washingtonpost.com
Obama's Sporadic Populism

By Dan Froomkin
12:20 PM ET, 05/ 5/2009


Obama announces his new tax plans yesterday (AP/Charles Dharapak).

President Obama seems to have a love-hate relationship with fat cats.

One day, he's a full-throated populist, calling for a wholesale rewriting of the economic rules that favor the wealthy. And the next day, he's committing hundreds of billions of taxpayer dollars into bailing out the very people whose obscene appetite for mega-profits trashed the economy in the first place.

Last week he let the bank lobby win by remaining silent as the Senate killed a proposal to let bankruptcy judges modify troubled mortgages. This week he's vowing to close loopholes that multinational corporations are using to avoid paying their fair share of taxes.

One day he's glad-handing corporate CEOs and Wall Street bigwigs; the next, labor leaders.

First, he underreacted to the AIG bonus scandal. Then he tried to redirect the public's fury into outrage over the irresponsibility he's trying to redress with his hugely ambitious budget plan.

How to explain all this? There's been more than a little speculation that the populists on Obama's political staff are locked in a constant and mostly losing battle with Obama's top economics advisers, who some see as beholden to Wall Street. But that's just speculation.

Obama is so consistent on so many other issues, but so inconsistent on this one, it really raises a lot of questions. How does he reconcile these views? Or, if the inconsistency reflects a battle of wills among his advisers, what does that say about his management style -- and his choice of advisers? I remain intensely curious about his decision-making process in these circumstances.

And is there any chance of changing his mind? I would really love to know, for instance, whether his dinner with Paul Krugman and Joseph Stiglitz last week changed his mind about anything.

The latest episode in this drama unfolded yesterday at the White House as Obama called on Congress to curb offshore tax havens and corporate tax breaks that multinational companies and wealthy individuals are using to avoid billions in taxes. It was Obama the populist on full display.

Most American accept their responsibility to pay their taxes, he said, "because they understand that it's an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being.

"And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs. And many are aided and abetted by a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals. It's a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share. It's a tax code that makes it all too easy for a number -- a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all. And it's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York....

"The way to make American businesses competitive is not to let some citizens and businesses dodge their responsibilities while ordinary Americans pick up the slack."

The White House provided some background:

"* In 2004, the most recent year for which data is available, U.S. multinational corporations paid about $16 billion of U.S. tax on approximately $700 billion of foreign active earnings – an effective U.S. tax rate of about 2.3%.

"*A January 2009 GAO report found that of the 100 largest U.S. corporations, 83 have subsidiaries in tax havens.

"* In the Cayman Islands, one address alone houses 18,857 corporations, very few of which have a physical presence in the islands.

"* Nearly one-third of all foreign profits reported by U.S. corporations in 2003 came from just three small, low-tax countries: Bermuda, the Netherlands, and Ireland."

Jackie Calmes and Edmund L. Andrews write in the New York Times: "The move would appeal to growing populist anger among taxpayers but is likely to open an epic battle with some major powers in American commerce.

"With the proposals he outlined at the White House, the president sought to make good on his campaign promise to end tax breaks 'for companies that ship jobs overseas.'

"He estimated the changes would raise $210 billion over the next decade and help offset tax cuts for middle-income taxpayers as well as a permanent tax credit for companies' research and development costs.

"The changes, if enacted, would take effect in 2011, when administration officials presume the economy will have recovered from the recession. But business groups were quick to condemn the White House for proposing tax increases amid a global downturn."

The corporations that would be affected, as Calmes and Andrews point out, "have some of the mightiest lobbying armies in Washington, as well as influential patrons in Congress. That combination will test Mr. Obama's ability to stand up to powerful interests and marshal support among lawmakers at the same time that he is trying to win passage of major health and energy measures."

Stephen Ohlemacher writes for the Associated Press: "Obama's proposal to close tax loopholes was a reliable applause line during the presidential campaign, but it got a lukewarm response Monday from Capitol Hill."

Lori Montgomery and Scott Wilson write in The Washington Post: "Key Democrats were cool to the plan, and said Obama's ideas should be considered as part of a broader effort to streamline the nation's complex corporate tax code.

"'Further study is needed to assess the impact of this plan on U.S. businesses,' Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, which has jurisdiction over U.S. tax law, said in a written statement. 'I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses.'"

Christi Parsons and Peter Nicholas write in the Los Angeles Times: "President Obama's plan to crack down on what he called abuse of overseas tax loopholes was met Monday with quick and unusually sharp opposition from big business, threatening to produce the administration's first major confrontation with a broad segment of corporate America.

"The fiercely negative reaction to the plan, much of which requires congressional approval, contrasted strongly with the business community's muted criticism, at most, of the president's sweeping government intervention in the banking and automobile industries....

"The administration's plan was unveiled just after Obama marked his first 100 days in office, a period in which he and the Federal Reserve embraced a series of massive bailouts for Wall Street and other corporate interests. Obama's first major order of business, for example, was to push through a nearly $800-billion economic stimulus bill. It was followed by almost unprecedented government infusions of cash and credit to shore up major banks and stimulate lending."

Another problem Obama faces is that the world of global finance has gotten so complicated that, as the New York Times editorial board writes, "with few exceptions, there are no easy fixes to tax problems posed by global profits. The Obama proposals oversimplify the challenge, both technically and politically."

But John D. McKinnon writes in the Wall Street Journal that, "even if the proposal doesn't advance rapidly, policy makers said a broader corporate-tax overhaul is becoming increasingly likely over the next two years."

And Robert Reich, writing in Salon, sees two strategic reasons Obama made this move yesterday: "The President needs the cooperation of many big corporations if he's going to get universal health insurance enacted this year. Many of these companies would benefit from lower health costs but they're reluctant to take on Big Pharma, big health insurance companies, and major health providers, all of whom are dead set against a provision in the emerging health insurance proposal that would allow the public to opt for a government health plan. How does it help for him to take on corporate tax havens? Because the President needs as many bargaining chips with the rest of corporate America as possible. The proposed crackdown on foreign tax avoidance is one such chip. He might be willing to take it off the table if big corporations lend him active support on health insurance.

"The second reason has to do with revenues. Originally the White House had planned to pay for universal health insurance by limiting tax deductions for wealthier Americans. But the Democratic leadership nixed that source. The rich Americans who take the deductions, and the groups benefiting from the wealthy's tax-deductible expenditures on them, had enough political leverage to make it a non-starter. That means the White House has to find other sources of money."

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