December 8, 2012

Obama’s Fiscal Cliff Ultimatum: An Absence Of Leadership.

by Hal Gershowitz

Comments Below

 

 

The President obviously enjoys the swagger of campaigning, much more so, it seems, than the work of leading.  The season for campaigning, however, ended over a month ago. While the nation awaits deliverance from a financial crisis concocted by the Obama Administration (the so-called fiscal cliff sequestration), President Obama declares over and over again at one whistle-stop after another and one television sound-bite after another, what he will not agree to in any negotiations with the Republicans i.e. “I will not agree to any plan that does not raise tax rates on the wealthy, which he defines as any individual earning $200,000 and any family earning $250,000.

He seems to be daring the Republican majority in the House and their colleagues in the Senate not to capitulate.  In return for an immediate white flag from the Republicans on tax rates, Obama, essentially, claims he will discuss specific spending reductions, well, maybe sometime next year.  And just to punctuate his view of the mandate he thinks he bagged in the election, Obama is calling for White House control over the decision to raise the debt limit, a power constitutionally reserved for Congress.  But, let’s get back to the fiscal cliff.

So just what is it to which President Obama insists he will never agree?  Certainly it isn’t merely a plan that doesn’t raise tax revenue from the wealthy. The Republicans have, in fact, offered a simple and an efficient way to raise tax revenue from the wealthy, and it is through an alternative that makes it just about impossible to escape higher taxes through tax avoidance schemes. Simply cap deductions.

As we explained two weeks ago, capping all itemized deductions at $50,000 would yield $749 billion in extra revenue over the next decade (approximating what Obama had originally called for in his negotiations last year with Speaker Boehner). And what’s more, according to the liberal Tax Policy Center, 80% of such new revenue would actually be extracted from the top 1.0% of taxpayers.  Capping deductions at $25,000 would raise $1,286 trillion equaling the demand to which Obama had upped the ante when he reneged on his original deal with Speaker Boehner, and setting the cap at $17,000 would raise 1.747 trillion in new revenue, which is more than the $1.6 trillion ante the President is demanding in this newest round of political poker.

So what’s up?  The issue obviously isn’t merely about raising new tax revenue.  The Republicans have made extracting new tax revenue from the wealthy a no-brainer, having offered caps on deductions that would do the job very efficiently.  No, this is all about extracting new revenue from the wealthy in the manner that became the centerpiece of his re-election campaign.  That is, raising the tax rates on the income the top two percent earn.  This makes sense to only two groups of people in an economy as wobbly as ours; leftists who never saw a proposed tax rate hike (for those they consider wealthy) they didn’t like, and lawyers who make their living devising perfectly legal tax avoidance schemes for their wealthy clients.

The President has said he will not stand for tying an agreement to avoid the fiscal cliff to a deal to raise the debt limit. “That’s a game I will not play,” he told a group of business leaders last week.  Nice try, but that’s exactly the game the President is playing.  Let’s keep a few things in mind here.  When President Obama came to office public debt as a percent of GDP was a very manageable 44%.  Under his watch it now hovers around 70% of GDP thanks to one trillion dollar deficit after another.  That, of course, does not count the non-public debt such as that which the government owes to the Social Security Trust Fund.  Add that and other off-balance sheet debt to the mix and our true gross debt soars above 100% of GDP, well beyond the point that 800 hundred years of economic history teaches causes national economies to fall into decline.

The President, at this point, isn’t interested in serious negotiations. He seems to be having too much fun poking a piñata that has a remarkable likeness to Speaker Boehner.  President Obama sandbagged the negotiations on the so-called grand bargain last year after he and Speaker Boehner had a handshake on raising revenue by $860 billion by upping the ante to $1.2 trillion in a phone call to Boehner.  And once he had his re-election in the bag he, once again, upped the ante to $1.6 trillion.  He is already pocketing the increased revenue Boehner has offered through capping deductions and demanding higher tax rates on top of those revenues.  As for reducing spending, he says we can talk about that next year.

Then, of course, there is the matter of much needed tax reform.  Cool negotiator, our President. “Let’s let rates on higher-income earners go up and then let’s set up a process with a time certain at the end of 2013, or the fall of 2013, where we work on tax reform, we look at what loopholes and deductions both Democrats and Republicans are willing to close and it’s possible that we may be able to lower rates by broadening the base at that point,” he said.  Is there any Republican dumb enough to fall for that sucker bait?

Many Republicans are rightly apoplectic about the President’s super-charged demand for raising taxes on the top two percent because they understand what a dodge it is.  It has everything to with political posturing and nothing to do with sound economic policy.  Everyone agrees that the country needs to save about $4 trillion over the next ten years to stabilize our out-of-control debt.  Obama’s almost total focus on letting the Bush tax cuts expire on the top 2% would barely produce 10% of the needed savings.  Yet, that’s his total focus as the clock ticks on.

