Elections Matter: The President Will Get What He Wants
12:20 PM, Dec 10, 2012 • By IRWIN M. STELZER
There is an increasing feeling that if President Obama’s insistence on my way or the highway produces “a plunge over the fiscal cliff,” catastrophes will follow, not least being a downgrading of our credit rating. Perhaps. But consider the possibility that a deadlock might be a non-event. What we are facing is not a cliff, has very little to do with U.S. fiscal policy, and we are not about to see a “plunge.” A cliff, says my dictionary, is a steep rock face, especially at the edge of the sea. Made by Mother Nature, immutable, as in White Cliffs of Dover. The so-called fiscal cliff is made by man and can be eliminated as easily as it was created if enough politicians decide to do so. In any event, even if a deal is cut, it will not address the long-term fiscal problem faced by the U.S. Nor are we in danger of a plunge, in the style of Thelma and Louise. More a bungee jump, which is a leap from a high place while connected to a large elastic cord. Thrilling, rather like the current budget negotiations, but done right, nothing fatal.
We are witnessing a battle of two men—one fighting to preserve his ability to transform the American economy further, the other battling to keep his job. In one corner we have the president of the United States, who dearly wants to leave a legacy of a society in which incomes are more equally (not necessarily equitably) distributed, subsidized green energy sources replace a diminished production of fossil fuels, and the regulations implementing Obamacare and financial restructuring are in place. He needs the enthusiastic support of his increasingly leftish congressional party, but can no longer offer Democratic candidates coattails to which to cling when their election campaigns roll around in 2014. So he woos them by taking a hard line in the current negotiations.
In the opposite corner is Speaker of the House John Boehner. When the new Congress convenes in January, the increasingly conservative Republican majority can reelect Mr. Boehner, or replace him if the members feel he has conceded too much to the president. That constituency includes a large number of Tea Partiers who have pledged that they will never, ever raise taxes. Speaker Boehner has persuaded most of them that “revenue enhancement” achieved by plugging loopholes rather than raising tax rates is consistent with that pledge. That is as far as he can go. Most congressional Republicans would rather see the negotiations fail than concede the increase in the tax rate paid by higher earners, the very thing the president promised to impose during the recent campaign, and which he fervently believes is essential to “fairness.”
So to have any chance of getting his program through the Congress, the president must insist on the rate rise that might cost Mr. Boehner a trip to the backbenches if he, to use the word of his congressional colleagues, caves.
All of which makes it unlikely, although not impossible, that a deal will be struck to avoid triggering tax increases and spending cuts at year-end. Indeed, an increasing number of congressmen believe that this bungee jumping would be bracing. No matter: the effect on the economy of either a compromise or failure to reach one will not be very different.
In fact, the president holds all the high cards in this game. If no deal is reached, all taxpayers will face an increase in income tax rates—from the Bush levels of 10 to 15 percent for the lowest earners, and from 35 to an effective level of 43 percent for the highest. Taxes on capital gains will rise from 15 to 20 percent, and on dividends from 15 to as high as 39.6 percent. These increases to be accompanied by an additional Obamacare tax of 3.8 percent on the investment income of high earners.
That’s when the elastic ropes come in. The president immediately introduces a bill to lower tax rates to Bush levels on all but the high earners, and dares the Republicans to vote against it. Result: rates on high earners are up, rates on 98 percent of taxpayers are back where they started from. Campaign promise fulfilled, egalitarian ideology satisfied.
Recent Blog Posts