The Defining Issue of 2012 Will be Obama’s Debt Crisis

The 2012 political year is right around the corner, and the recent failure by the so-called “Super Committee” to reach agreement on $1.2 trillion in deficit reduction will re-cast the environment on Capitol Hill and shape the 2012 campaign.

With divided control of Congress, and a 60-vote threshold in the U.S. Senate, major Congressional action before the 2012 election is now extremely unlikely.

Congress always seems to need a deadline to make the members focus on the country’s business, and December promises to be a busy month. It’s likely that members of Congress will do the following:

  • Pass yet another temporary spending bill preventing a government shutdown on December 16;
  • Extend the popular expiring tax provisions (payroll tax, research and development tax, etc.); and
  • Fix the alternative minimum tax and the reimbursement rates for doctors in Medicare.

In recent years these actions have been taken each December before the end of the calendar (tax) year.

What has become clear this month, however, is that Congress cannot and will not take action on our trillion annual deficits, our $15 trillion debt, or pass legislation that will markedly improve the economy.

Now, little more than 11 months from the 2012 election, the governing period has prematurely ended, and the political season may begin in full swing, if it ever really ended after the 2010 election.

How will the Super Committee’s failure to produce a result effect the 2012 election? Here are five ways the country will feel the impact of the committee’s failure:

1. Congressional action is now effectively dead. Each year, Congress must do a few things to keep the country functioning. From now until the election next year, only the most mandatory business will be acted upon. That means action on expiring tax credits, temporary spending bills, nominations but little else. Capitol Hill will not be where the action is for the next year.

2. President Obama will blame Congress as he runs for re-election. Mr. Obama is facing a headwind in the form of a very weak economy and low job approval ratings. From a purely political perspective to run in 2012, he needed a villain. Now, the Obama campaign thinks they have one in the “dysfunctional Congress.”

Had the Super Committee voted out a plan that was then passed by Congress, President Obama could have hailed the Committee’s accomplishment as an achievement, but his campaign theme of running against the Congress would have been weakened. No matter. The Super Committee was designed to fail, and the White House knew it. Now, they can try to blame Congress for the deficit and the debt.

3. The Bush tax cuts will be a major issue going forward. Nothing fires up the left-wing of the Democratic Party like the Bush tax cuts. When President Obama agreed to temporarily extend them for two years in December 2010, the Democratic Party’s base howled in anger. Congressional Democrats appear single-mindedly focused on killing the Bush tax cuts once and for all. Ending them would result in the largest tax increase in American history, over $1 trillion, and that was the price for a deal in the Super Committee. Republicans were not willing to pay it. Expect to hear about this issue often on the campaign trail.

4. America is still facing record deficits and record debt. President Obama promised to halve the deficit by the end of his first term. He didn’t. In fact, the three largest deficits in American history (each over $1 trillion) are on President Obama’s watch. Without congressional action to reduce spending, which neither President Obama nor congressional Democrats want or would allow, the record deficits….

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  1. 16 trillion is coming!

  2. Everyone keeps talking about the debt committee failure, but there was no failure. The compromise was reached in the summer. The concept of a debt committee was a decoy to give both parties cover for agreeing to things their own party did not like. This way the parties can blame the parts of the compromise their constituents don’t like on the other party. Politicians are much smarter than journalists and voters.

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