On one hand, the President acknowledges that Medicare and Medicaid expenditures must come down and must come down a lot.  He has acknowledged that these programs are the major drivers of our burgeoning deficits (and, by extension, our burgeoning debt).  But he and the Democrats in Congress insist that any savings must not affect benefits.  Hmmm.  How then can costs be reduced?  That’s an easy one to answer.  The 600,000 physicians in America who care for the nearly 50 million of our fellow countrymen (and women) who are on Medicare are going to have their payments for services slashed as will the hospitals and other healthcare facilities on which our seniors depend.  This is the inconvenient truth the President and his Democratic allies in the Congress simply do not want seriously to discuss.  Liberals scream about defense spending, but defense spending now has declined to less than 19 cents of every budget dollar, while entitlements spending has soared to 62 cents of every dollar.

Any fiscal plan that raises taxes but fails to cut the costs of entitlements, is simply no plan at all.  The President knows this. Yet he is expending all of his rhetoric at his bully pulpit posturing about his demands on the tax front, while he is utterly silent about any specific entitlement savings or cuts in discretionary spending. He is stubbornly sticking with the proposals in his fiscal 2013 budget, which Congress, including the Democratically controlled Senate, has already rejected.

Ironically, it is Speaker Boehner who is pleading for the very balance the President pretends he is demanding. Boehner has offered very serious tax revenue increases from the wealthy and is looking for something, anything, specific on spending cuts from the President. “Next year, we can talk about that,” is essentially Obama’s response. There is, however, a certain irony watching the President and various Democratic politicians strutting as defenders of the current tax rates for the middle-class that President Bush made possible in 2003 (in order to stimulate a weak economy) over the “nay” votes of nearly every Democrat.  In fact, if it weren’t for Vice President Dick Cheney casting the tie-breaking vote, the Senate Democrats would have killed the very middle-class tax-rates Democrats are fighting to preserve today.

President Obama is absolutely Orwellian in his newspeak in which he calls for a balanced approach, which he, so far, refuses to seriously entertain.  In our view, were the country to go over the fiscal cliff because of this political high jinks, the higher taxes and draconian and mindless budget cuts would cause a plague on both houses of Congress, and our elected representatives would learn, in short order, that the voters would, ultimately, attach blame to all incumbents and not just to Republicans.

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4 responses to “Obama’s Fiscal Cliff Ultimatum: An Absence Of Leadership.”

  1. mark j levick says:

    In 2010 Obama wanted all the Bush tax cuts to expire. Now he only wants tax cuts on the wealthy to expire. In the interim he has through Obamacare levied a new 3.8% tax on unearned income and seems to have no interest in extending the reduction in withholding. At no time has our President expressed any desire to balance the budget or to reduce the $16.283 trillion dollar Federal debt. It appears that having succeeded in polarizing the populous our President is focused on destroying the Republican Party who he is certain will be blamed for taking us over the fiscal cliff. His strategy is great politics but horrible government but as you have pointed out the man loves campaigning and hates governing. In this case being good at one out of two is not equivalent to batting .500 and it’s not just the wealthy who will pay the price for stroking Mr. Obama’s overinflated ego. We are over the fiscal cliff regardless but are about to turn a storm into a tsunami. Elections do have consequence.

  2. Janice Marcus says:

    I look forward each week to your article, and I particularly enjoyed this weeks. It answered some questions that I’ve had. I have a question that you didn’t addresss. If we accept the Boehner’s offer to cap deductions, how will that affect charitable giving? I’ve heard some discussion that it would really damage it. What do you think? Also, are you saying that the fiscal cliff is all made up? Now a comment, I agree, Obama does have a problem with negotiating, in the beginning of his career as President he came to the table with a compromise right off the bat! That didn’t work for him. Now he is trying something new which I think he got from the Republican play bill. Remember? Deductions? I’ll tell you what deductions after the election. Then they came up with the cap.
    Also, I think raising taxes on the upper two percent makes sense to more than the “leftist” every one that voted for him knew that was his
    Intention. Many of us that voted for Obama enjoy the fruits of the
    Bush tax cuts, and still see that right now,it’s time to do a little bit
    more.

  3. Seymour Kreshek says:

    The Republicans need to take the offensive. They should immediately pass “Bowles Simpson” in it’s entirety and put the President on the defensive. Alternatively, they could pass a three
    month extension of all the “Bush” tax cuts and state that there will
    be no revenue increases without spending cuts and entitlement reform.

  4. Iyablans says:

    Once again,this column has provided some very informative and valid facts and figures. Of course the country needs a serious overhaul of the entitlement establishment and a new approach to collecting taxes and revenues.Everyone seems to agree on that.It’s just unfortunate that the Republican party allowed itself to become or be perceived as the party of extremists and reactionaries..They lost the election because that is how a majority of americans saw the Republicans, represented by a parade of ridiculous and sometimes looney candidates. Held hostage by the tea party and the religious right,the GOP leadership failed to act responsibly so that they could effectively sell their fiscal policies.
    Allowing the imbecilic attacks on President Obama I.E…He’s a muslim,he was not born in America..etc…to represent the party’s philosophy was disastrous and turned many of the undecided from voting Republican in the election.
    Let us hope that Obama shows the leadership and magnanimity.
    that will allow the opposition to to help solve these vital fiscal issues.
    I believe he will.

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