WEDNESDAY, DECEMBER 8, 2010 RUTHMARCUS


The good in the tax deal M


aybe I’mgetting carried away because it is the season to believe in miracles, but the


tax-cut deal just might turn out to be a blessing in disguise. Seriously. I’ve never seen congressional


Democrats, especially those in the House, so angry at the White House, andI can understandwhy. It’s galling that the Bush tax cuts will be in place throughout President Obama’s term. The arguments against letting the tax cuts expire on income over $250,000 — or even $1 million — were bogus. Only a fraction of small businesses would have been affected. The economic recovery wouldn’t have been threatened. Even more galling was Republi-


cans’ willingness to hold the exten- sion of unemployment benefits hos- tage to a deal on extending the upper-bracket tax cuts. Republicans, while blithely willing to pile up tril- lions more in debt by extending the tax cut, had insisted that the cost of unemployment benefits be paid for. And on the subject of galling:How


could this have happened with Dem- ocrats in control of the White House and both houses of Congress? Wait- ing until after the election, with its predictably disastrous results for Democrats, left the administration bargaining from a position of weak- ness.


Some blessing, right? It could be. If Obama makes the


most of the opportunity it presents, the deal offers him a relatively pain- less way to wriggle out of his most irresponsible campaign promise: to permanently extend the so-called middle-class tax cuts, the middle in this case amounting to 98 percent of households. Making those cuts per- manent, as the president and con- gressional Democrats wanted, would cost more than $2 trillion over the next decade. Now and for the next fewyears, in


the midst of a faltering economic recovery, extending the middle-class tax cutsmakes sense. Over the longer term, those cuts — premised on the notion that a predicted surplus would be big enough to pay off the debt and lower everyone’s taxes — are simply unaffordable. In addition, the downside of the


deal is not the marginal cost—about $70 billion—of extending the upper- income tax cuts for another fewyears along with the middle-class ones. In terms of stimulating the economy, which could badly use a boost, this is


HAROLDMEYERSON


A paucity of hope C


hangelessness we can’t believe in. Not much of a slogan, I admit, but a pretty fair state-


ment of where we’re at after the president’s tax deal with congressio- nal Republicans. It’s not that the deal doesn’t have


some good features. Extending un- employment insurance, cutting pay- roll taxes, and preserving tax credits for college tuition and low-paying jobs are all imperative, even if some provisions, such as continuing to provide unemployment insurance amid the deepest andmost intracta- ble recession since the ’30s, shouldn’t be in question in any nation with a claimtomoral leader- ship (or evenmoral adequacy). Yet it is anything but clear just


how much oomph these measures, not tomention the across-the-board tax cuts, will lend our faltering recovery. Holding income tax rates at their current level would merely perpetuate the economic status quo. The extension of unemployment in- surance is the deal’s most effective provision for maintaining the amount of money in circulation — but it does nothing to raise that level. Like most of the provisions that came fromtheWhite House, its effect is more humanitarian and anti-contractionary than stimula- tive. That doesn’t make those provi- sions less necessary — far from it — but neither are they a panacea for the nation’s economic ills. But the price the Republicans


extracted in return for staying their assault on common decency was uncommonly steep:Directing public funds to enriching the rich, despite the evidence that this will do noth- ing for the economy. With an assist from outgoing Democratic Sen. Blanche Lincoln, who thoughtfully tends to the interests of Sam Walton’s heirs, they propose a huge cut in the estate tax. Income tax levels on the wealthiest 2 percent of Americans will not be restored to the higher levels enacted at the start of the Clinton presidency (during which 22 million net new jobs were created) but kept at the levels to which they were reduced at the beginning of GeorgeW. Bush’s presi- dency (during which just 7 million net new jobs were created until the downturn, which wiped themout). The top tax rate on capital gains


will remain at 15 percent — mean- ing, income derived from invest- ment will continue to be taxed at a lower level than most income from wages. Butmoney invested in Amer-


