JONATHAN COHN OCTOBER 19, 2010
My most bewildering reporting moment of the last few months may have also been the most telling. It happened in July, when President Obama came to Holland, Michigan, for the groundbreaking on a new factory that will build batteries for electric cars. While Obama was speaking, I took a small tour of the city, interviewing local small businessmen.
I didn’t expect to find a lot of support for Obama. Holland is a very conservative area and small business owners, typically, are very conservative. But I was surprised that they gave Obama no credit whatsoever for improving the economy.
Like every other city in Michigan, Holland has an economy that depends in part on the auto industry, which means it is dependent on two companies, Chrysler and General Motors, that exist only because the federal government saved them a year ago. I saw a lot of road construction on the drive into the city. Funding for that project, along with that new battery plant, came from the Recovery Act.
But when I mentioned these to to the owner of a downtown coffee shop* and, later, to the proprietors of a nearby architecture firm, they just shrugged. They didn’t like the auto rescue because they saw it as a bailout for the unions and they didn’t like the Recovery Act because it meant higher deficits.
I would argue that the auto industry bailout and Recovery Act saved millions of jobs, although not enough to produce a strong economy, and that the long-term effect of these initiatives on federal debt was negligible. Most mainstream experts would, I think, back me up on that. Even the government-phobic Economist has admitted the Detroit rescue was a success, going so far as to issue "an apology" for opposing it in the first place.
But it turns out these small businessmen in Holland were hardly unusual. In today’s New York Times, reporter Michael Cooper files a dispatch from Huntersville, North Carolina, where he interviewed some local Republican activists and found similar sentiments, echoed by the national polls:
At Pig Pickin’ and Politickin’, a barbecue-fed rally organized here last week by a Republican women’s club, a half-dozen guests were asked by a reporter what had happened to their taxes since President Obama took office.
“Federal and state have both gone up,” said Bob Paratore, 59, from nearby Charlotte, echoing the comments of others.
After further prodding--including a reminder that a provision of the stimulus bill had cut taxes for 95 percent of working families by changing withholding rates--Mr. Paratore’s memory was jogged.
“You’re right, you’re right,” he said. “I’ll be honest with you: it was so subtle that personally, I didn’t notice it.”
Few people apparently did.
In a troubling sign for Democrats as they head into the midterm elections, their signature tax cut of the past two years, which decreased income taxes by up to $400 a year for individuals and $800 for married couples, has gone largely unnoticed.
In a New York Times/CBS News Poll last month, fewer than one in 10 respondents knew that the Obama administration had lowered taxes for most Americans. Half of those polled said they thought that their taxes had stayed the same, a third thought that their taxes had gone up, and about a tenth said they did not know. As Thom Tillis, a Republican state representative, put it as the dinner wound down here, “This was the tax cut that fell in the woods — nobody heard it.”
Cooper points out, correctly, that the tax cut is invisible by design. Obama and his advisers feared that many taxpayers receiving a one-time rebate of a few hundred dollars would save some if not all of the money, which is great in normal times but lousy when the economy needs more consumer spending to revive growth. (Many economists believe this is what happened with the 2008 tax rebates.) With that in mind, Obama and the Democrats decided to cut taxes by reducing federal tax withholding, which meant the average family saw paychecks rise by $65 a month. People were far more likely to spend that money, thus stimulating economic activity, but they were less likely to notice it.
As Obama himself acknowledged in his recent interview with Peter Baker, for the Times Magazine, he takes a certain pride in following his policy instincts, notwithstanding voter perceptions. Whether the substantive outcome has been good, bad, or somewhere in between is obviously a matter of perception. While I’m glad Obama saved the auto industry, for example, I’m among those wondering why he hasn’t intervened more aggressively in this latest foreclosure mess.
But the political implications seem pretty clear. Obama gets a lot of blame for things he didn't do wrong and very little credit for things he did right. It's not the best place to be on the eve of midterm elections.
*The coffee shop owner was Jack Groot, owner of JP's Coffee and Espresso Bar. We don't see eye to eye on politics, but he's a nice guy and his shop makes very good coffee.
Update: I added a link to a New Yorker piece, by James Surowiecki, about the merits of spreading out the tax cut through withholding rather than giving people a one-time rebate. But I believe there are economists who disagree.