insisted on.

I just read the local Metroland paper’s lefty columnist, wishing that liberals would “go off script” for a change and – wait for it – stop being apologetic about protecting entitlement spending and socking it to the rich on taxes!

UnknownCongressional Republicans now say the next needed debt ceiling vote is when they’ll really really, yes really, get serious on spending. Actually, that’s not when it will happen. It will be when pigs fly. Or when voters truly want it, which comes to the same thing.

Incidentally, remember how Republicans did extract some modest spending cuts in exchange for averting a government shut-down a couple of years back? Turns out they were snookered. Those spending cuts were a mirage. And what about that $700+ billion Obama was accused, during the campaign, of cutting from Medicare? He didn’t want to give the true rebuttal, which is that those cuts too were a fake – promised reductions in payment rates for hospitals and doctors. Congress keeps pretending to legislate such cuts, and then rescinds them when the powerful medical lobbies scream (and pony up campaign contributions — it’s really an extortion scam by legislators).

Unknown-1Federal debt is roughly 100% of GDP, and growing at over a trillion a year, with no let-up in sight. Medicare is the gorilla. Its cost is on track to double in a decade. In three decades, it’s set to push national debt to an impossible 250% of GDP. Tax to the max on the rich and you’ll barely nibble at the problem. No conceivable level of tax increases on everybody can close this gap.

Obamacare will not reduce health costs for one fundamental reason. Call this Robinson’s law – when government pays the bill, the price does not go down. (Just look at college tuition. The more government pays, through subsidized student loans (often defaulted), the more colleges raise tuition to milk that cow.)

Already, interest payments on the debt consume a sizeable chunk of the federal budget. But that’s with interest rates at historic lows, near zero. America can finance so cheaply today because its bonds are still seen as the world’s safest. But at some point, as our debt spirals out of control, the bond market will have second thoughts. Even interest rates returning to historically typical levels of just a few percentage points could mean a tripling or quadrupling of our interest costs – not only on new debt, but on rolling over all the old debt, all $20 trillion or whatever.

imagesGoodbye Charlie. Hello Greece.

Take your pick of worst presidents – Buchanan, Andrew Johnson, Harding, even George W. Bush. But none left the nation as catastrophic a legacy as Obama’s willingness to let America slide into economic destruction.

* Note that while Democrats made a career of condemning the “Bush tax cuts for the rich,” the smallness of the revenue from repealing those cuts for the 1% shows that the bulk of the benefit actually went to the 99% — whose Bush tax cuts Congressional Democrats have now cheerfully voted to make permanent.

We have met the enemy and it’s us

January 6, 2013

UnknownRecently I got one of those virally forwarded e-mail blasts, flaying Washington politicians and demanding an array of draconian punishments for them, stopping just short, perhaps, of tumbrils.

But who elected these miscreants?

It doesn’t take a political science genius to understand politicians’ behavior. There’s but a single explanatory factor: winning elections. That means following voter wishes.

So why doesn’t the fiscal cliff deal tackle spending? Don’t voters want that? Oh, yes, absolutely they do, just so long as you don’t cut Social Security or Medicare or education or farm programs or defense or, well, anything, except of course for foreign aid. (On which the average American thinks we should spend no more than 10%. In fact it’s less than 1%.)

thRepublicans, especially Tea Partiers, really really want spending cuts. But just ask exactly what to cut, besides Big Bird (0.014% of the budget). And just whisper a suggestion and you get the campaign ads with granny shoved over a cliff. Of course Republicans don’t want to hand Democrats this nuclear weapon. What they’d like is for Democrats to disarm by joining them in the spending cuts. But any Democrat doing that would get the granny-over-the-cliff ad himself in his own next primary.

We imagined that Republicans would make a deal with President Obama, agreeing to higher taxes for the rich in exchange for spending cuts. How foolishly naïve. We forgot the nuclear weapon. We forgot that whereas soaking the rich is popular, cutting spending risks granny-over-the-cliff ads and political annihilation. So what we got was soak-the-rich and nothing on spending.

Why did Republicans agree? In the end, instead of trading off soak-the-rich taxes for spending cuts, they were forced to swallow the tax hikes merely in exchange for avoiding even bigger tax hikes.

The New York Times editorially labeled this a big payoff for Republicans, rewarding their “intransigence”! The Times fulminated that the rich aren’t being soaked enough – while saying hardly a word about spending – nor noting that under this deal, deficits will continue to balloon – or that no conceivable level of taxes on the rich could close that gap.

