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Spend Spend, Elect Elect, Tax Tax

The White House debt strategy.

Jul 25, 2011, Vol. 16, No. 42 • By STEPHEN F. HAYES
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At a press conference early last week, Barack Obama used the first question posed to preempt another that he was certain to receive. In the summer of 2009, Obama had explained at some length that raising taxes in an economic downturn was “the last thing you want to do” because doing so would “put business further in a hole.” And yet two years later, with economic growth grinding to a near halt and unemployment once again climbing, negotiations over raising the debt limit were breaking down largely because of the White House’s insistence on tax hikes in any deal that cut spending.

Political Poker Game Picture

Thomas Fluharty

The contradiction wasn’t quite as glaring as it seemed, Obama insisted last week, because the tax increases he was talking about now​—​more than $1 trillion worth​—​wouldn’t kick in until 2013. The president left two things unsaid, one on economics and one on politics. The unspoken economic assumption behind the president’s argument is that while times are tough now, things will be humming in 2013​—​with growth strong enough to withstand the new taxes he wants to levy. That’s optimistic. The International Monetary Fund projects U.S. growth of 2.5 percent in 2011, 2.7 percent in 2012, and 2.7 percent in 2013​—​not exactly robust. And those projections came before the recent “soft patch” started looking more like a longer downturn.

The greater significance of that date is political. The tax hikes he wants would hit two months after the 2012 elections, which is to say, after Obama had faced voters for the last time and, quite possibly, just as his successor takes over.

Happy coincidence?

No. Everything the White House has done in the debt limit fight it has done with an eye toward the president’s reelection. As important as whether he eventually got a “grand bargain” was how the president positioned himself throughout the process in the eyes of the electorate. And while we do not know the details of a final deal, if there is to be one, we do know one thing: Obama won this round. And Republicans helped him.

The big question is whether he won a short-term victory or one with consequences that will last through the 2012 elections. Obama’s political team is doing everything possible to ensure that it’s the latter​—​trying desperately to link the fight over the debt ceiling to the flagging economy. Bill Burton, former deputy press secretary at the White House, left to run Obama’s SuperPAC for the 2012 campaign. On July 9, he wrote: “If our nation defaults, economists say there could be a double-dip recession​—​all because of Republican obstruction.” This is the key White House objective​—​to somehow pin blame for the sorry state of the economy on Republicans. It may not be plausible yet, but if the markets do grow unsettled by the debt limit debate, you can be sure the media will take up this White House talking point with a vengeance.

A month ago, Republicans were growing increasingly confident about their prospects for a good year in 2012. Obama’s approval ratings were below 50, his marks for handling the economy were abysmal, his numbers on debt and deficits even worse.

And beyond the president himself, the political environment was toxic for Democrats. Perceptions of the economy were overwhelmingly negative. Views about the prospects of enduring American economic strength were pessimistic. The all-important right-track/wrong-track number was awful for the incumbent president and his party.

Even worse for the White House, Obama had exacerbated his own problems. When the May jobs report showed the pace of hiring had slowed, Obama spoke with the detachment of an economics professor, not the compassion of a concerned leader (or even the phony empathy of a slick politician). He called the report a “bump in the road.” Later, at an event designed to highlight his administration’s work on job creation, Obama laughed about the lack of “shovel-ready jobs” in the stimulus.

Congressional Republicans, despite the ceaseless attacks on their embrace of real entitlement reform, were viewed more favorably than congressional Democrats. And in front of them lay an opportunity that would allow them to follow through on the mandate they’d been given in the 2010 elections: the battle over the debt ceiling.

Virtually every poll on the issue showed overwhelming opposition to raising the debt ceiling, and Republicans were entering the debate with what should have been a decided credibility advantage over the White House. Obama had done nothing on debt in his first two and a half years in office other than expand it​—​with a stimulus of nearly $1 trillion, a new middle class entitlement in Obamacare, a 2012 budget that would add $7.2 trillion in new debt, and a stubborn refusal to do anything at all to reform the entitlement programs that are the main drivers of our current crisis.

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