[15B/yr is more like a public works pilot program. But still, it would be ~14.9B more than we've seen in a long time.]
http://online.wsj.com/article/SB121366164848479237.html?mod=hps_us_whats_news
PAGE ONE
Obama Plans Spending Boost, Possible Cut in Business Tax
By BOB DAVIS and AMY CHOZICK
June 17, 2008; Page A1
FLINT, Mich. -- Sen. Barack Obama shed new light on his economic
plans for the country, saying he would rely on a heavy dose of
government spending to spur growth, use the tax code to narrow the
widening gap between winners and losers in the U.S. economy, and
possibly back a reduction in corporate tax rates.
EXCERPTS FROM THE INTERVIEW
In an interview with The Wall Street Journal, the Illinois Democrat
said that he was trying to put together tax and spending policies
that dealt with two challenges. One is the competition from rapidly
growing developing countries, like India and China. The other: the
U.S. becoming what he called a "winner-take-all" economy, where the
gains from economic growth skew heavily toward the wealthy.
Sen. Obama cited new economic forces to explain what appears like a
return to an older-style big-government Democratic platform
skeptical of market forces. "Globalization and technology and
automation all weaken the position of workers," he said, and a
strong government hand is needed to assure that wealth is
distributed more equitably. He spoke aboard his campaign bus, where
a big-screen TV was tuned to the final holes of the U.S. Open golf
tournament.
Sen. Obama's nod to lowering corporate taxes comes as Republicans
have been attacking him for proposals that would raise the cost of
doing business, such as his pledge to raise the tax rate on capital
gains, and his vow to increase the top income-tax rates, which are
often used by small, unincorporated enterprises.
He didn't say how deeply he would cut the rate, but said it could be
trimmed in return for reducing corporate tax breaks, simplifying the
tax system. With existing loopholes, he said, "How much you pay in
taxes as a corporation a lot of times is going to depend on how good
your lobbyist is." With "a level playing field," he said, the rates
could be reduced.
He stressed the idea was not a move toward Sen. McCain's broader
tax-cutting philosophy. While Sen. McCain has argued that tax cuts
-- particularly on business -- spur growth, Sen. Obama rejected that
as flawed economics. "I've seen no evidence that...would actually
boost the economic growth and productivity," he said.
Douglas Holtz-Eakin, chief economic aide to Republican candidate
Sen. John McCain, dismissed the Obama strategy as "classic
industrial policy which shows a lack of faith in private markets."
He was skeptical of any potential Obama corporate-tax cut, noting a
lack of details. "It's like being for kittens, puppies and
sunshine," he said.
Clinton Deficit Hawks
The overall Obama economic approach echoes the 1992 presidential
platform of Bill Clinton, who also launched his bid for the White
House seeking a big expansion in infrastructure spending. But those
plans were quickly shelved once he reached the White House. Congress
rejected a proposal to steeply increase energy taxes, which could
have been used to pay for the spending.
Clinton deficit hawks, especially then-White House economic adviser
Robert Rubin, successfully argued that slashing the deficit would
have a bigger impact on growth than boosting spending because
markets would react favorably to a shrinking deficit. "Rubinomics"
became the reigning Clinton economic strategy, and many labor
leaders backing Sen. Obama worry that the 46-year-old senator
ultimately will turn to Mr. Rubin, as Mr. Clinton did.
Sen. Obama waved off that concern. "I've got Bob Rubin on one hand
[as an adviser] and [former Labor Secretary] Bob Reich on the
other....I tend to be eclectic." Mr. Reich, has long championed
infrastructure spending to boost jobs and the economy, and is a
favorite of labor. He frequently and famously feuded with Mr. Rubin
early in Mr. Clinton's term over the administration's ideological
direction.
The chances of pushing through an infrastructure spending program
are greater now than they were in 1992, Sen. Obama said, because of
new concern about energy prices. Many alternative-energy projects --
clean-coal technology, wind-power generators and the like -- could
be packaged as infrastructure. "The difference I would suggest is
that there is a strong recognition in the public mind that we can't
continue on our current energy path," he said. That means "there's a
bigger opening to bring about change."
Sen. Obama and Sen. McCain disagree sharply on economic issues, with
the Arizona Republican promising to cut the corporate tax to 25%
from 35%, retain all of President Bush's cuts in personal income
taxes, and push for a host of free-trade agreements.
Sen. Obama has proposed a variety of measures that would raise taxes
on individuals at the top end and provide tax relief to middle- and
lower-income households. Under his plans, those in the middle would
see their after-tax income increase by 2.4%, or $1,042, according to
a nonpartisan analysis by the Washington-based Tax Policy Center.
