Obama and the King of Bain’s Tax Return

“We don’t begrudge financial success in this country.”

In his third State of the Union address, delivered last Tuesday night on Capitol Hill, Barack Obama did not declare war on the financial world. Quickly skating over a potentially fruitless reform of Wall Street, he chose instead to focus on the rebirth of Detroit’s “Big Three” and the death of Osama bin Laden. Even while placing tax equity at the center of his upcoming campaign, he was very careful not to directly address the “King of Bain,” Mitt Romney, or his Republican rival Newt Gingrich, still basking in the glow of his recent victory in South Carolina. No! His true “faceless adversary” is rather the inertia of a Congress held hostage by its divisions. Ten months ahead of the election on November 6, Barack Obama aimed at staying out of the fray by calling for more fiscal fairness. At the risk, at times, of shielding himself behind congressional immobility.

“The greatest blow to our confidence in our economy last year didn’t come from events beyond our control. It came from a debate in Washington over whether the United States would pay its bills or not. Who benefited from that fiasco?” asked the 44th president of the United States. A jibe that says a lot of the president’s bitterness. For Barack Obama, the loss of the American AAA [rating] is not anecdotal. Often criticized for being overly cerebral or under-confident, the Democratic president is quite ready to shift the blame for a large part of the failures and frustrations of his first mandate onto Washington bureaucracy. But the feeling that America is on stand-by mode has been prevailing for several months now. And the Democrat administration is not necessarily blameless. Even though it won a minor tactical victory just before Christmas by forcing the Republicans to accept the two-month extension of payroll tax cuts, the Obama administration has not undertaken any major project since the mid-term elections of 2010. Sure, the current president can hide behind the systematic obstructionism of the Republican majority in the House. But it seems an easy excuse to the independents, disappointed by the coyness of financial sector reform.

Undeniably, the third State of the Union speech by the author of “The Audacity of Hope” was remarkably lacking in audacity. Neither the idea of encouraging the return of industrial jobs on U.S. soil, nor the relaunch of renewable energies, are especially new or particularly contentious. Only the promise of a “Buffett rule” tax on millionaires has really struck people’s attention. To sum it up, Barack Obama is proposing a minimum effective tax rate of 30 percent on all annual incomes over $1 million. “Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense,” Obama insisted at the Capitol. Alas! Already suggested last summer by the Omaha billionaire himself, the so-called “Buffett rule,” although supported by a majority of 52 percent of Americans according to a recent poll by CBS-New York Times, has remained in limbo so far. By bringing it back to the centre of the electoral debate, Barack Obama is aiming principally at discrediting the one he considers to be his most credible adversary in the race to the White House. This is the very reason why his call for fiscal justice was launched on the same day that Republican favorite Mitt Romney, threatened to his right by “populist” Newt Gingrich in Florida, had to make public his tax return, revealing his effective tax rate of 13.9 percent in 2010. True, the former head of Bain Capital has given $4 million to the Church of Jesus Christ of Latter-day Saints. But this does not make his preferential scheme any less contrasting with the spirit of the Buffett rule. Still, one can wonder why the Democrat administration did not manage to successfully implement the reform of capital gains taxes and the preferential treatment of hedge fund managers and private equity firms while it was still holding a majority in Congress. It is difficult, too, to promise fiscal equity when you still have not managed to regulate Wall Street bonuses after three years.

The die is not cast yet. “President Obama is a president so weak that he makes Jimmy Carter look strong,” assures the favorite candidate of the evangelists, Newt Gingrich. A punchy quip, but also historically inaccurate. With an average approval rating of 44 percent (according to Gallup) in his third year of presidency, Barack Obama remains behind Bill Clinton (47.5 percent) and George W. Bush (59.6 percent), but is far ahead of Jimmy Carter (37.4 percent). And if his image remains severely weak among independents (with only 36 percent of them satisfied versus 56 percent disappointed), the outgoing president retains a possibly decisive advantage over the King of Bain, whose image of potential candidate is still feeble. Even though the Federal Reserve still seems to doubt the vigor of the upturn of the American economy, the drop of the unemployment rate to 8.5 percent could turn out to be a much more powerful lever than the promised Buffett rule. That is, on the condition that the rise in employment proves definite in the coming months and that Team Obama succeeds in making up their credibility deficit among the independents. As Bill Clinton used to say: “It’s not only the economy, stupid!”