Devotees of this blog may recall how accurately I foresaw this outcome. The Democrats did get their Great White Whale, with Bush’s tax cuts terminated for high incomes. And the argument over spending can seemingly continue. I say “seemingly” because for all the sturm-und-drang, nothing serious will be done about spending because Republicans have now squandered their biggest bargaining chip. Any further blackmail they might attempt would be seen as just that, blackmail, politically suicidal.

I hope President Obama enjoys his whale meat. He might have exercised responsible leadership. He might have forced Democrats to accept the need for spending action, as a trade-off for the tax increases they craved. This fiscal cliff moment was actually a grand opportunity for him to achieve something meaningful – just like Simpson-Bowles – the opportunity he missed earlier. But instead of seizing the moment, the President chose the easy, expedient thing, to pocket the cheap “victory.”

History will write that Obama’s eight years mark the time when America might have saved itself, but didn’t. We may have survived this th-1recent little cliff, but we’re running straight down the track toward a far bigger one, of economic ruin, with clearly now no hand on the throttle.

And if you want to find the real culprit to blame, dear voter, look in the mirror.

In Pursuit of the Great White Whale

December 3, 2012

As explained in my recent post, the best way to raise tax revenues, mainly from the rich, is to cap deductions, avoiding the politically charged issue of raising tax rates. Republicans seem open to this. But President Obama and the Democrats are not; instead, they seem Unknownpositively obsessed with raising tax rates. It’s no longer just about revenues, or even merely making the rich pay more; it’s a line in the sand for a top tax rate restored to 39.6%, and not a tittle less. They pursue this as some kind of vendetta, as Ahab pursued his great white whale.

Both sides are blameworthy, pushing narrow partisan interests while convinced of rectitude. But the Democrats now outstrip the GOP in zealotry, in their evident sangfroid approaching the fiscal cliff. They even seem to think going over would be good for them. Here’s why: in the first place, they figure they can pin the blame on Republicans. And secondly they see this as a white whale trap (this is the Patty Murray plan; she’s an extreme liberal Senator from Washington). If nothing is done, all the Bush tax cuts will expire on January 1. Republicans wouldn’t have the votes to restore them for the rich, while Democrats would bring forward legislation to re-reduce tax rates for the non-rich, and defy Republicans to oppose that. Gotcha!

images-1And because they thusly think they have the upper hand, Democrats aren’t being serious at all about spending cuts, even reducing what they’d previously offered Republicans in trade for higher taxes. The cuts on offer now are paltry, and mostly smoke-and-mirrors besides. No wonder Republicans balk. Democrats want them to: it’s “Make my day.”

They feel cocky and empowered because they won the election – “decisively.” How often do we hear that? But a 50-48% win is not what I call “decisive.” The electoral vote was more lopsided, but only because a passel of swing states went by the narrowest of margins. And though they gained a few seats, Democrats failed to capture the House of Representatives. The fact is that the country remains closely divided; the election changed nothing, settled nothing.

The conventional wisdom seems to be that going over the cliff briefly is not catastrophic, because then the parties will scramble up a deal. I’m not so complacent.

Firstly, the mere fact of Washington actually letting this happen would be terrible for the economy, eroding confidence in our political system even more than it was already eroded by the partisan games of the last few years. Remember that the fiscal cliff was created intentionally, to force the parties to compromise. And if they can’t compromise when up against such a deadline, why expect a deal without one? Once over the cliff, a kind of virginity will be lost. If the sky does not fall straight away – but only in slow motion – there will be even less impetus for a “grand bargain.” Furthermore, Democrats will now have actually bagged their white whale – tax rates will rise for the rich – thus leaving no bargaining chips for getting anything done on spending. So nothing substantive will get done.

bigstock_sinking_ship_in_the_sea_187677741-300x225America is the Pequod. The Democrats will party on deck while the vessel takes on water below.

Call me Ishmael.

Fiscal Cliff Notes

November 23, 2012

Here’s the deal:

Tax revenues rise. Not rates – revenues. Raising rates is bad because it disincentivizes work, enterprise, and investment, and encourages tax avoidance. But rates needn’t be raised; the money can be gotten by curbing deductions, which are worth over a trillion a year. And instead of fighting a political WWIII over which deductions to kill, the better solution is to cap the dollar amount of deductions any taxpayer can take.

Romney proposed this during the campaign. It would mostly hit the rich, especially the very rich. Now, it’s true that (contrary to “Buffett rule” hogwash) the rich already pay by far the lion’s share of all income taxes; they should not be seen as a bottomless well of cash for redistribution; nor should their wealth be regarded as somehow illegitimate, deserving more taxation punitively. All that said, it’s my judgment (as a fairly rich Republican) that given the country’s fiscal situation, richer people should pay somewhat more.

