Obama Targets Speculators, Oil, Pharma

http://www.futureofcapitalism.com/2011/04/obama-targets-speculators-oil-pharma

President Obama, speaking yesterday in Annandale, Virginia:

we can ask millionaires and billionaires to make a little sacrifice. (Applause.)

We can't just tell the wealthiest among us, you don't have to do a thing. You just sit there and relax, and everybody else, we're going to solve this problem. Especially when we know that the only way to pay for these tax cuts for the wealthiest Americans is by asking seniors to pay thousands of dollars more for their health care, or cutting children out of Head Start, or doing away with health insurance for millions of Americans on Medicaid -- seniors in nursing homes, or poor children, or middle-class families who may have a disabled child, an autistic child.

This is not a trade-off that I'm willing to make.

The notion that "the wealthiest among us," right now, "don't have to do a thing" and are just sitting there and relaxing is just false. For starters, as Amity Shlaes recently pointed out, in 2008 the top 1% of earners paid 38% of the federal income taxes, up from 19% in 1980. Second, many of the wealthiest didn't become wealthy by sitting there and relaxing. They did it by working hard and creating value.

Third, his reference to having to "pay for these tax cuts for the wealthiest Americans." It's not clear what "tax cuts for the wealthiest" Mr. Obama is talking about. The latest round, which he supported, involved keeping income tax rates the same and avoiding what otherwise would have been a job-killing tax increase. If he's talking about Rep. Paul Ryan's plan to bring the top individual income tax rate down to 25% as part of a broader tax simplification that reduces tax breaks and broadens the tax base, that's a higher rate than the 23% top rate that was among those proposed by the president's own deficit reduction commission that was co-chaired by President Clinton's chief of staff, Democrat Erskine Bowles.

Finally, as has pointed out by others in other contexts, by pitting the "wealthiest Americans" against "seniors in nursing homes" and "poor children," Mr. Obama is acting as "divider in chief." Sure, sometimes governing or budgeting involves choosing between or among different priorities. But a more constructive leader might point out that what Mr. Obama calls "trade-offs" — fights about how to divide a finite pie — can also be resolved by growing the pie. Now, one can say that congressional Republicans are also being divisive by aiming for welfare reform and talking about "We don't want to be a food stamp nation, we want to be a paycheck nation." But there's something of a difference, in that the Republican rhetoric I've seen at least is more aspirational. The Republicans aren't talking about taking money away from the food stamp recipients to give to the rich; they're talking about changing food stamps and other welfare programs to include work or job-training requirements so that the recipients become, if not rich, at least self-sufficient, or part of "paycheck nation."

More from Obama's speech, actually, from the question and answer session that followed:

One of the things that we want to do as part of our health care reform package is let's start doing a better job of negotiating better prices for prescription drugs here in the United States so that you don't feel like you're getting cheated because you're paying 30 percent more or 20 percent more than prescription drugs in Canada or Mexico.

Re-importation is a short-term solution that a lot of seniors are resorting to, but why should drugs that are invented here in the United States end up being more expensive than another country? Well, the reason is, is because drug companies can get away with it here and they can't get away with it there, and we should change some of those systems to make it cheaper for everybody here. But that's going to make a huge difference in terms of reducing our deficit.

Joseph Rago, call your office. Here the American pharmaceutical industry gave up tens of billions of dollars in price concessions in exchange for a promise from Mr. Obama that federal price negotiations on medicine wouldn't be part of ObamaCare, which the pharmaceutical industry largely supported. Now, having pocketed those concessions and gotten the ObamaCare bill passed, Mr. Obama is going back and asking for more. By Obama's definition, charging what the market will bear for a medicine is "getting away with it."

