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Krugman: Obama’s Tax-Cut Defense ‘Enormously Self-Indulgent’

December 7, 2010 at 3:38 PM EDT
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President Obama held a news conference Tuesday in which he defended his decision to compromise with Republicans on tax-cut extensions for all, in order to extend unemployment benefits. To discuss the economic and political impact of the plan, economist Paul Krugman and Stephen Moore of The Wall Street Journal join Jeffrey Brown.

JEFFREY BROWN: President Obama used a White House news conference today to make the case for a tax cut deal he struck Monday. He also appealed to disgruntled supporters to reconsider their criticism.

The president went before cameras amid a chorus of complaints from Democrats about the tax cut deal. He argued he put the good of the country ahead of politics, and he blamed Republicans for their demands to extend all tax cuts, even for the wealthy.

U.S. PRESIDENT BARACK OBAMA: I have said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts. I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then, people will question the wisdom of that strategy.

In this case, the hostage was the American people. And I was not willing to see them get harmed.

Now, I could have enjoyed the battle with Republicans over the next month or two, because, as I said, the American people are on our side. This is not a situation in which I have failed to persuade the American people of the rightness of our position.

I know the polls. The polls are on our side on this.

JEFFREY BROWN: The proposed compromise comes with a price tag of up to $900 billion.

It would preserve the Bush era tax breaks for all income levels for two years, extend jobless benefits through the end of next year, cut Social Security payroll taxes by 2 percent for one year, continue the tax credit for college students, and expand the child tax credit to more families, and revive the inheritance tax with a 35 percent rate on estates worth more than $5 million.

Not surprisingly, Senate Republican Leader Mitch McConnell said the plan got a positive response from most of his members during a closed-door meeting this afternoon.

SEN. MITCH MCCONNELL (R-Ky.), minority leader: And I will say again that I think the vast majority of the members of the Republican Conference of the U.S. Senate feel that this is a step in the right direction, an important step to take for the American people. And I think the vast majority of my members will be supporting it.

JEFFREY BROWN: The president dispatched Vice President Biden to lobby wary Senate Democrats.

But Majority Leader Harry Reid suggested there will have to be changes to get enough Democratic votes for passage.

SEN. HARRY REID (D-Nev.), majority leader: Well, the concerns are wide-ranging, some — some dealing with matters other than taxes, frankly. But we weren’t able to work our way through all this today. We’re working through the issues that people have, and we will continue doing that.

JEFFREY BROWN: The differences of opinions also played out in the House, where Republicans seemed encouraged, while Democrats voiced frustration.

REP. TOM PRICE (R-Ga.): I hope what it demonstrates is the president’s desire to work with the incoming majority in the House of Representatives. We haven’t seen that kind of collaboration in the past two years. And I’m — what I’m hopeful for and what I pray for is that this is the — the initial step toward a much more collaborative and positive relationship.

REP. BARNEY FRANK (D-Mass.), chairman, Financial Services Committee: I won’t vote for it, but I expect that the Republicans will be there on the Republican side and some Democrats to preventing a tax increase that is scheduled to go into effect of a very small amount on the richest people in America.

JEFFREY BROWN: But the president firmly rejected criticism from those on the left that he betrayed his core principles. It’s a critique, he said, he’s faced before.

BARACK OBAMA: This is the public option debate all over again.

So, I pass a signature piece of legislation, where we finally get health care for all Americans, something that Democrats had been fighting for, for a hundred years, but, because there was a provision in there that they didn’t get that would have affected maybe a couple of million people, even though we got health insurance for 30 million people and the potential for lower premiums for 100 million people, that, somehow, that was a sign of weakness and compromise.

Now, if that’s the standard by which we are measuring success or core principles, then let’s face it: We will never get anything done.

People will have the satisfaction of having a purist position and no victories for the American people. And we will be able to feel good about ourselves and sanctimonious about how pure our intentions are and how tough we are, and in the meantime, the American people are still seeing themselves not able to get health insurance because of preexisting condition, or not being able to pay their bills because their unemployment insurance ran out.

And I don’t think there’s a single Democrat out there who, if they looked at where we started when I came into office and look at where we are now, would say that somehow we have not moved in the direction that I promised.

Take a tally. Look at what I promised during the campaign. There’s not a single thing that I have said that I would do that I have not either done or tried to do. And if I haven’t gotten it done yet, I’m still trying to do it.