And capping deductions is a particularly fit way to do that. The mortgage interest deduction, for example, encourages over-large (and multiple) houses, by forcing other taxpayers to subsidize them. The charity deduction likewise makes other taxpayers subsidize the pet causes and vanity of rich people. Capping deductions would curb these undesirable inequities while still allowing the middle class to benefit reasonably from these deductions and others.

The President is probably right that a reasonable deduction cap can’t produce as much added revenue as he advocates. But he wants too much; that should be seen as an opening bid to be bargained down. Other countries that have tackled similar budget imbalances have done it with a heavy preponderance of spending cuts over tax increases, which is better for economic health.

That our problem really lies with spending is obvious because taxes high enough to close the gap would be far too high for the economy to bear. Indeed, you could never actually raise revenues that much, because it’s self-defeating — the more you tax, the less taxpaying economic activity you have.

What to cut? Defense. Yes. A lot. We need to maintain geostrategic muscle, but the truth is that a huge part of our over-bloated defense budget contributes nothing toward our actual security. A great part of it is political patronage, keeping Congressmen sweet. Unfortunately, because whenever billions are at stake, you can’t banish politics, so it will be easier for the Pentagon to cut meat than fat. But we must try.

Social programs: benefits for the poor and disadvantaged should not be cut. I’ll say it again: we are a rich country and we can, and should, take care of the less fortunate. That’s actually only a small part of government’s social spending. It’s the much greater welfare for the affluent that must be cut.

The big pig here is Medicare. Romney also actually said that benefits for wealthier people will have to be trimmed. Yes, bless his heart, he did say it. But for social spending in general, here again you can’t get politics out of it, meaning it’s a lot easier to screw the poor than the better-off, because the latter carry so much more political weight. Yet again we must try. “Means testing” must become the watchword for all these programs – i.e., only the needy should be “entitled.” That’s the only fair way to achieve swingeing reductions; probably the only way at all.

Another point: no phony cuts, or phony pledges of future cuts. Congress is good at this game: legislating draconian cuts in, for example, Medicare reimbursement rates for doctors and hospitals, that (wink, wink) will never be allowed to actually take effect. (That was how Obamacare was seemingly transformed from a huge expense to a money-saver.)

So there’s the deal. The only possible deal; the deal that has to happen. But Obama flubbed it before. I voted against him mainly because I didn’t believe him capable of achieving it now. Let’s hope I was wrong.

How Romney can win the debate (and election)

October 2, 2012

I chuckled when Jonathan Haidt, in his recent book, said he’d been a 2004 campaign speechwriter for John Kerry – in his head, frustrated at Kerry’s failure to say what he (Haidt) thought necessary. Well, I’ve been speechwriting like that for Romney (posted here on 3/1 and 8/19). And now David Brooks, in his latest column, has given it a shot too, for Romney’s opening statement in the debate.

I’ve taken Brooks’s draft and reworked it:

Till now I’ve let myself be packaged as an ideological candidate. But, to be honest, that’s not really me. I see myself instead as a pragmatist problem-solver. So as the election nears, I’ve decided to leave aside political game-playing and get real.

My friends, America’s going broke. The next president had darn better finally make a “grand bargain” with the other party to get the budget under control. Mr. Obama has tried to (well, sort of), over the past four years, but failed. There’s no reason to think he’ll succeed in the next four.

One factor is that, while in 2008 he promised to be post-partisan, he actually shut out Republicans from Day One, making bipartisanship impossible.

Now, Republicans do share part of the blame, by refusing to consider any tax increases. And we should certainly aim to tax as little as possible. But there’s no way we can deal with our debt crisis through spending cuts alone; and no way Democrats will agree to major spending cuts unless Republicans budge on taxes. Other countries facing similar problems have successfully overcome them by raising something like $1 in new revenue for every $3 in spending cuts.

That’s a basically reasonable way forward. The only possible way. President Obama will never be able to achieve it; he’ll never get Republicans to accept it. But I can – and I will.

Make no mistake, we have to do this. We can’t keep spending a trillion a year more than we take in; and if nothing is done, it will only get worse, as the ratio of taxpaying working people to retired and benefit-receiving people inevitably shrinks. In fact, we’re able to borrow a trillion a year for now only because interest rates are at historic lows. But as our debt balloons, and repayment grows doubtful, countries like China won’t keep lending us money at such low interest rates. And when interest costs on our debt ($16 trillion and counting) jump up to more normal levels, we’ll be in deep doo-doo. We won’t be able to afford any of those benefit programs Democrats keep vowing to protect. Our government will be bankrupt and our economy destroyed.