Look, I think there are legitimate questions about whether the pharmaceutical industry should have a basically unlimited claim on the public purse via Medicare, just as there are questions about whether the higher education industry should have a basically unlimited claim in the public purse via Pell Grants. But Mr. Obama would never talk about colleges raising tuition because they can "get away with it," or propose that the federal government should start negotiating better prices for tuition, because the higher education industry is a core political constituency for him. Here is Mr. Obama talking about Pell Grants earlier in the same speech:

More than 10,000 students at this college, at this college alone, are relying on Pell Grants to help pay their tuition. It's almost 3,000 students at the Annandale campus alone -- 3,000 students just at this campus. How many of you who are in the audience have gotten a Pell Grant to help you pay your way? How many of you can't afford to pay another $1,000 to go to school? I know what this is like. Scholarships helped make it possible for me and for Michelle to go to college. It's fair to say I wouldn't be President if it hadn't been for somebody helping me be able to afford college. That's why I think it would be such a huge mistake to balance the budget on the backs of students, by cutting scholarships by as much as $1,000, forcing students to go without them altogether.

More from the president's speech:

Right now you only pay a Social Security tax up to a certain point of your income. So a little bit over $100,000, your Social Security -- you don't pay Social Security tax.

Now, how many people are making less than $100,000 a year? Don't be bashful. (Laughter.) The point is, for the vast majority of Americans, every dime you earn, you're paying some in Social Security. But for Warren Buffett, he stops paying at a little bit over $100,000 and then the next $50 billion he's not paying a dime in Social Security taxes.

So if we just made a little bit of an adjustment in terms of the cap on Social Security, that would do a significant amount to stabilize the system. And that's just an example of the kinds of changes that we can make.

President Obama is going to start charging Social Security tax on unrealized capital gains on appreciated stock? Good luck with that one. It'd tank the stock market by the amount of the tax increase. Is the government going to refund your Social Security tax the next year if the price of the stock goes down? Remember, that's how Warren Buffett has made his money, via unrealized capital gains on appreciated stock. Berkshire Hathaway doesn't pay a dividend, and Mr. Buffett takes only $100,000 a year in salary. Mr. Buffett is giving nearly all of the $50 billion to charity. Is the president's position that charitable donations of appreciated stock should be subject to Social Security tax? Good luck with that one, too. Maybe Mr. Obama wants to make it retroactive to cover the Ford Foundation, where his mom worked?

More from the president's speech:

I know that if you've got a limited budget and you just watch that hard-earned money going away to oil companies that will once again probably make record profits this quarter, it's pretty frustrating. And if you're driving out of necessity 50 miles a day to work and you can't afford to buy some fancy new hybrid car so you're stuck with the old beater that is getting you eight miles a gallon, that's pretty frustrating.

...a lot of what's driving oil prices up right now is not the lack of supply. There's enough supply. There's enough oil out there for world demand. The problem is, is that oil is sold on these world markets, and speculators and people make various bets, and they say, you know what, we think that maybe there's a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we're going to bet that oil is going to go up real high. And that spikes up prices significantly.

We're now in a position where we can investigate if there's unfair speculation. We're going to be monitoring gas stations to make sure there isn't any price gouging that's taking advantage of consumers.

Mr. Obama clearly wishes that the oil companies were making smaller profits. There aren't too many cars out there other than Mr. Obama's presidential limousine that get eight miles a gallon. And there he goes again talking about "speculators," a term right out of Karl Marx and last heard from the president when he was talking about Chrysler bondholders standing up for their rights as secured creditors against the White House and the auto workers union.

As an encapsulation of the president's ideological outlook heading into the 2012 election, it's a pretty good little set of remarks: the president denouncing speculators, oil companies, medicine companies, and "the wealthiest" "millionaires and billionaires" while calling for tax increases and siding with Pell Grant recipients, "seniors in nursing homes" and "poor children." This is not ordinarily a winning message in an American presidential election, as Robert Shrum can attest. And the nice thing about it is that, as opposed to Mr. Obama when he is in his more moderate mode, this message makes it much easier for a free-market, growth-oriented, optimistic candidate to draw a sharp contrast.

by Ira Stoll  |  Apr 20, 2011 at 11:29 am Related Topics:  Compensation, Education, Energy, Health Care, Income Inequality, Non-Profits, President Obama, Warren Buffett receive the latest by email: subscribe to the free futureofcapitalism.com mailing list