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November 6, 2008
News Analysis: Mandate Matters
Joseph J. Thorndike

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Does Barack Obama have a mandate? Yes. Does it extend to taxes? Probably. Can Democrats agree on what it means? We'll see.

Every election is followed by a mandate debate. Losers minimize their failure and winners exaggerate their success. Even close elections follow this pattern. When George W. Bush lost the popular vote in 2000, his partisans still claimed a mandate, albeit a slightly tarnished one. "Governor Bush after all received more votes than Bill Clinton, and we didn't see Bill Clinton be the least bit shy about advancing his agenda," one supporter told The New York Times.

Obama enjoys a more plausible claim to a mandate. And many observers seem ready to grant him one. "His presidency is probably going to mark the end of the Reagan era," historian Robert Dallek told Newsweek. "I think you're going to see a whole new era of federal progressive activism."

Ron Fournier, the Associated Press's Washington bureau chief, seemed even more enthusiastic. "This is a once-in-a-lifetime event," he wrote. "At odd intervals -- 1800, 1860, 1932, 1980 -- the nation reaches a 'pivot point,' an election that draws the line between the past and the future. And 2008 appears to be just such a line in the shifting sands of our convulsive times."

But not everyone is convinced of the mandate -- or its meaning for Obama's presidency. As ABC News's Rick Klein said, "The One is the one. Yes, we can, and yes, he did -- but can he really?"

It Was a Mandate

Conservatives have launched a vigorous rearguard action, insisting that the election was a repudiation of Bush, not a mandate for reform. "Chiefly, Barack Obama ran most effectively as a moderate Republican," wrote Sam Dealey, a contributing editor at U.S. News & World Report. "While he had plenty of big-money, liberal proposals (such as expanding healthcare), the candidate downplayed them after a few forays showed push-back. Instead, Obama gained traction by consistently emphasizing tax and spending cuts. There was a good deal of class warfare in there too, but the theme that most endured was cuts for 95 percent of taxpayers, not increases for the other 5 percent."

There's something to this line of argument. Obama's campaign did feature a lot of talk about tax cuts, striking a pretty Reaganesque tone at key points. To some extent, that's reasonable against a backdrop of rising inequality and, more recently, surging economic turmoil. There was also plenty of talk about lower spending and government waste. Clearly, the rhetorical legacy of the Reagan years hasn't quite evaporated.

But the antimandate argument -- which is more or less de rigueur for election losers -- is more spin than substance. The election was a ringing call for economic reform. "The decisive phase of the campaign was dominated entirely by economics," pointed out Anatole Kaletsky of the London Times, "specifically by a clear debate over taxes, income distribution and public spending -- and Tuesday's vote was the verdict on this debate."

John McCain probably deserves at least half the credit for Obama's economic mandate. And he managed to extend that mandate specifically to taxes. Remember the puerile "socialism" argument kicked off by Joe the Plumber? McCain managed to raise the stakes of this election -- just before he lost it.

But What Does It Mean?

What does Obama's mandate mean for specific tax policies? His platform suggests a penchant for activist taxation, including various credits for a slew of pet projects. Some of these may even qualify as good tax policy, but they hardly rise to the level of mandate-style tax reform. Does Obama have a broader vision of tax equity and efficiency?

Well, he seems to harbor a genuine commitment to progressivity. His promise to raise taxes on the rich -- variously defined during the campaign as those making more than $200,000 or $250,000 -- while cutting the burden on the poor and middle class (and senior citizens in particular) may signal real change in federal taxation.

But Obama has been ambiguous on a few crucial elements of progressive tax reform, notably the treatment of capital gains. He has consistently promised to reduce, but not eliminate, the preference for capital gains. But he has vacillated on what the new rate might be, as well as its application to those in his protected middle-class category.

In the short run, none of this is likely to matter. Howard Gleckman, writing on the Tax Policy Center's blog, TaxVox, predicted that many of Obama's marquee tax proposals, including tax increases on the rich, will be off the table for a while. "They are not going to happen as long as the economy is in a slump," Gleckman wrote. "Obama may try for these rate increases in 2010, but not in 2009."

But the slump won't last forever (and if it does, we'll all have bigger things to argue about than modest tax rate increases on the rich). And when the economy offers some breathing room, Obama will have decisions to make. "Sooner or later, he will have to decide," Gleckman wrote. "Will he run a Bob Rubin economic policy or follow a Bob Reich agenda? Neither man is likely to serve in his administration, but the echoes of their differences remain, still unresolved eight years after the end of the Clinton presidency."

The Brewing Battle

Gleckman is right: For the next few years, the most interesting arguments will unfold among Democrats, not between parties. Two issues seem especially likely to provoke debate: corporate tax reform and the capital gains preference.

In recent years, a growing number of Democrats -- including House Ways and Means Committee Chair Charles B. Rangel, D-N.Y., and Jason Furman, Obama's chief economic adviser -- have argued that lower corporate tax rates might be a reasonable trade-off for a broader corporate tax base. Even Obama has signaled his approval for this sort of classic tax reform bargain. But among some liberal activists, any break for business remains anathema -- even assuming that effective rates climb as a result.

The other looming issue is the tax preference for capital gains. Democrats are reportedly eager to change the tax treatment of Wall Street compensation. According to Dow Jones, "Near the top of the list of likely targets is a proposal, backed by House Democrats, to tax private equity fund managers' earnings at ordinary income tax rates."

That's all well and good. But I, for one, would be glad to see them sidestep the legal debate swirling around this issue, which has a distinct angels-on-the-head-of-a-pin quality. The real issue is whether any sort of personal income -- capital or otherwise -- deserves a special rate. Obama has clearly indicated that he supports a preference of some indeterminate sort. But other Democrats, among them Senate Finance Committee member Ron Wyden, D-Ore., have united under a banner of horizontal equity to argue that income from "work and wealth" should be taxed equally.

It's hard to predict where this sort of policy dispute will lead. As this article goes to press, Obama has yet to announce his economic team, but it seems likely to include at least a few Democrats in the Rubin mold. Such appointees may or may not advance bold, progressive, even liberal (gasp!) economic reform.

But what's certain is that some group of Democrats will champion that sort of reform. Many influential Democrats believe in the audacity of an Obama mandate -- Democrats such as Robert Borosage, codirector of the Campaign for America's Future, a liberal activist group. "This is not simply a change election, it's a sea change election," Borosage told reporters last week. "If Obama is to be a successful president, he has no choice but to be a transformative one, pushing for bold changes big enough to deal with the scale of our problems."

That's the kind of talk that promises to keep tax politics interesting in this one-party town.