FREDHIATT


a stupid use of a relatively small amount of money, and the adminis- tration secured some real stimulus— refundable tax credits and the pay- roll tax credit — as part of the bargain. The real risk of extending all the


tax cuts temporarily is that it increas- es the chance of extending all ofthem permanently. Smart people who viewed the extension of middle-class tax cuts as an exorbitant fait accomp- li at least wanted to make certain to avoid incurring the additional cost— $700 billion — of including the up- per-bracket cuts. That was a reasonable worry, but I


think the deficit commission report could change the risk assessment. It put Republicans, even extraordinari- ly conservative Republicans such as Oklahoma Sen. Tom Coburn, on re- cord as being willing to raise tax revenue. And it illustrated the allure of a reformed tax code, with a broad- er base and fewer special-interest giveaways. Hence, the potential blessing of


extending the tax cuts for a fewyears. This is not the move I would have chosen, but it simultaneously creates space for a broader discussion of the tax system and forces action. The WhiteHouse could seize themoment to shift the argument away from the stale question of whether rates should rise, and toward the more attractive playing field of how they can be lowered—and more revenue raised in the bargain. It is easy toimaginethemanyways


such an effort could fall apart: over howmuchrevenue to raise; overhow much, and where, to cut spending alongside; over the thousands of imperiled tax breaks whose extinc- tion would be fought by legions of interest groups. It is fair to suspect that Republi-


cans are more focused on defeating the president in 2012 than in crafting a bipartisan tax deal. It is fair to worry that tax history will repeat itself—that the WhiteHouse will, in the heat of a reelection campaign, agree to another extension. In politics as in religion, doubters


do not lack for evidence to undergird their cynicism. But politicians might ask themselves: If you do not allow for the possibility of occasional legis- lative miracles, if your work is not aimed at achieving such transforma- tional moments, then what’s the point, exactly, of being in this busi- ness?


ruthmarcus@washpost.com


not Harry Truman, but — well, Barack Obama. Not small-ball, like Clinton, but big-


Think boldly, Mr. Obama A


t this decisive moment of his presidency, Barack Obama has an opportunity to be not Bill Clinton,


picture. Not a partisan warrior, like Truman, but a national leader.Not on the defensive, rocked by his 2010 defeat and calculating for 2012 advantage, but set- ting a pro-growth, job-creating, optimis- tic agenda for decades to come. It would be good for


the country. It might even be good politics. Such an agenda


would start with—but only start with — the estimable product of the Bowles-Simpson deficit reduction com- mission. That was Obama’s commission, after all—he created it when Congress balked — and its report at- tracted majority sup- port, from Democrats and Republicans alike. The country is head-


ing for fiscal disaster. The commission plan would put the nation back on a responsible path, without which nothing else is possi- ble: not national de- fense, not economic growth, not govern- ment help for themost vulnerable. I don’t think it’s perfect, but no plan


capable of winning majority support is going to make everybody happy. On the contrary: Every good plan will make everyone unhappy in some way. The Bowles-Simpson planwould begin


to put entitlement programs such as Social Security on an affordable track. It would simplify the tax code and lower rates by getting rid of the deductions and credits that have glommed onto the code year after year like barnacles. This won’t be easy. Most deductions were adopted for rational policy reasons (yes, evenfarm subsidies), and each is fiercely guarded by its own interest group, most of whom (homeowners, charities) are more sym- pathetic than rich Mississippi cotton growers. Every entitlement has its advo- cates, just as fierce. That’s why Obama can’t win by being


partisan, attacking subsidies that Repub- licans like while defending those Demo- crats favor, or even by being bipartisan, trading one against the other in a political game where good policy is bound to lose. He has to be nonpartisan: taking his case to the country, explaining how if everyone gives up something, there will be a bigger prize for all down the road. To do that, the president can’t sell his


