Obama’s New Econ Guru Holds the Line on Tax Cuts
Policy + Politics

Obama’s New Econ Guru Holds the Line on Tax Cuts

Republicans may shift stance on cuts for high earners

Austan D. Goolsbee, whom President Obama promoted on Friday to head the White House Council of Economic Advisers, is known for his wisecracks and even his appearances as an amateur stand-up comic at improv clubs. But on Sunday, Goolsbee seemed flustered as he responded to a surprise pivot by Republicans on extending the Bush tax cuts.

Appearing on Fox News Sunday, the 41-year-old economist had just repeated Obama’s charge that Republicans were holding middle-class tax cuts “hostage” in order to win an extension of tax relief for wealthy families. Less than an hour later on ABC’s “This Week,’’ Goolsbee was told that House Republican leader John Boehner had just said he would support an extension of only the middle-income tax cuts if he had no other choice.

 Goolsbee, caught by surprise, wasn’t sure how to react.

 “If he is for that, I would be -- I would be happy,” he told Christiane Amanpour. But then he quickly started to backpedal. “In the past, we have seen some of these circumstances in which what appears to be the offer of doing this -- the sensible thing. In the light of day, there was a little bit of a feeling, well, if the president is for it, I'm against it, and then it falls apart.”

Despite his nervous debut, Goolsbee is likely to be one of the most visible faces on version 2.0 of President Obama’s economic team. As a member of Obama’s existing economic team, he also highlights continuity rather than change in the president’s policies.

Known for his sharp intellect and high energy, the University of Chicago economist was a close friend and neighbor of Obama’s in Chicago. He was an advisor in Obama’s Senate election campaign, and he has been a member of Obama’s Council of Economic Advisers since early 2009. White House officials said they expect Goolsbee, as chairman of the Council of Economic Advisers, to assume a much more visible role in defending the president’s economic policies.

With midterm elections less than two months away and economic problems dominating the political agenda, Goolsbee’s public role will be particularly important in the weeks ahead.

New Voices for Obama’s Economic Team 
The president’s economic team is still in the middle of considerable flux. Obama has named Jacob (Jack)  Lew, a former budget director in the Clinton White House and most recently a top deputy to Secretary of State Hillary Clinton, to succeed Peter R. Orszag as director of the Office of Management and Budget. Lew’s Senate confirmation hearing is scheduled for Sept. 16.

The other two pillars of Obama’s economic team -- Lawrence Summers at the National Economic Council and Treasury secretary Timothy Geithner, are still in place. But as Summers has kept a low public profile in recent months, partly because of his sometimes abrasive image on television, Geithner has stepped in. 

Though Goolsbee has reportedly disagreed on some issues with others on Mr. Obama’s team -- he wanted a more limited bailout for Chrysler Corp. than Summers -- he staunchly supports the president’s approach to handling the expiring Bush tax cuts. While at the University of Chicago, Goolsbee published studies arguing that higher marginal tax rates have relatively little long-run impact on people’s willingness to work or invest more.

 “Austan looked at the Clinton tax increase  in the 1990’s, and he found that the responsiveness was a timing response,’’ said Alan Auerbach, a professor of economics at the University of California at Berkeley, who has worked on many of the same tax issues as Goolsbee. People might shift some of their income to a year when tax rates are lower but they are much less likely to change their long-term behavior, Auerbach said.

Goolsbee’s argument contradicted those of conservative economists and Republican politicians that higher marginal tax rates lead to lower economic growth and incomes. It did support Obama’s argument to let the Bush tax cuts expire at the end of this year for families earning more than $250,000 a year.

Goolsbee’s dissertation from the mid-1990’s has sparked some recent controversy, because it seems to dispute the value of business tax cuts in spurring economic growth. That would contradict the president’s new economic proposals, which rely heavily on letting businesses take full tax write-offs for the investments in plant and equipment. “For policymakers interested in using tax policy to stimulate investment or, especially, to smooth business cycle fluctuations, the results are not promising,’’ Goolsbee wrote in a paper published in 1997. Quizzed about that paper on Sunday by Chris Wallace of Fox News Sunday, Goolsbee said there was no contradiction. The paper, he said, had examined the effect of tax incentives at a time when businesses are running at full capacity -- which they are not right now.

Obama and Goolsbee have left no doubt about where they stand on the big policy battle of the moment: They support a permanent extension of the Bush tax cuts for families earning less than $250,000, and they adamantly oppose an extension of the tax cuts for the top 2 percent of families earning more than that. Unless Congress acts, all of the Bush tax cuts will expire at the end of this year.  Republicans have insisted on an extension of all the tax cuts, including those for top earners. Democrats have highlighted the issue as a defining contrast between themselves and Republicans, and have accused Republicans of adding to the deficit in order to support “millionaires.”

But Boehner’s comments, taped on Saturday and aired on Sunday, suggest an important tactical shift ahead of the November elections.  In an interview on CBS’s Face the Nation, Boehner said it would still be a bad mistake to raise taxes on anybody.  But in a new twist, he sought to defuse the criticism that Republicans were holding the middle-income tax cuts “hostage.”

"If the only option I have is to vote for some of those tax reductions, I'll vote for it,” Boehner said. “But I've been making the point now for months that we need to extend all the current rates for all Americans if we want to get our economy going again, and we want to get jobs in America." Two other prominent Republicans -- former House speaker Newt Gingrich and William Kristol, editor of the Weekly Standard -- made similar comments on Fox at almost the same time as Boehner’s remarks were being aired.

Regardless of the short-term tactics, the underlying battle lines are harder than ever. Republicans are hoping to gain enough new seats in November to pass a permanent extension of all the Bush tax cuts -- a move that would raise the total cost to the Treasury over the next decade from about $3 trillion to $3.8 trillion or higher.

Obama, for his part, rejected calls last week to support even a temporary extension of the tax cuts for top earners. Goolsbee, when asked on ABC if he saw an “avenue of negotiation,’’ said he did not. “Borrowing $700 billion to extend tax cuts that average more than $100,000 a year to millionaires and even billionaires is the least effective bang for the buck we have,’’ he said.