Skip to main content Accessibility help
  • Print publication year: 2016
  • Online publication date: July 2016

10 - Fiscal Paralysis


The elements of the World War II tax regime that survived into the retro-liberal regime weakened even further during the administration of Barack Obama (2009–present). President Obama and the Congress introduced some new progressive features to the tax code but made permanent the primary regressive cuts of the Bush administration, reinforcing the Bush transition to retro-liberalism in fiscal policy. In addition, the continuing wartime spending unaccompanied by tax increases created additional pressure on discretionary domestic spending. The Obama administration proposed augmenting spending on education, infrastructure investments, and environmental protection, but faced determined and effective hostility from the forces of retro-liberalism. As economic inequality grew it seemed to foster further economic inequality through the increased political power of organized retro-liberalism.

The “Great Recession” and Fiscal Gridlock

During the transition from his 2008 electoral victory to his inauguration, President-elect Barack Obama and his administrative team made their highest priority the drafting of a fiscal stimulus package that would supplement Bush's Economic Stimulus Act of 2008. The transition team's strong presumption was that the Federal Reserve had nearly exhausted its ability to halt and reverse the continuing collapse of consumer demand, incomes, and employment.

In his 2008 campaign Obama had already made it clear that tax cuts would play a major role in his stimulus efforts. It turned out that on this point both Obama and John McCain, his Republican rival, agreed. McCain actually proposed even larger tax cuts than did Obama. The nonpartisan Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, forecast a revenue loss from McCain's cuts of $1.5 trillion over a four-year term vs. a $1.0 trillion loss for Obama's. McCain did not say whether or not he thought his cuts would increase deficits more than would Obama's cuts. Both candidates promised benefits for middle-class taxpayers, but their campaigns revealed differences in the forms their tax cuts might take.

McCain's tax program emphasized extending the Bush income tax cuts of 2001 and 2003, reducing corporate income taxes, and accelerating business write-offs for new equipment. Obama, however, favored extending the Bush tax cuts only for taxpayers who made less than $250,000 a year and raising taxes on the dividends and capital gains earned by affluent families.