Americans with incomes above $2.8 million would see their after-tax
income decrease by 11.5%.
The Democrats' 2008 standard-bearer laid out a series of large-scale
spending plans during a speech earlier on Monday in Flint, which has
been a symbol of economic decline since the anticorporate movie
"Roger and Me" was released in 1989. While Sen. Obama has made the
proposals before, he wrapped them together for the first time in
what he called a "competitiveness agenda."
Spending Program
The heart of Sen. Obama's spending program is his plan to spend $15
billion a year for 10 years on energy technology. It would be funded
by revenue collected from a separate Obama proposal to cap
greenhouse emissions through a system of trading pollution permits.
Sen. Obama would auction those permits to producers of carbon
dioxide, such as electric utilities, and figures the sales would
yield about $100 billion a year. Most of that would go to consumers
as rebates on utility bills, he said.
[Chart]
He also would fund an "infrastructure reinvestment bank" that would
finance $60 billion in high-speed railways, improved energy grids
and other projects over a decade. He would double spending on basic
research, subsidize investment in high-speed Internet hook-ups, and
offer $4,000 a year in tuition credits for students who later
perform public services.
To "capture some of the nation's economic growth," he said in the
interview, "and reinvest it in things we know have to be done like
science, technology, research and fixing our energy policy, then
that is actually going to spur productivity."
Sen. McCain argues for as little government spending as possible and
paints his opponent as a liberal who would tax more, spend more and
drive the country into deficit. He backs a cap-and-trade system that
would be used to fund energy technology, but Mr. Holtz-Eakin said
the scale would be far smaller than the Obama plan. And, Mr.
Holtz-Eakin said, a "green technology fund is plain silly. Silicon
Valley has piles of money devoted to clean technology."
Energy Market
Sen. Obama made the case in the interview for large-scale government
intervention in the energy market, saying that although venture
funds are investing heavily in energy technology, there was a gap in
funding that should be filled by Washington. He called it supporting
the "middle stage" between innovation and commercialization. "You
have this point in time when things haven't quite taken off yet and
still entail huge risks," he said.
Under President Clinton, the Commerce Department put together a
broader-based commercial technology program aimed to fund projects
at a similar stage. But it never grew beyond fairly small-scale
projects, because of fights with a Republican Congress over whether
the government was wasting money on projects that ought to be funded
by the private sector.
Sen. Obama likened his proposal to a venture-capital fund, with the
government seeking private investors to contribute. He lauded a
Central Intelligence Agency project which helps fund technologies
the CIA finds important, but which lack long-term capital.
Sen. Obama regularly compares the energy effort to President
Kennedy's project to rocket a man to the moon in the 1960s. But the
record of using government funds to produce big breakthroughs in
commercial technology is spotty at best. The few projects that have
succeeded were often small and aimed at limited research goals.
'Carter's Second Term'
Under President Carter, the U.S. tried and failed to build a
synthetic-fuel industry in the 1970s. (Sen. McCain has taken to
saying Sen. Obama would represent "Jimmy Carter's second term.")
Plans to build commercial nuclear reactors that would produce more
nuclear material than they consumed also failed, and a half-century
of government investment in commercial hydrogen reactors haven't
produced the necessary breakthroughs.
[Obama]
Fabrizio Costantini for the Wall Street Journal
Sen. Obama called for government spending to spur growth, including
an energy-technology investment program and infrastructure
financing.
More recently the Clinton administration, at the urging of then-Vice
President Al Gore, spent heavily on a project with the Big Three
auto makers to build a higher-tech family car that produced three
times the gas mileage of a conventional car. The car was never built
and the Bush administration killed the project. At a rally in
Detroit Monday night, Mr. Gore announced his endorsement of Sen.
Obama.
Start-Up Companies
Sen. Obama also proposes eliminating capital-gains taxes on start-up
companies, though he backs higher capital-gains rates overall. He
hasn't defined precisely what he means by a "start-up." Wasn't he
concerned that tax lawyers would simply form "start-ups" for
existing companies looking for a new tax break?
"There are always folks who are interested in gaming the system, and
obviously one of the things you have to do with tax policy generally
is to pin down definitions so they're not twisted beyond
recognition," he said. But he argued, "Companies that are starting
off...should be allowed to accumulate capital, reinvest profits, if
there are any, to the point that they stabilize."
Write to Bob Davis at bob.davis at wsj.com and Amy Chozick at