There were lots of specific proposals in President Obama's State of the Union speech last night, and as it relates to fiscal policy, this passage contained one of the best:
To help working families, we will extend our middle-class tax cuts. But at a time of record deficits, we will not continue tax cuts for oil companies, investment fund managers, and those making over $250,000 a year. We just can’t afford it.
Economically, I don't think it makes sense to worry about the deficit until we are well on our way to economic recovery. Indeed, the best way to narrow the deficit is to grow the economy -- thereby increasing revenues.
Given that President Obama disagrees -- likely on both fiscal and political grounds -- it's good to see that he's not putting all his eggs in the discretionary domestic spending freeze basket. Over the long run, President Bush's tax cuts on the wealthy were reckless fiscal policy, and letting them expire must be part of any deficit reduction strategy.
Again, the best way to bring down the deficit is to strengthen the economy. But to the extent you are going to spend any cycles in 2010 worrying about how to bring the budget into balance, you can't just look at spending. You also have to look at revenues.
Over the past decade, Bush's tax cuts for the wealthiest 5% of Americans cost $1 trillion -- more than four times as much as the freeze proposal.
The fact that President Obama is willing to do both is a major difference between his approach to fiscal policy and that of Republicans like John McCain and Sarah Palin. His approach isn't perfect -- but it is better than theirs, by a wide mile.