This is the biggest problem facing America. Tackling it will take some spending cuts and tax increases none of us will like. President Obama and the Democrats are frankly incapable of dealing with it. They don’t even want to hear about it.

And by the way, the president’s proposals for higher taxes on the rich are not an answer. They’d be a drop in the bucket. I would also like to make clear that, contrary to what they tell you, I am not – repeat, not – proposing to reduce the taxes rich people pay.

But what would also help our debt problem is better economic growth, getting more Americans working. Democrats seem to think government can create jobs. They never seem to understand that most people work for businesses, so for high employment you need businesses to be successful, competitive and, yes, profitable. But according to the World Economic Forum, American competitiveness has fallen in each of the last four years.

Well, what do you expect with an administration that basically sees business as a public enemy? A Romney administration will instead aim to help businesses to be more competitive and successful, because that’s how you get more jobs – and less deficit spending.

President Obama has no plan for the next four years except to continue fighting the same fruitless battles he’s failed to win over the last four. If you think that’s a good plan for our economic future – then vote for him.

The Road Not Taken

October 15, 2011

The rich should pay their fair share of taxes.

But how can we tell what’s fair? With all this “Buffett Rule” hullabaloo you might think the rich pay less than ordinary people. Not so. The more you earn, the higher a percentage goes to income tax. The top 5% of earners pay 57% of all income taxes; the wealthiest 1% (with 19% of the income) pay 37% of income taxes. And these percentages have been rising, mainly because the richies’ biggest tax break is the lower rate on investment gains – but since 2008 most investments have fallen (also, by the way, reducing wealth inequality).*

So, can we say the rich don’t already pay their fair share? Or even more than a fair share?**

But meantime income taxes on the whole are too low in relation to the government spending level that voters seem unwilling to change. Much spending goes to the rich, so whether to cut that, or raise their taxes, is really an equivalent choice. But as long as voters won’t accept cuts even in welfare for the rich, then taxes are too low.

However, for President Obama and the Democrats to advocate only raising taxes on the richest Americans is a disgraceful cheap shot, not only because demonizing the rich is demagogic, but mainly because this addresses only a tiny sliver of the problem. Squeezing a bit more tax out of the highest earners wouldn’t begin to come to grips with the massive and growing gap between spending and revenue, and the economic catastrophe this presages.

 So the Democrats have nothing to say about that; they take a pass on the great issue of our time. So do the Republicans. They say it should be all spending cuts. But it’s doubtful they’ll suddenly find the cojones to actually put through massive cuts in the teeth of public opinion. And it couldn’t happen anyway without Democratic support; the Democrats won’t make such a deal without tax increases; but the Republican presidential candidates unanimously say they would not accept even $1 in tax rises for $10 in spending cuts.

Obama might have chosen to fight them on that turf, seizing the responsible center, arguing for the reasonableness of a balanced package of tax increases and spending cuts (the “grand bargain”). Instead, he opted to veer sharply left, and into his re-election campaign, with a same-old same-old job stimulus plan combined with a populist “tax-the-rich” plan, neither of which has a snowball’s chance in Hell of getting enacted either (making his fiery speeches advocating them fundamentally dishonest). But this stuff is catnip for the activist left wing of the Democratic party. In short, Obama chose political posturing in lieu of governing.

Maybe he can eke out re-election this way. But to what end? He’ll still have a Republican controlled House and likely a GOP Senate as well. The country will be more polarized and gridlocked than ever, with no centrist mandate for the sensible, balanced, necessary approach that our economic mess cries out for.

It’s just like the Palestinian impasse. The obvious deal stares us in the face, majorities on both sides actually want it, but the zealots make it impossible. Arafat’s walking away from the Camp David deal in 2000 was the Palestinians’ Original Sin. Obama’s Original Sin was walking away from his own Simpson-Bowles deficit reduction commission’s recommendations. That was the moment of opportunity when a real leader might have gotten the nation to face reality and move toward responsibly tackling our fiscal problems.

That was the fork in the road; Obama went the wrong way; and (to quote Robert Frost) that has made all the difference.

What a tragedy. Obama is very smart and very likable. But as president, disastrous.

* Click here for some data on all this.

** The idea of the Wall Street protests, dividing the nation between a decent 99% and an evil 1% whose greed causes all the problems, is flat-out childish and useless for addressing our true economic problems. See a recent David Brooks column.