And — and so the — to my Democratic friends, what I would suggest is, let’s make sure that we understand this is a long game. This is not a short game.

And to my Republican friends, I would suggest, I think this is a good agreement, because I know that they’re swallowing some things that they don’t like as well. And I’m looking forward to seeing them on the field of competition over the next two years.

JEFFREY BROWN: House Democrats will meet this evening to discuss the agreement. It remained unclear when the deal might be put into legislative form and scheduled for a vote.

And we get our own reaction to the deal now and its potential economic impact.

Paul Krugman is a Nobel laureate at Princeton University and a columnist for The New York Times. And Stephen Moore is co-founder of the conservative Club for Growth and a member of The Wall Street Journal’s editorial page.

Paul Krugman, the president seems to be saying, it’s not all I want, but we have to protect Americans in need. Yesterday, you wrote that he should just say no to extending all the tax cuts, if necessary. What do you say today?

PAUL KRUGMAN, columnist, The New York Times: I still think it’s a mistake. Now, it’s not as bad a mistake as it seemed before we saw some of these other elements. He did get unemployment insurance extension. He got the payroll tax break, which are stimulus.

But this is basically — if you think about the U.S. economy, this is a lot of money — you know, we were — weren’t we all worrying about deficits just the other day? — that is very badly designed to help the U.S. economy, so that we’re spending a lot of money in an ineffective way. A lot of this is just going to be money handed over to people who are not going to spend it. It’s not actually going to boost the economy.

And we are setting up a dynamic which may sit, unfortunately, more likely that those tax cuts, the Bush tax cuts, which are not affordable, never were, and certainly not now, will in fact be perpetuated.

So, it’s — it’s — you know, I’m not ravingly unhappy to the extent that I was before we got the other stuff in here, but it is a bad deal. And it’s also a signal, basically, that — to the Republicans that they can take hostages, and, you know, the president basically said: I cave when they do.

JEFFREY BROWN: Well, Stephen Moore, do you view this as Republicans basically getting what they wanted? You — you want those tax cuts to be extended permanently.

STEPHEN MOORE, senior economic writer, The Wall Street Journal: Yes, I think it’s very important for the economy. And, you know, I think we needed to do extend them for everyone, not just people who make less than $250,000 or a million.

But, you know, when you’re talking about those people at the top, you know, the so-called rich, there’s no question about it. The people — those people are employers. They’re wealth-producers. They’re the people who put Americans to work. And I just didn’t see how raising taxes on businesses at this time, when we have this fragile recovery, raising those taxes on businesses made a lot of sense.

Now, look, I think there were two real triggers to this deal getting done. The first was, obviously, the election, where I think the American people said, look, what’s — what’s been going on in the last two years with all of this spending hasn’t worked very well.

And the second trigger for this was the unemployment number that came out on Friday, which showed that we have a 9.8 percent unemployment rate. That is after two years of the types of policies that Paul Krugman has very much favored of spending money to the tune of about a trillion-and-a-half dollars. And, even after two years, we still had a near 10 percent unemployment rate.

So, I think this was a smart move politically for the president. And I think that this is going to get done. And I think it very much reduces the chances of a double-dip recession in 2011.

JEFFREY BROWN: Well, Paul Krugman, I mean, the president — on the economy first, the president himself did say that a lot of the concessions he got, the payroll — the unemployment benefits, the payroll tax cut, various tax credits, those would have a stimulative effect.

PAUL KRUGMAN: Yes, they will. I mean, we’re talking — there are various people trying to crunch the numbers. They do have a stimulative effect.

They’re not as good as actually going out and hiring people, which is what we should have been doing. Just — I want to correct Stephen Moore. There — there really wasn’t very much spending in the Obama program, even from the beginning.

This year, the spending portion of the Recovery Act is on the order of $240 billion, which is not very much in a $15 trillion economy. So, we never did get that kind of program. And we’re certainly not getting it here.

But, yes, I mean, everyone sensible will agree that, next year, there will be somewhat more jobs than there would have been if there had been a complete breakdown in negotiations over the taxes and everything else.

JEFFREY BROWN: Well, Stephen Moore, of course, the criticism of the conservatives — and Paul Krugman just said it a little earlier — weren’t we just talking about the deficits the other day?

