Closing Income Gap Tops Obama's Agenda for Economic
Change

By David Leonhardt
The New York Times
February 2, 2008
http://www.nytimes.com/2008/02/02/us/politics/02obama.html?ref=politics

WICHITA, Kan.

Senator Barack Obama says the top priority of the next
president should be to create a more lasting and
equitable prosperity than achieved by either President
Bush in the current decade or even Bill Clinton in the
1990s.

In an hourlong interview outlining his economic views,
Mr. Obama praised the Clinton administration for
reducing the deficit and setting the stage for the '90s
boom. But he said Mr. Clinton had failed to halt a
long-term increase in income inequality that had left
the middle class feeling squeezed.

If elected, Mr. Obama said he would to try to forge a
popular mandate for policy changes that could reverse a
generation of slow wage growth and outlast any one
administration. At the top of his list would be
shifting the tax burden more toward the wealthy and
making investments - in health care, alternative-energy
research and education - that would cost a significant
amount of money but could ultimately lift economic
growth.

'The project of the next president is figuring out how
do you create bottom-up economic growth, as opposed to
the trickle-down economic growth that George Bush has
been so enamored with,' Mr. Obama, an Illinois
Democrat, said.

Mr. Obama's agenda would be complicated by the
government's projected budget deficit, which is
primarily a result of soaring Medicare and other health
care costs expected in coming decades. No candidate, in
either party, has yet offered a detailed plan for
bringing those costs under control, health care experts
say.

Speaking on a flight to Kansas from Washington this
week, Mr. Obama predicted that the economy would
continue to worsen in coming months. In particular, he
said he expected some of the recent problems in the
mortgage market to spread to other parts of the
consumer-credit business, as households struggled to
pay bills.

'I don't think we've bottomed out yet,' he said.

Although Mr. Obama's economic approach comes wrapped in
his conciliatory rhetoric, it is in some ways more
aggressive than that of Senator Hillary Rodham Clinton
of New York, his rival for the Democratic presidential
nomination.

He has called for shoring up Social Security by raising
payroll taxes on very high earners, while she has not.
He also favors a permanent tax credit of up to $1,000
for families in the bottom 90 percent or so of the
income distribution, which makes his package of middle-
class tax credits significantly larger than hers.

Clinton advisers say Mr. Obama has been unrealistic
about paying for his tax cuts and would end up
forfeiting the Democrats' hard-won reputation for
fiscal discipline. Obama aides say he would fully pay
for his proposals by, among other things, cracking down
on overseas tax havens and corporate tax loopholes.

Either way, the Obama program clearly emphasizes help
for the middle class - through tax cuts and new
programs - more than deficit reduction. His approach
puts him somewhat to the left of the Clinton
administration but broadly in line with the Democratic
Party now.

Indeed, Mr. Obama and Mrs. Clinton hold similar or
identical positions on a host of economic issues, and
Democratic economists not aligned with either campaign
often speak positively about both.

They each favor subsidies for families without health
insurance (though Mrs. Clinton would mandate that
everyone has insurance, while Mr. Obama would not).
Both have also called for more government regulation of
business, somewhat tighter restrictions on foreign
trade and more investment in health care
infrastructure, alternative-energy research and other
basic science.

But the two candidates offer strikingly different
strategies for achieving their economic agendas. Mrs.
Clinton - drawing on her husband's first year in the
White House, when Congress passed a deficit-reduction
package without a single Republican vote - said
Democrats needed to be prepared to fight similar
battles in the years ahead.

'We've got to be really clear that this is a struggle,
and this is just not a moment where everybody will see
the world the way it should be seen and come together
to solve these problems,' she said in a recent
interview. 'There are powerful forces at work in our
society.'

Mr. Obama also talks about overcoming special
interests, but he proposes to do so by changing the
terms of the debate, energizing disaffected voters and
forging a new majority in favor of his programs. He
called climate change 'a perfect example,' because he
would try to persuade Americans to accept some short-
term sacrifice while explaining that their energy costs
did not have to increase nearly as much as utilities
would suggest.

