Former Federal Reserve Board member Alan Binder penned an op-ed for the Wall Street Journal to make the point that Obama Is No Socialist:
Ever since President Barack Obama released the budget last month, we have been hearing a fusillade of criticism claiming that the president, contrary to previous advertising, is not a centrist, but a “leftie” intent on leading the country down the path of socialism.
Let’s see. Socialism means public ownership and control of businesses, right? So which industries does the president propose to nationalize?
Banking? Well, no. Secretary of the Treasury Timothy Geithner has made it clear that he opposes nationalizing banks, despite much outcry from the political left -- and even some from the right -- to do just that. Yes, it’s a valid criticism that we are still waiting for Mr. Geithner’s banking plan. But the budget commits an outrageous act of accounting honesty by including a $750 billion allowance as “a reserve for further efforts to stabilize the financial system.” Given the popularity of bank bailouts, that was a courageous thing to do.
What about health care? Doesn’t Mr. Obama want “socialized medicine”? No. He wants to reform the current system so that it costs less and covers more people. Disgracefully, the United States is the only advanced nation in the world that fails to cover every citizen -- even though we spend vastly more on health care than other nations.
Some reformers want the U.S. to adopt a single-payer system like other countries, such as “socialist” Canada and England -- which run firmly capitalist economies, by the way. But regardless of whether single-payer is a good idea, it’s not Mr. Obama’s. His health-insurance reform plan emphasizes choice (keeping what you have if you like it), greater efficiency (partly by utilizing information technology), and portability (your health coverage will follow you from job to job). Which part of that is socialist?
And, once again, the Obama budget recognizes, rather than hides, the need to pay the bills. Half the cost of health reform would be covered by a tax provision that has really raised a ruckus: Capping itemized deductions at the 28% bracket rate. Let’s consider how socialist that idea is.
As the law now stands, when a family that does not itemize deductions on its tax return donates $100 to its favorite charity, the donation costs the family $100. But when an itemizing family in the 25% bracket donates $100, it costs them only $75 after tax. And when an itemizer in the 35% bracket donates $100, the after-tax cost is only $65. Thus the richer you are, the less it costs. Is it socialistic to say that seems a little backwards?
If that tax treatment strikes you as fair, try another example. Suppose those same three families each pay $10,000 a year in interest on their home mortgages. The cost to the non-itemizer is the full $10,000. For the family in the 25% bracket that itemizes, the net cost after taxes is only $7,500. And for the upper-income family in the 35% bracket that itemizes, the net cost is a mere $6,500. Just imagine a member of Congress proposing a homeownership subsidy like that directly, rather than through the tax code: 35% to the rich, 25% to the middle class, and nothing to the poor. Would anyone support it?
Enter Mr. Obama, the alleged leftist. Does he propose to end this “class warfare” on the middle and lower classes? No. He only wants to mitigate it slightly. He would reduce the 35% subsidy rate to 28% -- which would still leave the costs of charitable giving, mortgage interest, and much else far lower for the rich than for the poor. That’s hardly a radical proposal. Indeed, it has been under discussion since the 1980s.
It’s true: The president would like to do a bit more. Elsewhere in the budget, he proposes letting the Bush upper-bracket tax cuts expire in 2011, meaning the top rate would revert to where it was during the Clinton years: 39.6%. And Mr. Obama would still cap deductibility at 28%.
Unsurprisingly, the president’s proposal to let the top rate return to 39.6% has unleashed a firestorm of criticism from people who claim that such radical redistribution would prolong the recession, destroy entrepreneurship, and pretty much end capitalism as we know it -- just as it did during the Great Prosperity of the 1990s, I suppose. Some claims parody themselves.
So where does all this leave us on the road to socialism? If Mr. Obama is able to get all of these proposals through Congress, the U.S. will have a fully private banking system, propped up with temporary government support; a uniquely American health-care system that covers virtually everyone; and a somewhat more progressive income tax.
If this is socialism, then let’s make the most of it.