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Sunday, September 7, 2008

Barack Obama's Economic Pragmatism

Barack Obama showed some economic pragmatism today with this announcement.

Democrat Barack Obama says he would delay rescinding President Bush’s tax cuts on wealthy Americans if he becomes the next president and the economy is in a recession, suggesting such an increase would further hurt the economy.

Nevertheless, Obama has no plans to extend the Bush tax cuts beyond their expiration date, as Republican John McCain advocates. Instead, Obama wants to push for his promised tax cuts for the middle class, he said in a broadcast interview aired Sunday.

“Even if we’re still in a recession, I’m going to go through with my tax cuts,” Obama said. “That’s my priority.”

What about increasing taxes on the wealthy?

“I think we’ve got to take a look and see where the economy is. I mean, the economy is weak right now,” Obama said on “This Week” on ABC. “The news with Freddie Mac and Fannie Mae, I think, along with the unemployment numbers, indicates that we’re fragile.”

Now, I could take this new cynically (and of course there will be plenty of time for that and maybe even later in the post) but first, I want to commend this bit of economic pragmatism by Senator Obama. It appeared for a while that Senator Obama was determined to impose his populist economic policy regardless of the current economic situation. Obama's ability to understand that economic policy must respond to economic reality means that there may still be hope that the Senator won't blindly follow his liberal economic ideology right into a recession.

That said, this augmentation of his position also leaves the McCain campaign with an opening that they should take advantage of. For instance, while Senator Obama is now open to holding off on raising taxes for the top two brackets because the economy might be too weak to handle a tax increase, he also says that he has no plans to extend the Bush tax cuts after they expire. The tax cuts expire in 2010. What if the economy is still in a period of weakness when they expire? After all, I know that the Senator thinks that all the economy needs is some middle class stimulus, but maybe, just maybe, targeted tax cuts won't actually stimulate the economy as much as he thinks. Will he put the tax hikes on hold indefinitely or only indefinitely until 2010? If it is 2010, how does he explain his current economic pragmatism now, but total policy rigidity a year from now?

Second, does the Senator still plan on raising capital gains, inheritance, and windfall profits taxes? If so, why does he think the economy can't handle an increase on income tax. but it can handle an increase on capital gains, inheritance, and some corporate taxes?

I am in favor of economic pragmatism, and in fact, pragmatism is the only way to approach economic policy. All economic decisions are based on the current economic situation. Yet, that pragmatism should apply to the entire policy, and not to one specific policy proposal as Barack Obama appears to see it.

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