Obama’s bold budget sweeps away 30 years of Reagan ideas

The budget that US president Barack Obama proposed on Thursday is nothing less than an attempt to end a three-decade era of economic policy dominated by the ideas....

Written by New York Times | New York | Published:February 28, 2009 1:38 am

The budget that US president Barack Obama proposed on Thursday is nothing less than an attempt to end a three-decade era of economic policy dominated by the ideas of Ronald Reagan and his supporters.

The Obama budget — a bold,even radical departure from recent history,wrapped in bureaucratic formality and statistical tables — would sharply raise taxes on the rich,beyond where Bill Clinton had raised them.

It would reduce taxes for everyone else,to a lower point than they were under either Clinton or George Bush. And it would lay the groundwork for sweeping changes in health care and education,among other areas.

More than anything else,the proposals seek to reverse the rapid increase in economic inequality over the last 30 years. They do so first by rewriting the tax code and,over the longer term,by trying to solve some big causes of the middle-class income slowdown,like high medical costs and slowing educational gains.

After Obama spent much of his first five weeks in office responding to the financial crisis,his budget effectively tried to reclaim momentum for the priorities on which he campaigned.

His efforts would add to a budget deficit already swollen by Bush’s policies and the recession,creating the largest deficit,relative to the size of the economy,since World War II. Erasing that deficit will require some tough choices — about further spending cuts and tax increases — that Obama avoided this week.

But he nonetheless made choices.

He sought to eliminate some corporate subsidies,for health insurers,banks and agricultural companies,that economists have long criticised. He proposed putting a price on carbon,to slow global warming,and refunding most of the revenue from that program through broad-based tax cuts. He called for roughly $100 billion a year in tax increases on the wealthy and $50 billion a year in net tax cuts for the nonwealthy.

The history of the US economy over the last 70 years can be roughly divided into two periods: the decades immediately after World War II,when inequality plummeted,and the past three decades,when global economic forces and government policies caused it to soar. Obama is setting out to begin a third period that looks more like the first than the second.

That agenda starts with taxes. Over the last three decades,the pretax incomes of the wealthiest households have risen far more than for other households,while the tax rates for top earners have fallen more than they have for others,according to the Congressional Budget Office.

As a result,the average post-tax income of the top 1 per cent of households has jumped by roughly $1 million since 1979,adjusted for inflation,to $1.4 million. Pay for most families has risen only slightly faster than inflation.

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