Economist: Obama Sweeping Tax Reform Under Rug

As the economic situation grows increasingly complex, experts weigh in on what's working, what's not and what's next.

Steve Inskeep talks with economist Rosanne Altshuler, whose specialty is tax policy. The former senior staff economist for the last administration's Advisory Panel on Federal Tax Reform says President Obama has been busy with health care and education reform but seems to have swept tax reform under the rug.

Obama Says Economic Recovery Will Take Patience

President Obama during a prime-time news conference Tuesday appealed to the American people for patience as the administration seeks to carry out its big-ticket plan to revive the nation's failing economy.

And he pitched his $3.6 trillion budget — with major investments in health care, education and renewable energy — as a blueprint that will ensure that the economic crisis facing the country won't recur in 10 or 20 years.

"This budget," he said, "is inseparable from this recovery because it is what lays the foundation for a secure and lasting prosperity."

Before facing questions about the financial crisis and his spending plan, the president pointedly invoked mistakes of the past as leading to the current crisis.

"It's important to remember this crisis didn't happen overnight," the president said. "It took many years and many failures to lead us here."

But the president was questioned closely about the advisability of his ambitious budget plan because of the staggering debt it would cause, even though he pledged again to cut the nation's deficit in half by the end of his term — "even under the most pessimistic estimates."

Projected Deficits

The administration's deficit projections anticipate a higher economic growth rate — 2.6 percent — than the 2.2 percent projected by the Congressional Budget Office. The CBO says Obama's budget will result in $9.3 trillion in debt over the next decade; the White House predicts deficits totaling $7 trillion over the same period.

But the nation can count on zero economic growth, the president said, if it fails to tackle energy and health care costs.

When asked whether passing on an enormous deficit to the next generation — including his two daughters — runs counter to his argument that Americans must resolve economic problems now, as some Republicans have argued, Obama pointedly noted that "I'm inheriting a $1.3 trillion deficit annually from" the GOP.

During the news conference, Obama also argued that the administration should be granted broader authority to regulate big financial institutions, as his top financial advisers had argued on Capitol Hill earlier in the day. The nation would most likely not be facing the same troubles with bailing out failing institutions, Obama said, if AIG and similar firms had been regulated like the nation's banks and backed by an FDIC-type entity.

"We don't have that power now," the president said, predicting support for such regulatory authority in Congress and among the American people.

A Call For Unity

During the second prime-time news conference of his presidency, Obama also called for the nation to work together. And he urged Americans to look "beyond our own short-term interests to the wider set of obligations we have to each other."

"That's when we succeed," Obama said. "That's when we prosper. And that's what is needed right now."

The president stoutly defended the reach of his budget and insisted that the only way to remake the economy is to boldly reject policies that "have led to a narrow prosperity and massive debt."

The best way to reduce the deficit in the long run, Obama said, is "with a budget that leads to broad economic growth by moving from an era of borrow and spend to one where we save and invest."

At one point during his hourlong appearance, the president appeared taken aback when asked why he hasn't urged the American people to sacrifice something "specific" to speed economic recovery.

"I think folks are sacrificing left and right," Obama said. "You've got lots of parents who are cutting back on everything to make sure that their kids can still go to college. You've got workers who are deciding to cut an entire day's worth of pay so that their follow co-workers aren't laid off."

"I think that across the board people are making adjustments large and small," he said.

In the wake of taxpayer anger over the $165 million in bonuses paid to employees at AIG, the president cautioned against demonizing Wall Street and investors, who have in the past driven the nation's prosperity, he said. When pressed on why it took him a couple of days to react to the news about the AIG bonuses, Obama said: "It took me a couple of days because I like to know what I'm talking about before I speak."

Addressing World Affairs

On the foreign affairs front, the president, under questioning about China's idea for a new international reserve currency, said flatly: "I don't believe that there's a need for a global currency."

He reiterated his support for a two-state solution to help resolve the Israeli-Palestinian crisis, noting that "the status quo is unsustainable." The president said that he'll apply his "philosophy of persistence" to the troubled region.

And in response to a question about Texas Gov. Rick Perry's calling for more troops and agents on his state's border with Mexico, the president said that his administration is monitoring the situation. Early Tuesday, the White House released details of a plan to send 500 more agents to the U.S.-Mexico border to address drug-related violence and gun smuggling.

"President Calderon has been very courageous in taking on these drug cartels," the president said. "We've also got to take some steps. We need to do more to make sure that illegal guns and cash aren't flowing back to these cartels" from the U.S.

Challenges To Obama's Plans

After a week of bleak news for the president, Obama's appearance came during a rare economic bright spot: Markets rallied Monday in reaction to both Obama's bank stabilization plan and a spike in home sales, though markets dipped again Tuesday.

But a smattering of good news couldn't erase the buffeting that the Obama administration has been subjected to over the past few weeks. The president has faced outrage over the AIG bonuses, as well as calls for Treasury Secretary Timothy Geithner's head and criticism over his own missteps during television appearances.

Before the president appeared in front of the television cameras Tuesday, Republicans filled reporters' e-mail boxes with criticism of Obama's budget plan as over the top during a time of recession.

"The president has offered a budget that will, in my opinion, hurt our economy and destroy the very jobs that we're trying to save," House Republican Leader John Boehner of Ohio said in a prepared statement.

And it's not just Republicans on Capitol Hill who have been pushing back at the president's historic spending initiatives. Conservative "Blue Dog" Democrats in the House and Senate leaders, including Budget Committee Chairman Kent Conrad, a North Dakota Democrat, have been talking about major cuts to the president's plan.

Support For Controversial Proposal

Despite the challenges, Obama, who said he is as "angry as anybody" about the AIG bonuses and the culture of greed they represent, did not back off the hard sell he and his supporters have been making for his increasingly controversial budget proposal.

The president also reiterated his support for a controversial proposal to reduce tax deductions for mortgage interest and charitable contributions from the wealthy. He said charities are wrong when they claim that they would be devastated by the tax change.

The proposed change is a "realistic way for us to raise some revenue from people who have benefited enormously" from the hard-charging economy in recent years, Obama said. "It's not going to cripple them."

"If it's really a charitable contribution, I'm assuming that that shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street," he said.

Questions On Stem Cells, Race

The news conference did at times veer from the economy and foreign affairs. On the divisive issue of using embryonic stems cells for research, the president said it is among tough issues he wrestles with "every day."

But Obama, who reversed the Bush administration's ban on the use of such cells, said that his administration's guidelines that limit use to embryonic stem cells slated to be destroyed pass the "ethical tests" that he applies to human life issues.

"I have no investment in causing controversy," he said, adding that he would be happy to avoid it if science determines that research using adult stem cells proves successful and obviates the need for the embryonic cells.

When asked about how his race has informed his presidency, the nation's first African-American president said that there was "justifiable pride" on Inauguration Day that the nation had taken steps to move beyond its "searing legacies of racial discrimination."

"That lasted about a day," he said. "The American people are now judging me exactly the way I should be judged" — on handling the economy and keeping the nation safe.

Fixing the economy "affects black, brown, and white," he said.

And despite the current state of the economy, he appealed to the nation to share his optimism.

"Let us look toward the future with a renewed sense of common purpose, a renewed determination, and, most importantly," the president said, "a renewed confidence that a better day will come."

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Correction March 30, 2009

In the interview, we said, "The way [the tax credit of up to $800 for working families] is working right now, is that it’s a reduction in withholding. So, everybody is getting a little bit more in their paycheck every week." In fact, the $800 tax credit begins phasing out for couples whose income is more than $150,000.

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