If Speaker of the House John Boehner is concerned about the fiscal cliff, then he is concerned about something the government has already accepted. That compromise was made in 2011. That fight does not have to be fought again.
The Republicans will face the prospect of a recession in 2013, but it will be a bipartisan recession. The Democrats voted for this solution, and Obama accepted it. The Republicans can point to the Democrats and blame them if there is criticism of the Republicans for not doing anything to change the tax code. It will be very difficult for Democrats to blame the Republicans for intransigence, when the changes in the tax code that will automatically begin on January 1 were already voted on by Democrats.
The Democrats want to maintain the existing level of federal spending. They want to do this by extracting more wealth from the rich. There’s nothing new here. It is business as usual for Democrats. The Republicans’ resistance to the suggestion is also business as usual.
Nothing that the Congress can do is going to solve the problem of the unfunded liabilities of Medicare, Social Security, and Medicaid. It is all kabuki theater. The on-budget deficit of $1 trillion is a bad joke. The real deficit is at least 11 times larger. There is no way to solve the problem of the unfunded liabilities of the federal government, other than by some form of default. Somebody’s goose is going to get cooked. Politically, it is not clear whose goose will be cooked, but somebody’s surely will be.
So, from this time on, Republicans will blame every downturn in the economy on Obama. There will be no way, from this point on, for Obama to point the finger at Bush. If the Bush tax cuts automatically go out of existence on January 1, we will revert back to the Clinton tax program.
At that point, Obama becomes a gigantic donkey, and the Republicans’ political task will be to pin the tail of recession on Obama. He will not be able to spend the next four years complaining that it is all Bush’s fault. Once the Bush tax cuts go out of existence, the resulting recession will be all Obama’s fault. He knows it, the Republicans in Washington know it, and the Democrats in the Senate know it.
This is why Obama is not in a good bargaining position. For the next two years, and possibly four years, he will not be in a good bargaining position. The Republicans hold the hammer. All they have to do is nothing; and whatever happens, at least if it’s bad, they will get to blame on Obama and the Democrats. When the Bush tax cuts lapse, we move back into Clinton territory.
If Boehner plays his cards right, he will be in the catbird seat. “Don’t blame us.” The Democrats have control of the Senate. The Democrats have control of the White House. The tax policies were invented by Clinton. The Republicans fought the tax increases that Clinton imposed on them. So, there is no way for the Democrats to get out of the line of fire. They are going to have to grin and bear it.
This, and this alone, is why Obama may be willing to accept a VAT. I hope he is not. The VAT is a devastating tax on business, and it will lead to increased unemployment. Coupled with the effects on businesses that Obamacare will impose on them, this will be the double whammy. Rising taxes and rising medical health insurance costs will combine to push the economy into recession.
I am not at all worried about the cuts in federal spending. The more austerity, the better, I say. The larger the cuts, the less Keynesianism. Keynesianism believes that federal spending is what holds up the economy. Keynesians come in many varieties, from conservative to radical, but they share this in common: they think federal spending increases productivity and therefore increases employment. Austrian school economists reject this theory of economic cause-and-effect.
From a political standpoint, the Republican Party is in an ideal position to reap the benefits of inaction. All they have to do to become political victors is nothing. If they sit tight, kick the can down the road again, refuse to raise taxes, and allow spending cuts to fall where they may, they will get to see Barack Obama twisting slowly, slowly in the wind. I think it couldn’t happen to a more deserving guy.
My fear is this: Republican Keynesians, believing that federal spending cuts are bad for the economy by accepting all the nonsense that austerity for the government means austerity for the economy, are going to stand on the sidelines and scream at the House of Representatives to make some kind of tax deal. The best possible tax deal politically for Republicans is no deal. The best possible tax deal politically for the economy is no deal.
What we need is a massive austerity for the government. But we are not going to get that in 2013.
Given the fact that we are not going to get massive austerity for the federal government, which is another way of saying a massive tax rebate to the American people, we should come out in favor of the status quo. The status quo will mean a large target on the backside of President Obama. The Democrats are in control of the White House and the Senate. There is no way that they are going to be able to get away with blaming the Republicans for doing nothing because the agreed-upon spending cuts and tax hikes were a bipartisan operation in 2011.
If Romney had been elected, then he would be the sacrificial lamb. He would be out there begging the Democrats to work some kind of deal. He would be the one trying to keep the tax hikes and the spending cuts from going into effect. He would be the political target. The best he could do would be to blame everything on the mess he inherited from Obama. Obama has played the Bush card for four years, but there is no way that he will be able to play it for the next four years.
As soon as real tax pain is imposed on the American voters, as soon as unemployment begins to move up, and as soon as the recession begins to wipe out pension funds, everybody’s eyes will turn (as always) to the savior state in Washington, DC. Voters will be demanding that the government do something, when the crisis that is upon them is the result of what the government has already done.
What is Obama’s fallback position? He cannot blame Bush for the next four years. He cannot blame Bill Clinton for the tax system that Clinton rammed down the throats of the Republican Party in the middle of the 1990s. He cannot blame Bernanke because no President has ever blamed the Chairman of the Federal Reserve. Presidents are allowed to blame other politicians for the evils of the age, but they are not allowed to blame the Federal Reserve System.
Obama has to have somebody to blame, but he has run out of plausible candidates.
Gary North blogs at Gary North’s Specific Answers, where this first appeared, http://www.
Photo credit: healthreformexplained.com/fiscal-cliff/