ican companies these days is as likely to be spent abroad as in the United States.By 2008, 48 percent of the revenue of the Standard & Poor’s leading 500 companies came from abroad — up from 32 percent in 2001, according to Business Week. For many (nominally) American companies, production is evenmore offshored than sales. If you invest in Apple, you’re investing in a company that employs roughly 25,000 people in theUnited States, even as 250,000 employees of Foxconn, China’s lead- ing manufacturer, make Apple’s products in Shenzhen province. The other tax breaks for capital


over labor make equally little sense. Business will be allowed to expense all of its investment in plants and equipment — which would be a fine idea if American corporations weren’t already sitting onmore than $1.5 trillion in cash. They’re not hurting for funds. They’re hurting for domestic customers — small businesses in particular. Our big businesses may decide to expense new facilities in China and India — an interesting way to lessen their U.S. tax bills. Proposals that would have creat-


ed jobs in America seem to have fallen by the wayside in the new tax deal. The Build America Bonds program, which enabled local gov- ernments to construct schools and roads for lower costs, is not part of the package, nor is Sen. Mark War- ner’s proposal to swap out the tax cut for the rich in favor of a job-creation tax credit. Even viewing this deal as the closest thing to a stimulus package that can emerge from a Congress in which Republi- cans routinely thwart spending on all but the rich, it still falls far short of the 2009 stimulus — which saved millions of jobs but was nonetheless too small to really restart the econo- my.


The best we can say of the deal is


that it largely perpetuates, and only occasionally worsens, the status quo — in particular, the three-decade status quo in which the rich get richer at ordinary Americans’ ex- pense. Obama vowed during his news conference Tuesday to take on that status quo over the next two years, but his inability thus far to frame that debate — even though most Americans share his opposi- tionto extending tax cuts for the rich —ismaddening. Stasis you can grieve over. Good


grief. meyersonh@washpost.com


programas just debt reduction.God bless the sirens of fiscal doom such as Judd Gregg and David Walker, who have long spoken truth to spur the political system to action. Editorial pages like The Post’s also love to tell readers why they need to eat their spinach and to lecture politi- cians who won’t tell voters the same. But let’s not pretend that counseling a spinach diet is a winning political strate-


DANAMILBANK


The two Paul Ryans I


n a joint appearance last week at the American Enterprise Institute with Rep. Paul Ryan (R-Wis.), the conservative New


York Times columnist David Brooks called him “the most intellectually formidable member of theHouse.” “That,” Ryan said, interrupting, “ain’t say-


ing a whole lot.” Ryan was being modest. As the incoming chairman of the House Budget Committee— and the Republicans’ go-to guy on all matters fiscal—his intellect could determine wheth- erWashington over the next two years finally forges a solution to its dysfunction, or wheth- er government paralysis leads us to the point where a European-style debt crisis is un- avoidable. For the 40-year-old Wisconsinite who spent the past dozen years as a backbencher and then in the opposition, this is an awe- some responsibility. At times, he seems equal to the task. “Compromise is not an ugly word,” he told reporters at a breakfast last week arranged by the Christian Science Monitor. “The way I see it is if you’re getting an inch in the right direction, take the inch even though you can’t get the mile.” He acknowledged that “this fix to our debt, whenever it happens, will have to be biparti- san, no matter what.” Yet the young legislator also feels the pull


of the Tea Party, and of colleagues who would rather hurl labels at the WhiteHouse and the Democrats than work out a solution. At the samebreakfast,Ryan declared, “This is a time where I think instead of muddling the differ- ences, philosophically speaking, between the twoparties,weneed to accentuatethem. . . to give the country a real clear choice” in 2012. He accused Obama and the Democrats of seeking “a socialdemocracy, a cradle-to-grave European-type welfare state” and putting the United States on “the road to serfdom.” Unfortunately, in his first test of leader-


ship, Ryan’s warrior instincts prevailed. He joined the two other House Republicans on the fiscal commission and voted against the bipartisan Bowles-Simpson plan to avoid a debt crisis. That was despite his acknowledgement


that there were “really good policy things” in the proposal. He also admitted to me that he


