Obama on NAFTA and a Social Security tax hike

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Last spring the National Review’s Rich Lowry wrote a piece titled “On Trade: Obama’s Opportunistic Fear-Mongering.”

“For Barack Obama, hope can triumph over anything, except for open trade with a neighboring country with an economy 1/20th the size of ours. Then, all is despair.

Obama’s culprit is Mexico , our third-largest trading partner. It is trade deals like NAFTA — the 1993 accord eliminating tariffs among the U.S., Mexico and Canada — that ‘ship jobs overseas and force parents to compete with teenagers for minimum wage at Wal-Mart,’ Obama intones. Feel inspired yet?”

Lowry lists these statistics:

  • Canada and Mexico are our first- and second-largest export markets, and U.S. merchandise exports to them have increased at a slightly faster clip than exports to the rest of the world.
  • Manufacturing output has increased by 63 percent.
  • The jobless rate has dropped from 6.9 in 1993 to 4.9 today.
  • Since 1993, the U.S. economy has grown by 54 percent.

NAFTA, Lowry states, “has clearly been a (small) benefit to the economy of both the U.S. and Mexico.”

“Critics focus on the large U.S. trade deficit that opened up with Mexico shortly after the adoption of NAFTA, but that had more to do with the decline of the peso and a steep Mexican recession that dampened demand for our exports. Since 2001, our manufactured-goods deficit with NAFTA countries has been stable, making the agreement an implausible villain in the hollowing out of America.”

U.S. manufacturing has been declining since 1979, and Lowry says Obama’s blaming NAFTA for that “is the politics of scapegoating.” Obama has “directed more barbs” at Mexico than Iran,

“…whose offense is only killing American servicemen and pursuing an illicit nuclear program rather than sending us imports and welcoming our investment.”

Lowry explains that Obama didn’t have much to say about NAFTA before running for president. He was ambivalent about it in his book “The Audacity of Hope,” but his tune changed when – “it became imperative for him to win down-scale white voters in states like Wisconsin and Ohio.”

“Obama always says that politicians should tell voters what they need — not what they want — to hear. But no one in the Democratic Party will emphatically say that trade is a net benefit to the U.S., even if it brings painful — and ultimately unavoidable — dislocations… On trade, Barack Obama’s opportunistic fear-mongering defines the new Democratic orthodoxy.”

The American Enterprise Institute’s Andrew Biggs wrote in the Wall Street Journal that until his campaign for the White House, Barack Obama had taken “a responsible position on Social Security, noting the urgency of reform and saying all options should be on the table.”

“But having cornered himself among Democratic activists whose attitudes toward Social Security reform range from demagoguery to denial, Mr. Obama has recently veered sharply left. He now proposes to solve the looming Social Security shortfall exclusively with higher taxes.

‘Once people are making over $200,000 to $250,000,’ Mr. Obama says, ‘they can afford to pay a little more in payroll tax.’ No shared sacrifice, no outreach to moderates or conservatives, here.”

But, Biggs explains, Obama’s large tax hike won’t be enough. According to the Policy Stimuation Group’s Gemini model, Obama’s program would “address only 43% of Social Security’s 75-year shortfall.”

“Mr. Obama’s modest improvements to Social Security’s financing come at a steep cost. The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over.”

Even President Bill Clinton balked at raising the wage ceiling. He said back in 1998 that doing so would –

“tremendously change the whole Social Security system . . . We should be very careful before we get out of the idea that this is something that we do together as a nation and there is at least some correlation between what we put in and what we get out. You can say, well, they owe it to society. But these people also pay higher income taxes and the rates are still pretty progressive for people in very high rates.”

Biggs concludes his article with this:

“Social Security’s shortfalls are primarily attributable to society-wide trends of lower birth rates and longer lifespans. If we want to retain the shared character that underpins its political support and distinguishes it from traditional welfare programs, we need to share the burdens of reform proportionately. Mr. Obama should drop his exclusive focus on raising taxes and return to his previous view, that Social Security faces significant problems requiring prompt attention. All options should be on the table.”

This article first posted in May.

©2008 John F. Biver

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