Angry Obama Demands Tax Increases or No Deal
Friday, 22 Jul 2011 07:34 PM
U.S. Obama's intransigence forced House Speaker John Boehner to break off talks with him on Friday regarding a deficit-reduction deal to prevent a devastating default. Boehner said he would try to hammer out an agreement directly with the Senate. In a dramatic turn of events with the deadline to raise the U.S. debt ceiling just 11 days away, in an effort to shift the blame to Boehner, a frowning Obama expressed frustration at the Republican leader's move, saying it was "hard to understand why Speaker Boehner would walk away from this kind of deal." However, he did not provide any of the details of his deal but it is apparent that it did not include a balanced budget amendment which is the only long term solution to America's financial problems. An amendment could be written that would provide for national emergencies if certified by a 2/3s vote in both Houses of Congress. The amendment should be a no-brainer. But Obama doesn't want any action that would put a crimp his future spending plans, especially a Constitutional amendment. Yet a Constitutional amendment is the only way the tax, spend and borrow Democrats can be restrained.
Boehner, in a letter to fellow lawmakers, said he and Obama were unable to reach agreement on a broad deficit reduction package they had been negotiating and that the two "had different visions for our country."
A deep divide over tax revenue was at the heart of the collapse in negotiations, which derailed an effort to craft a sweeping $3 trillion deficit-cutting plan that now seems beyond reach. Both sides blamed the other for the impasse. Clearly, the answer is a $4 trillion deficit reduction plan coupled with a balanced budget amendment and expenditures capped at 18% of GDP. When our economy starts to roll again, the GDP will grow and will enable a reasonable level of government expenditures.
What the GOP needs to realize is that at the end of 2012, the Bush tax-cuts will expire in their entirety. Its objective at this time should be to trade tax increases on the super rich for permanency on the other tax cuts coupled with a balanced budget amendment. The graph above clearly shows the major causes of the high debt to GDP ratio to be the Bush tax cuts and the wars in Iraq and Afghanistan. There is no exit strategy for either of the wars that will not amount to cut and run. Although the Bush tax cuts play a prominent role in the debt to GDP ratio, there are few who advocate the repeal of all of them and it is not clear to what extent the repeal of the tax cuts for the super rich would solve the problem or reduce the amount attributable to the those tax cuts.
With the Aug. 2 deadline fast approaching for Congress to increase the $14.3 trillion debt ceiling, Boehner said he would begin talks with Senate leaders to "in an effort to find a path forward." An aide said a deal needs to be set by Monday. The minimum must be as stated above if the Democrats want a deal by that time.
CLOCK TICKING
"We have now run out of time," Obama told reporters. He insisted he had made an "extraordinarily fair" offer to Boehner but when the Republican stopped returning his calls on Friday it became clear that he would not accept it. This suggests that the offer was not "extraordinarily fair." Show us a balance budget amendment and $4 trillion in debt reductions over ten years then maybe we can talk about fairness.
The president said he was summoning Democratic and Republican leaders to the White House on Saturday in a last-ditch effort to find a path forward on raising the debt limit.
Failure to act could push the United States back into recession and unleash global financial chaos. What explains the President's and the Senate's intransigence at this the eleven hour?
Obama warned that failure to reach an agreement on the debt ceiling would also increase the chance of a harmful downgrade in America's top-notch credit rating. Our credit rating may also suffer if the deal fails to provide for a $4 trillion debt reduction over ten years and the long term solution represented by the amendment.
Putting the onus on Obama, Boehner said: "The president is emphatic that taxes have to be raised. As a former small businessman, I know tax increases destroy jobs. I'm not sure that is correct if the tax increases are limited to individuals rather than job-creating businesses.
Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion in assets, told Reuters: "If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already-fragile health of both the US and global economies."
The rancorous breakdown in talks came after Obama earlier Friday said he was prepared to make "tough choices" for a sweeping deficit-reduction deal to avert a default, despite Democrats warning him not to make too many concessions. The Democrats apparently want to see a default rather than see any of their favorite forms of government largess impaired.
The Democratic president at the time appealed for compromise by both parties as he and Boehner, the top Republican in Congress, pursued a plan for up to $3 trillion in spending cuts. How much can we wring out the super rich in tax increases? What loopholes can be closed without damaging the prospects for job creation? Can we raise the taxes on super rich individuals but not on the job-creating businesses? These are the questions both sides should be addressing.
Obama had faced increasingly vocal complaints from his own Democrats on a deal-in-the-making that could mean painful curbs in popular health and retirement programs but no immediate increase in taxes. There is a precarious balance between cuts and tax increases on the one hand and our fragile economy on the other. The timing of both may be critical to the recovery. Apparently the Democrats don't understand this. They could begin by postponing any Obamacare benefits until the date on which the related revenues are supposed to kick in. They could begin by eliminating all special interest appropriations for subsidies to ACORN, La Raza, agri-business, absentee farmers,etc. They could begin by making the Bowles-Simpson recommendations a matter of law.
Republicans have refused to accept a deal for raising the debt limit if it includes revenue increases. This is a mistake as long as the tax increases are limited to the super rich hedge fund managers and others.
Attention now turns to the Senate, where negotiations are likely to resume on a convoluted plan put forth by Republican Senate leader Mitch McConnell that intended as a fallback option if all else failed. That plan is not worth the paper it is written on unless it is coupled with $4 trillion in debt reduction and the amendment.
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