O Brother Where Art Thou and the State of the Union

President Barack Obama thinks he is Homer Stokes. Someone should explain that he is Pappy O’Daniel.

There is a scene in the movie O’ Brother Where Art Thou where Homer Stokes, running against incumbent Pappy O’Daniel for Governor of Mississippi, strides on stage with a broom in his hand and a little person (I was told this is the term I must use) by his side.

“The choice…she’s a clear ‘un.  You got Pappy O’Daniel…slave of the interests. And Homer Stokes…servant of the little man,” says Stokes turning to his little man.  “Ain’t that right little fella?”

Populism, as defined on Dictionary.com, is “anti-establishment or anti-intellectual political movements” representing or extolling “the common person, the working class, the underdog.”  While Homer Stokes’ populism was literal, President Barack Obama’s populism was subtler.

Obama’s rhetoric during his third State of the Union address, where he repeatedly invoked the concept of “fairness”, was certainly less populist than his speech in Kansas last month.  Then he described his opponents as subscribing to a philosophy that “we are better off when everybody is left to fend for themselves and play by their own rules.” And said:

Today, thanks to loopholes and shelters, a quarter of all millionaires now pay lower tax rates than millions of you, millions of middle-class families. Some billionaires have a tax rate as low as 1%. One percent.

That is the height of unfairness. It is wrong. It's wrong that in the United States of America, a teacher or a nurse or a construction worker, maybe earns $50,000 a year, should pay a higher tax rate than somebody raking in $50m. It's wrong for Warren Buffett's secretary to pay a higher tax rate than Warren Buffett. And by the way, Warren Buffett agrees with me.

On Tuesday night Obama invited Buffett’s secretary Debbie Bosanek to join him at the State of the Union.  And while his rhetoric was more subdued, his policies were no less populist.

Obama said tax reform should follow the Buffett Rule.  He proposed that if you make more than $1 million a year, you should not pay less than 30 percent in taxes. Meanwhile if you’re like 98 percent of American families, Obama said, your taxes shouldn’t go up, “You’re the ones struggling with rising costs and stagnant wages. You’re the ones who need relief.  Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.”

Let me explain to you why this is populism.  Obama could have called for wholesale reform of the tax code.  He could have called for reforming a tax code riddled with credits and exemptions and deductions and loopholes that benefit those who can navigate the morass…aka rich people with lawyers.  That would be fair.

Obama could have called for a discussion on the appropriate rate to tax investment income. We could then debate whether investment should be incentivized.  Because the capital gains tax rate is the reason someone like Mitt Romney has an effective tax rate of 15 percent. And it’s the reason so many rich guys supposedly pay a lower effective tax rate than their secretaries. That would be fair.

Or Obama could have even called for the end of the carried interest deduction – the tax loophole that allows hedge funds to classify their performance fees as long-term capital gains – thus taxed at 15 percent.  Even Mitt Romney, a beneficiary of the carried interest policy, has suggested he will reexamine the tax break. That would be fair.

But Obama didn’t do any of that. Instead he centered his message on the Buffett rule…a simple and trite message that…if you’re rich (defined as making more than a million a year) it feels like you should pay about 30 percent. That’s not a message designed to make the tax code fair or simple…it’s a message designed to emotionally satisfy the “common man”.

The sad thing is that although I disagree with his prescription, Obama pretty well diagnoses what’s happened in the economy over the last 30 years.  There was good stuff in the State of the Union: on Iran, military presence in the Pacific, and addressing the housing market, which is the cancer at the core of our economy.    There was more bad stuff in the State of the Union too, such as picking winners and losers in the economy from manufacturing to energy.  But all that will be drowned out by his populist rhetoric on taxes.

There’s a reason Obama’s State of the Union speech fell short of true reform and settled for merely populist.  And the reason is the difference between Homer Stokes and Pappy O’Daniel.

Later in O’ Brother Where Art Thou Mississippi Governor O’Daniel is lamenting that Stokes is winning in the polls.  O’Daniel’s campaign advisor (his son) says, “Well…he’s the RE-form candidate daddy. People like that RE-form. Hey! Maybe we should get us some.”

“I’ll reform you, you soft-headed sum bitch,” O’Daniel yells. “How we gonna run reform when we’re the damn incumbent!”

Obama is playing the populist card to convince you he’s the reformist Stokes. But in reality, he’s the incumbent O’Daniel.