BLOGS FROM SIDNEY

In the Mirror

Riley

Politicizing The Debt: Obama’s Re-election Gamble

Blog From
April 20th, 2011

Last Wednesday, President Obama took another stab at talking about the debt and what he plans to do about it. The next day, he kicked off his re-election campaign in Chicago. The timing of the two events was not coincidental and that’s unfortunate. It’s past time for this President to take the debt seriously instead of using it as a prop for his political ambition. Nothing makes that clearer than Standard & Poor’s downgrading its outlook on U.S. Treasury securities from stable to negative because of the debt crisis.

Obama’s speech was just another pitch to his base, reminding them that they all need to stick together through the 2012 election. And they loved it. Self-styled liberals gave the President high marks for defending the modern social welfare state. They praised his promise to end “unnecessary and wasteful tax-giveaways to the wealthy”. They delighted in his commitment to expand government spending.

Obama’s play to keep his base in line is a gamble the rest of us can’t afford. No viable economic model sustains his plan for debt reduction. The big revenue source in his proposal is, of course, increasing taxes on the rich. Today, he defines them as the top 2% of wage earners, couples making more than $250,000 annually. Effective in 2013, Obama would increase their tax rate by 4.6%. Typical of political posturing, the planned tax hike harms both the targeted taxpayers and the economy, while having no budgetary upside. It is simply pain without gain.

In 2008, the latest year for which figures are available, the top 2% paid $477 billion in taxes. Even tripling that liability would not zero out this year’s $1.6 trillion deficit, let alone touch the $14 trillion national debt. Obama’s tax line in the sand, rather than having any fiscal benefit, is just a touch of class warfare to get the re-election juices flowing.

Really balancing the budget by raising taxes requires significant rate hikes for all taxpayers not just the top wage earners. The top tier rate would go up from 35 to 88 percent. The middle tier would increase from 25 to 63 percent. And the lowest level would rise from 10 to 25 percent. This ugly truth underscores the fact that spending cuts, not tax increases, are the weapons necessary to slay the debt dragon.

The debt is intertwined with other bad economic news all of which makes Obama’s bid for re-election more of a crapshoot. The March unemployment rate stood at a very unhealthy 8.8%, relatively unchanged from the previous month and still well above Obama’s once promised limit. He’s not very good at forecasting favorable economic times or keeping a lid on bad ones.

A related issue is GDP growth. In order to make substantial improvements in the unemployment rate, it has to be sustained at more than 3% for several consecutive quarters. But, the last time we saw that happen the White House was barely a twinkle in Obama’s eye. Worse, predictions for this year’s first quarter GDP growth now fall in the 1.5 – 2.0% range, well below the 2.9% rate in 2010’s fourth quarter.

The reasons for the downturn are several: higher commodity prices, rising energy costs, weak durable-goods orders, a still bleak housing industry, flat wages, increased consumer savings, tightening fiscal policy, and reduced credit availability. So much for the staying power of 2009’s debt-ridden stimulus program, heralded by our President as the answer to our fiscal problems.

What should Obama be doing instead of politicizing the debt in order to rally his political base? He should be making the difficult choices that our current fiscal horror show requires. Like it or not, this means Ryan-deep spending cuts. We’ve suffered through more than two years of the President’s political pandering and social engineering. He should give capitalism at least the same amount of time to get us back on our feet. Refusing that play is a sucker’s bet.

See you in the mirror.

 


 





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