Obama's Playing a Game of Chicken With the Economy

Posted: Nov 30, 2012 12:01 AM
Obama's Playing a Game of Chicken With the Economy
It is clear by now that President Obama and House Speaker John Boehner are not going to work out a full blown deal on taxes, spending and entitlements by the end of this month.

The task before them and Congress is so fraught with fiendishly complicated and politically-charged issues that the idea that a couple of people behind closed doors can come up with a broadly acceptable solution is laughable.

In fact, I'm going to go out on a cliff on this one (no pun intended) and say that there will be no final disposition of these thorny issues, known as the "fiscal cliff", until next year. Wrapping up a grand, multi-trillion dollar compromise bill in four weeks or so wasn't in the cards to begin with, and the two most important people needed to do this sent out a number of signals that they were in no rush to meet this or any other deadline.

Since the president met with congressional leaders in a post-election love-fest, pledging they were ready to work together to avoid a fiscal leap into the abyss, Obama and Boehner haven't met in two weeks. And it is reported they haven't even talked on the phone for at least a week.

Even Erskine Bowles, the Democratic co-chairman of the president's deficit-reduction commission that proposed a sweeping tax and spending reform plan to steer clear of the cliff now doubts anything will get done before the clock strikes 12 on New Year's Eve.

"It would be insane to breach this fiscal cliff, yet I think there is only a one-third possibility we'll actually get something done before December 31," Bowles confessed Tuesday at the Christian Science Monitor's newsmakers breakfast forum. "There has been no serious discussion yet about entitlement reform."

"Am I optimistic? No, but I am hopeful." he told reporters as he left a meeting in the Capitol with Boehner and other House Republican leaders this week.

The compromise Budget Act of 2011 requires Obama and Congress come up with a $1.2 trillion deficit-cutting plan for the next decade by year's end. If not, $100 billion or so will be automatically cut from defense and domestic (non-entitlement) programs on Jan. 1.

Quite frankly, if Congress can't find $100 billion in cuts in a waste-ridden, inefficient, over-staffed $3.5 trillion budget -- absent serious defense cuts -- they are not really trying.

But Obama is threatening to veto any deal that does not significantly raise tax rates on investors, small businesses and other sectors of our economy.

For his part, Boehner has sketched out part of a plan to deal with the revenue side of the equation that would raise the tax flow into the Treasury by getting rid of dozens of exemptions, credits, deductions and other loopholes that will broaden the revenue base in order to lower tax rates on individuals and corporations to boost economic growth.

Obama, who still doesn't know how to balance a budget, keeps saying the "math doesn't add up." But the tax code is filled with tax preferences worth trillions of dollars over time, without touching the holy grail of tax deductions for mortgage interest and charitable contributions. It was done in the Reagan tax reforms of 1986 that slashed the top tax rate to 28 percent.

Obama often talks about standing his ground on raising the two top individual tax rates and the White House has threatened to let all the Bush tax cuts expire if he doesn't get his way. That will raise taxes for every American -- lower, middle class and upper income alike -- including the 10 percent tax rate for those in the lowest income bracket.

But Boehner feels his good faith compromise on raising new revenues by reforming and simplifying the tax code is as far as he and his party are willing go. "We're willing to put revenue on the table as long as we're not raising rates," he told reporters this week for the umpteenth time.

There is new evidence that a majority of Americans favor Boehner's approach. A national poll by the Winston Group, a Republican research firm, found that 65 percent of the Americans surveyed favored a plan to boost tax revenues that ends "special interest tax loopholes and deductions commonly used by the wealthy" rather than one that raises tax rates on "Americans earning more than $250,000."

The frightening fiscal cliff and tax cut expiration deadlines that we face are a creation of Congress that was agreed to by Obama who signed them into law. He agreed to extend all the Bush tax cuts at the end of 2010, including the top rates, for two more years because the economy was weak and unemployment was hovering over 9 percent, despite his $800 billion "stimulus" plan.

Well, unemployment remains at 8 percent, or more if you count part-timers who can't find full-time jobs, and the economic growth rate this year is averaging a mediocre 2 percent that insures high unemployment will persist for the foreseeable future. The Obama economy, economists agree, remains sluggish.

But Obama is obsessed with increasing the tax rates on investment in a severely under-capitalized economy and on small entrepreneurs who are the largest job creators.

Higher tax rates have been his all-purpose prescription for just about everything: Unemployment? Raise taxes. Weak economy? Raise taxes. Yearly trillion dollar deficits? Raise taxes.

When the history of Obama's presidency is written, it will be known as "The Age of Uncertainty." That is the legacy of his policies in a sputtering economy. Businesses are keeping their cash on the sidelines because they do not know what next year will bring. Medical device makers are laying off thousands of workers in anticipation of higher tax costs under Obamacare. Millions of Americans are getting letters announcing their health care premiums are going up next year.

As for the fiscal cliff, no sweat. Congress can extend all the tax cuts before the end of the year and rescind the automatic budget cutting deadline, giving lawmakers time to fashion the tax, spending and entitlement reforms that are needed to keep America from tumbling into insolvency.

But will Obama agree to sign such a stop-gap bill, or will he continue to play an obsessive, ideological game of chicken that threatens to send our economy into another recession?