Obama's dilemma, evident in his State of the Union, is that the progressives, who were indispensable to his victories over Hillary, now feel betrayed, especially with apparent abandonment of health insurance reform, while conservative Democrats and independents, who were indispensable in giving Obama his November victory, are angry and alienated and disposed to vote Republican to stop what they see as America's plunge into socialism.
The non-negotiable demands of these two essential elements of Obama's coalition are in irreconcilable conflict. Obama tried to mollify both in his address to Congress by emphasizing aspects of his agenda that appeal to each. Thus the progressives were promised an end to the "Don't ask, don't tell" policy on gays in the military, while Tea Party and town-hall activists got a partial freeze on federal spending and promises of nuclear power, clean coal and offshore drilling.
Obama's problem: He can end up satisfying no one and angering everyone. John McCain has already denounced Obama's call for open homosexuality in the military, a position that will resonate with Middle America, while House Democrats are appalled the Pentagon will be exempt from budget caps imposed on social programs.
Arthur Laffer has pointed up the burgeoning crisis Obama and the progressives confront. Today, state, local and federal government spending consumes 38 percent of the gross domestic product. Federal spending alone is 27 percent.
"If you total what the government takes in the income tax, corporate tax, Social Security taxes, capital gains taxes," says Laffer, "all of that adds up to $2.2 trillion in tax receipts, and they spent $3.5 trillion."
In 2009, we had a deficit of $1.4 trillion, 10 percent of GDP. The most conservative estimate for this year is a deficit of $1.35 trillion, more than 9 percent of GDP.
With the public debt surging as a share of GDP, and talk of a debt default by the United States, how can Obama create or expand the social programs as progressives demand? And with the deficit running above 9 percent of GDP, how -- even if the economy starts to grow -- can you close this without raising taxes from 18 percent of GDP to 22 percent or 23 percent? That would be an added tax hike of $560 billion to $700 billion -- a year.
That kind of hit on the private sector could kill a recovery, just as Herbert Hoover and FDR did in the early 1930s.
Obama has a problem -- and so do we.
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