Tyson Defends Obamanomics

In this morning’s Wall Street Journal Opinion section, Berkeley professor Laura D’Andrea Tyson provides an impassioned defense of her boss’ economic plan. Tyson is a member of President Obama’s Economic Recovery Advisory Board.

The meat of her argument – Obama’s economic plan is consistent with his campaign pledges and his progressive vision. President Obama’s tax changes (letting the Bush tax cuts expire) will restore the marginal tax rates to their 1990 levels of 36% and 39.6%, for qualified single and married earners, respectively. Tyson argues that these changes will affect only the top 3% of taxpayers, a group she asserts “enjoyed the largest gains in income and wealth over the last decade.” I’ll concede her point here – but would add that there is more than likely a correlation between this group of taxpayers who enjoyed such benefit and the larger economy, which also enjoyed a fairly robust growth during the same period despite a tech bubble and two wars. If you raise the water level in one harbor, you need to dredge it from another.

Tyson also states that Obama’s proposal limits the deductions for dependents, charitable deductions and other expenses to 28%, and notes that the top rate for such deductions under Ronald Reagan, as if this somehow makes it better. But Tyson fails to mention that the only reason why the deduction was 28% under Reagan was because the top tax bracket was 28%, not 36% and 39.6% as they are today. Tyson chides critics of the president’s proposals for suggesting they might lead to class warfare, and reasons that they are “fair and reasonable” means of achieving universal health care coverage and moderating the growth of health care spending. This rhetoric of using tax policy as a means of achieving “fairness” rather than as a revenue generator is consistent with her boss’ vision.

Will it play to the Street? Wall Street, not Main Street that is – we’ll wait and see. So far, the markets have not reacted too kindly to Obama’s plans for the economy.