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What's the Matter with Obama's Kansas Speech?

You can't say the message of Obama's December 6 speech in Osawatomie, Kansas, should have been a surprise to anyone. After all, he's been beating the class warfare drum for much of his administration, and the idea of higher taxes on the rich to promote income redistribution is something he telegraphed as far back as the 2008 campaign, with his impromptu reaction in the famous Joe the Plumber incident. During the 2008 presidential campaign Obama also stated an interest in using the capital gains tax primarily as an instrument of "fairness" -- even if a rise in the rate would cause a decline in the amount of tax taken in.

In his Kansas speech Obama repeatedly mentioned this goal of fairness while blurring or ignoring the all-important distinction between equality of opportunity and equality of outcome as a measure of that fairness. Daniel Henninger of the WSJ pointed out that the speech was the sort of thing one could easily hear in Caracas or Buenos Aires, with its populist anti-rich message:

The Kansas speech was built around one concrete policy idea: that the rich and millionaires (officially still defined as families with before-tax income above $250,000) should send him more money so he can "invest" it. This single policy, if we heard correctly, will end high unemployment, raise middle-class incomes, put children through college, make America fair and defeat countries that pollute.

Actually, there were other policy ideas as well: that banks need more regulating or they'll cheat the middle class and the poor, and that consumers require more protection from the rapaciousness of lenders.

But it was less a speech about concrete policy proposals than one about promoting the vague and protean concept of economic "fairness" as the solution. Obama not only talked repeatedly about wanting to ensure fairness, he also warned us what "they" -- his unspecified, unnamed opponents -- would like to see instead. We may not know exactly who he's taking about, but we can safely assume they're Republicans rather than Democrats:

They want to go back to the same policies that stacked the deck against middle-class Americans for way too many years. And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules.

I am here to say they are wrong. I'm here in Kansas to reaffirm my deep conviction that we're greater together than we are on our own. I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules.

In the first paragraph, Obama's use of the phrase "stacked the deck against middle class Americans" implies that "they" have purposely discriminated against the middle class in order to cheat its members out of what is rightly theirs. In the next sentence he goes on to suggest that if "they" had their druthers, pure laissez-faire capitalism would be the order of the day.

Although eliminating all financial regulation is not what Obama's leading Republican opponents are actually suggesting, it does set up a nice contrast with Obama's next paragraph, which introduces the concept of fairness that is the heart of his speech. "Everyone gets a fair shot" sounds as though Obama is referring to equality of opportunity, something Republicans and conservatives favor. But "everyone does their [sic] fair share" is more potentially problematic, although it is seamlessly slipped in after the previous phrase and sounds deceptively like it.

But how can doing one's fair share possibly be determined? Is Obama edging close to the idea of "from each according to his ability, to each according to his need?" It's impossible to say quite what he means, which is no accident. And the same is true of the next phrase about everyone needing to play by the same rules.

From his speech, one would almost think that Obama is moving towards the imposition of a flat tax -- after all, that would seem to make the tax rules the same for all levels of income. But of course that's not what he's getting at at all. To Obama, what's "fair" for a poor person is the use of different rules (or at least different tax rates) than those for a rich person, a progressive rather than a flat tax.

By using the word "fair" or "fairness" over and over as though their meanings and the best way to achieve them are self-evident, Obama glosses over the quandary that every consideration of fairness in tax law presents. For example, is progressive taxation, which sets a higher tax rate for the rich, "fairer" because the rich can afford to pay more? And if so, then how progressive is progressive enough to satisfy the requirements of fairness? Also, is it fairer to allow the poorer segment of society to pay no income tax, or is it fairer to have its members pay something?

Or would it actually be "fairer" to have people of all income levels pay a flat tax that is the same percentage of whatever their income might be? And what about exemptions and loopholes? Is it fairer to eliminate them all, or just some, and if so which ones? How about taxing consumption rather than income? Is that too regressive a tax to be fair, even though it's equal? And what of dividends, which are taxed twice, once at the corporate level and once at the individual level? How fair is that?

In addition, there are the myriad practical considerations that should be factored into any decision about fairness. For example, the tax rate that is set for the last dollar of a person's taxable income (the marginal tax rate) is not the same as the rate that is actually paid (the effective tax rate), and this difference should be recognized. But later in his speech Obama purposely blurs the two by comparing higher marginal tax rates of the past (up to 90% for the highest brackets during the Eisenhower years) with lower effective tax rates of today -- apples to oranges. In so doing, he also ignores the enormous tax shelters that functioned to drastically lower the effective rate during those times of sky-high marginal tax rates and to encourage investment as well.

Any honest discussion of tax rates and fairness is inevitably complex, full of wonky charts and details that make most people's eyes glaze over, and about which liberal and conservative economists can argue nearly forever. Obama takes the easy way out by pretending that the issues have a simplicity and the answers a clarity that they lack, and that he is telling self-evident truths. But what he's really doing is pandering to a schoolyard mentality of envy that says, "It's not fair if other people have more stuff than I do; they must be cheating and they should pay me back" -- and that government's just the one to do it.