KLMNO


EZ SU


A19 DAVIDIGNATIUS


gy.Millions of voters care about the debt but believe, wrongly, that it can be made to go away without tax hikes or spending reductions of consequence. Explaining that they have to endure pain nowso that Chinese bondholders won’t pull the plug in five years isn’t likely to get anyone reelected. So Obama would have to go beyond


Bowles-Simpson. He could draw a 10- year plan that invests richly in science, education and infrastructure—inAmeri-


China’s clouded lens


T beijing


he paradox of a rising China — a country that wants to play a big- ger role in global affairs but suf-


fers from a combination of lethargy and stage fright — was on display here at a conference with Chinese officials. “China needs to be less of an observer


and more of an actor” on major issues such as North Korea and currency ad- justments, one senior Chinese official declared during the meeting. “When we’reonthe stage,weshouldn’t turnour back on the audience, as if we’re part of the audience.” And yet, when it came to proposing solutions during a meeting last Friday with American and European visitors, the Chinese were cautious. Officials didn’t disagree that North Korea and the imbalances in the global economy were big problems. But their recom- mendations focused on discussion rath- er than action — to the point that harmonious talk seemed an end in itself. China’s prescription for North Korea


J. SCOTT APPLEWHITE/ASSOCIATED PRESS President Obama during a news conference Tuesday.


ca’s future, in other words. He could argue, correctly, that America isn’t in decline and that — if it does the right things today — it doesn’t have to cede its role as global leader. No, it would not be easy to bring


Washington along. Republicans are rid- ing high and determined to deny Obama a second term.Democrats are in nomood to givemore ground. But ifObama rises above the pettiness,


he could reframe the debate. He could help demonstrate that the U.S. govern- ment can, in fact, still do difficult things — that the system can work, that the country isn’t ungovernable, that Wash- ington isn’t going to wait until crisis and depression force action, by which time rational action will be impossible. The president has dropped hints that


he’s heading in this direction. In North Carolina onMonday, he talked about “our generation’s Sputnik moment” — a mo- ment of international competition in which the nation has to step up its game. Those inWashington have a choice, he


said. “We can focus on what’s necessary for each party towin the news cycle or the next election.We can do what we’ve been doing. Or we can do what this moment demands, and focus on what’s necessary for America to win the future.” If he carries through on that strategy, it


would reassure investors and workers. It would spur growth and prosperity. It would, in time, create an economic pie large enough to allow the government to do the thingsDemocrats think are impor- tantwithout taxing at a levelRepublicans think is dangerous. It would also vindicate the people who


voted for hope and change in 2008 and give thema reason to reenlist in 2012. fredhiatt@washpost.com


is “dialogue, dialogue, dialogue,” JunFu, executive dean of the school of govern- ment at Beijing University, said at a newsconferenceafterthemeeting.That approach frustrates State Department officials, who think Beijing is privately fed up with North Korean brinkman- ship, according to a State Department cable made public by WikiLeaks. The conference was an unusual effort


to explore areas of common interest and, potentially, joint action. It was hosted by the Central Party School, a leadership training center headed byXi Jinping, who is slated to be China’s next president. The other sponsors were the Aspen Strategy Group (of which I’m a member) and theAspen Institute Italia. “This isn’t a situation where we’re


talking past each other, but we don’t seem to have the ability to act together” despite “a surprising degree ofcommon interest,” said Nicholas Burns, a former undersecretary of state who is now a Harvard professor and director of the Aspen Strategy Group.OnNorthKorea, he noted, China has the most leverage but “seems reluctant to use it” and “isn’t meeting the test yet” as a security part- ner. The meeting was held on the campus


of the party school in the suburbs of Beijing. The school’s bland courtyards contrast with the gaudy architecture of the new downtown, clustered with fan- cy hotels and luxury boutiques. The anxieties that accompany Chi-


