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November 1st, 2014

Insight

What now? Primaries Show GOP Voters Wary of Tea party Candidates, Skeptical of Party Establishment

Michael Barone

By Michael Barone

Published August 8, 2014

What now? Primaries Show GOP Voters Wary of Tea party Candidates, Skeptical of Party Establishment

When he's in trouble, President Obama changes the subject to the economy. And in speech after speech, he utters some version of this line: "We know from our history, our economy does not grow from the top down, it grows from the middle up."

This is a puzzling statement. I don't know what it means, much less whether it's true. I asked a number of economists and they were no help. "I have no idea what it means," Douglas Holtz-Eakin, the former director of the Congressional Budget Office, says. "I am unaware of any literature supporting the proposition," Kevin Hassett, the American Enterprise Institute economist, says." My conclusion: It's gibberish.

But it's not the only thing that makes the president's speeches on the economy so egregious. He gave nine of them in July. They were full of untruths, contradictions, demagoguery, exaggerations, and odd policy solutions.

His current obsession is American companies that don't bring their overseas profits home to avoid paying taxes. There's a reason they don't. Not only are U.S. corporate rates the highest in the developed world, but no other major nation imposes taxes on foreign profits. Instead, taxes are paid to the country in which they are earned. And that's it—except for American firms, whose current government would increase their taxes and make them less competitive with their corporate rivals.

Obama is especially angry at "unpatriotic" companies that merge with foreign businesses, move their headquarters overseas, and pay taxes there and not in the United States. "They're basically renouncing their citizenship and declaring they're based somewhere else, just to avoid paying their fair share," he said in his weekly address last Saturday. They're exploiting "an unpatriotic tax loophole." But they pay taxes on profits made in the United States, and the so-called loophole is legal.

Tax relief on foreign earnings is not uncommon. American citizens working overseas are eligible for the "foreign earned income exclusion"—$96,700 in 2013, indexed for inflation. They also can deduct housing expenses. Are these tax breaks unpatriotic? Obama hasn't said.

There's a simple way to repatriate profits: cut the tax rate. In 2005, corporations were offered a onetime rate of 5.25 percent on foreign profits. More than $300 billion was brought home. Today, American companies are sitting on $2 trillion in overseas profits. But cutting their tax burden substantially appears to be anathema to Obama. 

The president often claims he'd like to reduce the corporate tax rate of 35 percent. A 28 percent rate has been suggested, but Obama has done nothing to make it happen. Besides, a reduction that small would be unlikely to prompt a wave of repatriation.

Meanwhile, Obama wants to aid the middle class. And he has some unusual ideas about how to do it. "So far this year, Republicans in Congress have blocked or voted down every serious idea to strengthen the middle class," he said in Austin, Texas, last month. "They've said no to raising the minimum wage. They've said no to fair pay [for women]. They said no to unemployment insurance for hardworking folks . . . who have paid taxes all their lives and never depended on anything and just needed a little help to get over a hump."

These are three of the president's pet proposals, but how they would aid the middle class is a mystery. Raising the minimum wage to $10.10 an hour would kill 500,000 or more jobs, according to the CBO. Fair pay? There's already an Equal Pay Act on the books. And the effect of extending jobless benefits to 99 weeks, which Republicans opposed, would be to keep more people unemployed, not help them find middle-class jobs.

In his speeches, Obama insists he's on the side of entrepreneurs. But his notions about helping them are peculiar. "If we're focused on making sure that child care is accessible and high-quality, that frees up a whole bunch of potential entrepreneurs," he said in early July. One can only imagine if Bill Gates or Steve Jobs had been saddled with child care duties. No Microsoft? No Apple?

Even entrepreneurs need government, Obama believes. "Typically throughout our history, the way [the economy has grown from the middle out] is that the entrepreneurship and drive and energy and focus of the American people is then combined with some collective efforts through our government to give people a shot."

Obama is fixated on a role for government in everything. All the states and many cities have a development office to lure new business and find private financing for projects. Governors travel overseas to recruit companies to their state. They've been doing it for decades.

Still, they need help from Washington, Obama says. "Lots of states and local governments would welcome more private investment, but they need a partner in the federal government to help do some matchmaking and work through some of the complexities of private financing of infrastructure," he said in Wilmington, Delaware, in July. Somehow states like Texas have prospered without a federal matchmaker.

For Obama, the notion of "economic patriotism" has become an infatuation. It applies to much more than tax-avoiding companies with foreign profits. It encompasses his entire agenda.

Here's what he said in Los Angeles in late July: "Economic patriotism says it's a good thing when our fellow citizens have access to preschool, and college, and, yes, health care that is affordable. It's a good thing when women earn the same as men for doing the same work. It's a good thing when nobody who's working full-time has to raise a family in poverty. That's not un-American. It's how we built America together. That's what economic patriotism is."

If Obama's agenda represents patriotism, where does this leave Republicans? The implication is not hidden. In Los Angeles, he said Republicans "obstruct and they obfuscate and they bamboozle and they sometimes don't tell exactly what's true—that was a euphemism." The transcript noted "laughter" at this point in the speech.

In unguarded moments, however, Obama has cited bipartisan bills backed by Republicans that he said aided the middle class. Fact-checker Glenn Kessler of the Washington Post looked into this and concluded the president had gone "too far" in claiming Republicans had "blocked every serious idea to strengthen the middle class." I suspect Obama knows how he went wrong. He said a nice word or two about Republicans.

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JWR contributor Michael Barone is senior political analyst for The Washington Examiner.

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