But he would start, he said, by trying to turn the
discussion about taxes into an advantage for the
Democrats during the general election campaign this
year.

'We have to disaggregate tax policy between the wealthy
and the working class or middle class,' he said. 'We
have to be able to say that we are going to at once
raise taxes on some people and lower taxes on others.'

He added: 'This has been one of the greatest rhetorical
sleights of hand of the Republican Party, and it has
been a great weakness of the Democratic Party.'

The leading Republican candidates have called for the
extension of Mr. Bush's income tax cuts, saying that
their scheduled expiration by the end of 2010 would
damage the economy.

Mr. Obama and Mrs. Clinton would extend only the tax
cuts for families making less than $250,000 and then
use the revenue from the higher taxes on the affluent
to help pay for other programs. The Democrats note that
high-income workers have received far larger pay
increases than others over the past generation and have
also had their tax rates cut by a much greater amount.

More so than any other candidate this year, Mr. Obama
has surrounded his campaign's policy team with
professional economists (most of them, like him, still
shy of their 50th birthdays), as opposed to former
White House officials or Congress members.

Several Obama proposals have their roots in an academic
field known as behavioral economics, which points out
how often people can be tripped up by complex
bureaucracies. Mr. Obama sometimes talks about an 'iPod
government' that can achieve its aims by presenting
choices more simply. Under one proposal, Medicare would
be required to present its prescription drug plans more
clearly, to cut down on the number of people who sign
up for a more expensive one than they need.

His interest in 'ease, convenience and usability,' he
said, came from two sources - his years as a community
organizer in Chicago, where he often saw people
struggle to understand the choices they had, and his
own experience trying to make sense of his 401(k) plan.

Mr. Obama's father was also an economist, from Kenya,
who received his Ph.D. at Harvard. And Mr. Obama's
first job out of college was at a trade publication for
multinational businesses, where he was a financial
writer.

At times, he can sound like an economic analyst,
weaving stories that link seemingly disparate topics.
The weak income growth of the last generation, he said,
caused many families to dip into their home equity,
which led to the crisis in the mortgage market. That
crisis, in turn, hurt the balance sheets of American
financial firms and forced them to seek cash infusions
from overseas governments, which has raised some
national-security concerns.

'I don't think anybody knew exactly how that would get
us in trouble,' he said, referring to the increase in
consumer debt over the last two decades. 'But it was
predictable that it would get us in trouble.'

This period includes the late 1990s, when wages rose
significantly for workers up and down the income
spectrum.

In the interview, Mr. Obama said Mr. Clinton and Robert
E. Rubin, the former Treasury secretary, took
courageous steps in the early '90s to lower the deficit
and help make the record-long expansion that ran from
1991 to early 2001 possible.

He added that 'some of the attacks on the Clinton
administration from the left,' accusing it of operating
as a group of corporate Democrats, had been unfair.

'They had an economic theory that in part was right - I
do think fiscal discipline is important,' Mr. Obama
said. 'What he wasn't able to do was address the
emerging structural imbalance in our economy - partly
due to globalization, partly due to technology and
automation - where increasingly the benefits of
economic growth were accruing to a smaller band of
people.'

Mr. Obama said he would push for more investment in
emerging industries, education and worker training -
ideas that Mr. Clinton campaigned on in 1992 but mostly
backed away from as president to repair the fiscal
imbalance.

Mrs. Clinton also favors many of these ideas, in a sign
that the Democratic Party has reached something of a
consensus on its main economic policy goals. Indeed,
Mr. Obama suggested that his cabinet would include a
good number of Clinton administration alumni.

'I want an Alan Blinder, and I want a Jacob Hacker, and
I want a Bob Rubin, and I want a Robert Reich,' he
said, referring to a mix of centrist and more liberal
Democratic economic advisers. 'And I want a good robust
argument about where we need to go.'

Copyright 2008 The New York Times Company

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