na’s new wealth were apparent in a story that ran in the official China Daily on the morning of our meeting. It described the trend among the coun- try’s new rich to hire private body- guards. Sometimes, it seems, gaining wealth just makes people more nervous about losing it. Several Chinese officials who attend-


ed the not-for-attribution meeting ex- plained thatChinaiswaryaboutforeign policy in part because officials are fo- cused instead on maintaining domestic economic growth and keeping a poten- tially restless public happy. “I’mnot saying that China is selfish,”


isn’t likely to get a better deal than Bowles- Simpson in the next two years. He certainly isn’t going to find a better starting point for negotiation. But Ryan indicated that he would rather


pick a fight than work toward a fix. His vote put him in the extraordinary position of being more of a purist than Sen. Tom Coburn (R-Okla.), usually the Senate’s Dr.No on fiscal issues. “We cannot wait for another election,” Coburn pleaded. “We cannot wait untilweget more of what we want.” So,Ryan has had a disappointing start, but


I still have hope that his better instincts will prevail. He’s one of the more amiable figures in the House; a lanky former congressional staffer with sad eyes and protruding ears, he introduces himself to everybody as just “Paul.” He has, for the most part, avoided the name-calling that so delights his peers.He’s a courageous figure — he’s taken intense heat for his plan to privatize Medicare — and he seems genuinely alarmed about the nation’s finances. “We cannot skirt the edges of this problem, we must truly change course, and we don’t have the luxury of waiting until the day after tomorrow to make this choice,” he said at the AEI event. We don’t have the luxury of waiting for


another election, either. If Ryan holds out for unattainable perfection, he’ll be ruling out chances for a perfectly good compromise. Brooks, in his appearance with the con- gressman, said he worried that Ryan would “squander this moment” to make progress on the debt. By casting the debate as a choice between Ryan’s policies and serfdom, Brooks said, “it makes compromise impossible.” Ryan stuck to his view that “we owe the


country a choice.”Then, before Brooks got his time to speak again,Ryan excused himself for a vote in theHouse. That’s too bad, for the new chairman


woulddowell to reflectonwhatwassaid.“My problem with the Republican Party now,” Brooks said, “is that if you offered them 80-20, they’d say no. If you offered them 90-10, they’d say no. If you offered them 99-1, they’d say no.” Fortunately, it’s not too late for Ryan to rediscover his sensible inner self. danamilbank@washpost.com


saidasenior official,whothenconceded that Beijing does indeed think first about its internal problems. In the case of North Korea, China fears that pres- suring Pyongyang would send desper- ate refugees across the border. The conversation produced a few


signs of movement.Oneprofessor at the party school began by dismissing U.S. pleas for adjustment of China’s curren- cy. But after more discussion, the pro- fessor said that perhaps China could reduce its trade surplus by raising sala- ry levels so workers could buy more importsfromtheUnited States.He even proposed a “coordination mechanism” to foster balanced trade. What frustrates U.S. officials is that


China sometimes seems more comfort- able accommodating a strong United States, as it did in past decades, than partnering with an America that’s less dominant.OneAmerican delegate chid- ed the Chinese for treating the Obama administration’s early concessions as signs of weakness, and for making a hawkish new claim that the South Chi- na Sea was a “core interest” for China. JosephNye, aHarvard professor with


the U.S. group, said Chinese officials here privately tried to ease U.S. con- cerns by saying that there had been a “misperception” of China’s comments about the South China Sea. “We’re in the same boat” was a re-


mark made here by Chinese and Ameri- cans alike. That sounds encouraging. But the boat is drifting these days, if not sinking outright, and the two need to start paddling in unison. I came away from the meeting with


the same mixed picture I saw touring China a month ago — that for all the country’s prosperity and seeming confi- dence, its leaders are preoccupied with problems of internal growth and politi- cal stability. They see policy debates with theWestthroughthis clouded lens. davidignatius@washpost.com


CORRECTION Anne Applebaum’s Dec. 7 column,


“Beware the WikiHype,” misspelled the name of the Italian newspaper Corriere della Sera.


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