The US Needs a New Obama Victory

If the president has his way in the tax battle, a paradigm shift will occur in the United States

Symbolically, President Obama has already confirmed for the Americans the hard times that are coming for the country. Obama’s speech after his re-election in November contained a declaration of love to his daughters that can be read as an appeal to the nation. “Sasha and Malia … I am so proud of you guys,” the president said, “but I will say that for now, one dog’s probably enough.”

In fact, it looks like the Americans would have to bury any hopes that their standard of living will rise again in 2013 after five years of crisis. Without a belated Christmas miracle, the greatest austerity measures of the post-war era threaten to go into effect. The cuts and tax increases add up to more than $600 billion. They will throw the country back into a recession and lead to a loss of growth in Europe and Austria.

Nonetheless, the dispute over the “fiscal cliff” holds a chance. In particular, for the first time in more than a decade, Obama could wrench leadership from the Republicans in questions about the government’s role in the economy and the quarrel about distribution of wealth.

Radical Withdrawal of the Public Hand

The Americans are traditionally skeptical about higher tax rates and greater governmental influence in the economy. Certainly a radical withdrawal of the public hand, even for U.S. standards, occurred under the George W. Bush Jr. administration. Taxes were lowered for almost all income groups during the Bush era, with greatest benefit to the top earners (above $400,000 annual income). The taxation of capital gains and dividends was pushed down to the lowest level since 1945; for inheritances, generous exemptions were created. As a result of these policies, the tax rate since the year 2000 has fallen from more than 30 percent to 24 percent of the economic output. No other Western industrialized nation demands such a low contribution to the national budget.

And yet, the U.S. is faced with two challenges in the coming decade. The infrastructure of the country, particularly the network of highways and railways, is in drastic need of higher investments if it is not to fall into complete disrepair. At the same time, the government will have to do something about the growing debt; investors will not remain patient forever.

Cuts and investments cannot be financed without tax increases. Obama’s recommendations for avoiding the fiscal cliff stipulate that the tax burden for the top earners, lowered by Bush, will rise again beginning in 2013. With that, the attitude of the Americans will not fundamentally change. But it would be a symbolically important step: Look here, taxes can be raised without causing the end of the world! That would be an important lesson for the coming years during which the battles over the budget will intensify. At the same time, it would put a damper on the arguments of Republican hard-liners in the tea party. Incidentally, the measures would bring to the budget an additional income of $1.2 trillion by 2022.

The chances that Obama will succeed in shifting the discourse are favorable: The president does not need to fear for his re-election. In contrast to the Republicans, he has little to lose.