Monday, October 22, 2012

Obama rejects compromise to avoid fiscal cliff

Obama Administration officials recently confirmed that President Obama is prepared to veto any legislation addressing the looming “fiscal cliff” that does not accede to Mr. Obama’s demands for tax increases on upper-income Americans. The “fiscal cliff” is a bundle of tax hikes scheduled to take effect on January 1, 2013 unless Congress and the president take action.

On October 17, the Washington Post reported that the president’s plan is to wait until after the election, which he presumes he will win, and use his victory to force the Republicans to agree to tax hikes. Since they took control of the House of Representatives in 2011, the Republicans have allied with the Tea Party to resist calls by President Obama and the Democrats to raise taxes to pay for increased federal spending and deficits.

The congressional stalemate led to the creation of a deficit commission that called for spending cuts paired with tax and entitlement reform. Congress never enacted its own program of cuts so a package of automatic across-the-board spending cuts and tax increases is now very close to taking effect. In addition to dramatic increases on a number of taxes, deep cuts to defense spending and social programs will also take place.

In 2009, President Obama said, “You don’t raise taxes in a recession.” In a Youtube video of the question and answer session, the president continues, “We have not proposed a tax hike for the wealthy that would take place in the middle of a recession…. That would just suck up, take more demand out of the economy and put businesses in a further hole.”

While the recession is technically over, many Americans still feel that the recovery has not yet begun in earnest. Economic growth is barely above one percent and estimates are frequently revised downward after they are issued. Unemployment has ticked down officially, but is still almost eight percent. The poverty rate is up, income is down, and fewer Americans are working now than when Mr. Obama took office. Few would argue that the economy is at a point where it can sustain taking “more demand out of the economy.”

Tax increases in the current economic environment, especially tax increases of the size and scope now being threatened by President Obama, would almost certainly plunge the economy back into a deep recession. The prospect of these tax increases is a large factor in why the economy is not recovering as well as it should. Businesses are waiting to see what will happen over the next year.

The tax increases are not a panacea for the federal government’s debt and spending problem. A report by the Tax Policy Center, a group affiliated with the liberal Brookings Institution, says that President Obama’s proposal “not nearly enough to close the cumulative budget deficit.” This is because the biggest cost from extending the current, Bush-era tax rates comes from protecting the middle class from tax increases. Preserving the upper-income tax rates would only cost an additional $8 billion according to the Washington Post. These figures also do not reflect the negative economic effects of increasing taxes which often lead to lower than expected tax receipts.

Writing in the Washington Times, Rep. Darrell Issa (R-Ca.) pointed out that even confiscating all of the income from the wealthy would not solve the federal spending crisis. “Even if the president took 100 percent of every millionaire’s income,” he says, “that still would leave a deficit of more than a half trillion dollars, and our national debt would remain at more than $15 trillion.”

President Obama’s insistence on tax increases may be his undoing. The economy is unlikely to improve under the threat of tax hikes and Mr. Obama is unlikely to be reelected unless the economy improves. Rasmussen reports that voters favor Mitt Romney over Obama on the economy by 13 points. After the first debate which dealt largely with economic issues, Mitt Romney surged in the polls nationally.

Even if President Obama loses the election, he can still force tax increases on the American people. Since a new president and congress will not be inaugurated until January, the tax hikes and spending cuts will already be law unless Mr. Obama allows them to be stopped in a lame duck session. Chastened by a defeat at the hands of Mitt Romney, it seems that President Obama would be unlikely to make that concession.

This article was originally published on

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