On the one hand, there is all this talk about the deficits and the debt, on the other hand, the insistence on extending tax cuts for the wealthiest now. A lot of people say that is…


JEFFREY BROWN: … sheer hypocrisy.

STEPHEN MOORE: Well, look, I think the biggest concern that, you know, conservatives like myself have is that we were only extending these tax cuts for two years.

And, look, I look at the economy in a bit of a different way than Paul does. I think that what really drives the economy is investment. You have got to get businesses spending again. We have got to get them incentives, so that they will expand their operations and bring on more workers.

And raising capital gains taxes and dividend taxes and employer taxes just didn’t make a lot of sense in that kind of environment. And, so, the problem is, if you only do this for two years, look, businesses are making investment decisions, you know, as Professor Krugman knows, not on just a two-year basis, but a five-year, 10-year, 20-year basis.

So, I’m not thrilled about the idea that we’re going to have to fight this fight — Paul Krugman and I will are going to be on this show again two years from now refighting this, because all of those tax cuts expire again in December of 2012.

JEFFREY BROWN: Well, that…


PAUL KRUGMAN: Can I just break in here and say, yes…

JEFFREY BROWN: Yes, go ahead. Go ahead.

PAUL KRUGMAN: Yes, it’s hypocrisy.

I mean, we now have had an object lesson in the fact that all of the fuss about deficits was just a stick with which to beat back anything that Democrats wanted. If it’s something that Republicans want, no one cares about the deficit. So, no, this has been — this was a teachable moment, as the president likes to say.


PAUL KRUGMAN: We have turned — we have learned that they really don’t care at all about the deficit.

JEFFREY BROWN: Well, I want to ask you, Paul Krugman, to follow up on that.

The — you watch this through a political — you watch economics through the political prism here. Is this a kind of breaking point for liberals and progressives, as you go forward, in the sense that you can no longer look at what the president says and trust his economic principles?

PAUL KRUGMAN: Oh, look, I mean, there’s a lot of discontent brewing. It’s not the — people are not going to — progressives are not going to go and vote for Sarah Palin in 2012.

But there is something — there is a fraying of trust here. And I have to say that the president going after his progressive critics in this was — was enormously self-indulgent. What does he think he’s going to accomplish by doing that?

I mean, if you want — if this is what he thinks he needs to do, fine, but I can’t see who he thinks he’s going to win over to his side by going and complaining about people on the left who don’t understand how hard his job is.

JEFFREY BROWN: Stephen Moore, you said a little earlier that you thought this was a politically good move for the president.

STEPHEN MOORE: Mm-hmm. Well, let me just first address this issue of fiscal hypocrisy.

I have been very tough over the last eight years or so on Republicans. I think they — there’s no question, when Republicans ran Congress before, that they ran up this deficit by spending so much money.

But, you know, there’s a lot of hypocrisy on the left, too, Paul Krugman, because the same people who gave us this trillion-dollar spending binge, which I think was the most expensive policy flop in American history, are — and didn’t have any regard for the deficit are now saying we can’t afford to do these tax cuts because we’re worried about the deficit.

So, I think there’s some hypocrisy on both sides. Now, here’s the point. In January, the Republicans will take over the House of Representatives. Before we call them hypocrites, let’s see what they do. Let’s see if they take the knife and the scalpel to this budget and start cutting some of this, you know, massive budget buildup that we have seen over the last eight to 10 years.

If they don’t cut the budget, then I will agree with Paul Krugman that they’re hypocrites. But if they do what they have said they will do and bring down some of the spending, then I think it’s premature to say they don’t care about deficit spending.

JEFFREY BROWN: Paul Krugman, a last response here, final minute.

PAUL KRUGMAN: Yes. No, they — look, they — we have — we have had years in which the Republican leadership, the current Republican leadership, has had a chance to propose specific spending cuts. And they have never come up with anything, except really trivial things.

And — and, remember, they were not telling us spending, spending, spending. They were telling us deficit: We’re terribly concerned about the deficit.

Now, it turns out that, when we’re going to blow up the deficit to give them what they want, they don’t care about it at all — utter hypocrisy.

JEFFREY BROWN: All right, gentlemen, we will continue this discussion, no doubt. Paul Krugman, Stephen Moore, thank you very much.

PAUL KRUGMAN: Thanks a lot.