Fiscal Cliff: Obama has “put a pistol to the head of the middle class”

I understand that economist Peter Morici’s metaphor is politically incorrect in the aftermath of Sandy Hook (my apologies to Piers Morgan), but that’s exactly how this farce taking place in Washington looks to me, too. The fiscal cliff “negotiations” have devolved into nothing more than a debate over how high to raise taxes. There’s not even any talk about spending cuts or deficit reduction, which is what sequestration was supposed to be about. Obama simply wants to raise taxes on productive Americans and shower more of his cronies with the proceeds via another stimulus plan, presumably because his 2009 Porkulus plan worked so well. Even if there are no negative dynamic effects from raising taxes (as liberals claim to believe), and all the proceeds are used for deficit reduction, the effect on the growth of the national debt will be imperceptible. But that’s the pie-in-the sky scenario as Obama has no intention to address the deficit.

So now we’re about to go over this contrived “cliff” and a massive tax increase will hit everybody because, as Morici notes, Obama has a pistol to our heads. That taxes will go up has been guaranteed ever since Congress, in their infinite wisdom, put an expiration date on the so-called Bush tax cuts. (Why don’t politicians ever put a sunset provision on tax increases?). There’s never been anything Republicans could do to stop it. Honestly, I don’t understand their “strategery”.

If we go over the cliff, Obama will almost certainly introduce a “tax cut” bill for everyone making under $250,000 — call it the Obama Middle Class Tax Cut — and the Democrat Party will look like the party of lower taxes that saved the middle class from Republican tax hikes. Think about that. I don’t see a realistic way out of this predicament for Republicans. The best they can do is accept Obama’s bare-boned plan of a permanent extension of tax rates for those making under $250,000 and some unemployment spending, publicly announce that they’re giving Obama what he wants, and vote “present” on the bill.

This will achieve several useful results. First, by accepting Obama’s plan, and publicly acknowledging their capitulation, Obama will own the mess that follows. No deficit reduction will occur. Entitlements, absent meaningful reform, will continue careening down the path to bankruptcy. The country’s credit rating will get downgraded again. This will all be on Obama. His ludicrous claim that raising taxes on a few productive Americans while continuing to spend like a drunken Democrat can solve the country’s fiscal crisis will be exposed for the utter lie that it is. Obama’s tax increases will weaken an already weak economy. Indeed some economists believe we’re heading into a recession regardless of what happens with the fiscal cliff. If so, the recession will be even worse, and deficits even higher than they’re already projected to be as government countercyclical spending explodes. Again, this will all be on Obama.

If Republicans publicly agree to Obama’s “plan” to save the economy from the fiscal cliff, Obama won’t be able to blame Bush or GOP obstructionism anymore, though I’m sure he’ll try. By voting “present” rather than “yes”, Republicans avoid voting for tax increases on anyone and keep their fingerprints off Obama’s plan: they didn’t vote for it, but in the name of “bipartisanship”, they allowed it to be voted on. They opposed Obama’s plan, but demonstrated deference to the newly re-elected President. Or something.

The threat of a massive middle class tax hike via the fiscal cliff has been very useful for Obama. He’s been adept at leveraging this threat, with the assistance of his friends in the Obama media, to extort concessions in his negotiations with Congressional Republicans. Obama’s “pistol” has not only been pointed at middle class taxpayers as Morici notes, but at Congressional Republicans as well. Once those middle class tax cuts are extended, Obama’s pistol will be out of bullets. With the specter of being blamed for a middle class tax hike removed, Republicans will be emboldened in future negotiations with Obama over issues such as the debt ceiling and stimulus spending. Obama doesn’t need Republicans to raise taxes in about 12 hours, but he’ll need them for virtually everything else he wants to do, and they’ll be in a much stronger position.

When Obama’s tax increases on productive Americans wreck the economy, sooner or later he’ll come to House Republicans to ask for more stimulus spending, and he’ll be holding no cards. If this works out as I believe it will, the 2014 mid-terms will make 2010 look like a walk in the park for Democrats. The economy will be worse, the fiscal outlook will be even more dire, entitlements will be two years closer to bankruptcy, and the six-year itch will be a factor. What looks like a short-term loss for Republicans can turn into a long-term victory of much greater magnitude if Republicans take the long view. A big if, I know.



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