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State of the Union showdown: Obama vs. Daniels From the political notebook: * There was a revealing inconsistency in President Barack Obama’s State of the Union address. The most memorable phrase from the speech was this: “It’s time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts.” The rest of the speech was a litany of preferences and punishments, different rules for different people depending on whether Obama approves or disapproves of their behavior. One of our major problems is that the federal government has gotten too complicated to operate or be effectively managed. Obama want to compound the complications. One of the reasons Obama didn’t embrace the tax simplification plan proposed by his debt commission, even though it would produce more additional revenue for the federal government than his own soak-the-rich proposals, is that it would rob the government of the power to reward and punish people through the tax code. The U.S. corporate tax code is a mess. It has one of the highest nominal rates in the world and is an impenetrable thicket of exclusions, deductions and credits. Virtually every outside expert from every political point of view believes it should be simplified and the nominal rate reduced. Yet Obama proposed no less than five additional tax classifications, rates or treatments just for American manufacturers. He wants to increase taxes on American businesses that expand overseas. He proposed a minimum tax on multinational corporations. He advocated a lower tax burden for those increasing manufacturing in the United States. An even lower rate for manufacturers in whatever gets defined as high-tech. And new government subsidies for manufacturers who expand in “a community that was hard hit when a factory left town.” All of this will require reams of regulations to define and armies of bureaucrats, both public and private, to implement. It will distort capital decisions as manufacturers try to figure out how to take advantage of the benefits and avoid the punishments. Obama’s proposals to make the taxation of American manufacturers even more complicated is likely to produce far more jobs for lawyers and accountants than for American factory workers. * In his State of the Union rebuttal, Indiana Gov. Mitch Daniels gave the speech every Republican candidate for federal office should give every day from now until the election. Daniels made fixing the federal government’s finances central in a way that neither Mitt Romney nor Newt Gingrich is doing. Romney gives higher priority to getting the economy moving. Gingrich depicts the race as a broad ideological choice between Obama’s European-style social welfare state and Newtism – whatever Newtism happens to be that day. A bit of this is emphasis and nuance. Daniels talked about other things, particularly the economy, and Romney and Gingrich talk about fixing the federal government’s finances. But the difference in emphasis is a big one politically. What the government can do to improve the economy is speculative and debatable. As is what it can do to help spread democratic capitalism abroad and keep Iran from getting a nuke. There is, however, no question that the president and Congress can decide how much the federal government spends and where it gets its money. Republicans should be telling voters: If you give us control over the presidency and both houses of Congress, we will fix the finances of the federal government. As Daniels put it: “Let us rebuild our finances, and the safety net, and reopen the door to the stairway upward; any other disagreements we may have can wait.” There’s political risk in this. It’s not clear that the American electorate is ready to downsize government to the extent necessary. But if it’s not, governing the country for the next four years will be a miserable job for whoever gets stuck with it. History appears to have given Republicans the assignment of fixing the federal government’s finances. At this point, only Daniels and House Budget Chairman Paul Ryan seem willing to embrace the assignment. And neither of them is running for president. |