Deficits Soar To Obama-like Levels

Once upon a time, there was a country that spent too much. This country had the largest economy on the planet and took in trillions of dollars from its citizens in taxes, but every year it went deeper into debt because it always spent more than it took in. The overspending created a monster called “the national debt.” This went on for years and years and both of the ruling groups pretended to care about the overspending, but no one ever did anything about it.

For years, the federal budget deficit was relatively small and only caused the national debt to grow a little every year. Even then people worried about both. Then, about 40 years ago, the deficit got bigger and the national debt started growing by leaps and bounds.

Things really got bad after an enemy attacked the country. The government had to borrow money to fight the evil people that had murdered thousands of its citizens. The war lasted a long time and the national debt had doubled in short order.

As the threat of war receded, the country went into a financial crisis. The country’s new leader decided that the answer was to throw money at the problem. His spending increases caused the largest deficits that anyone had ever seen and pretty soon the national debt had doubled again.

After the financial crisis, a brave knight came to the king and said that spending was at dangerous levels. When the knight confronted the king, they finally were able to come to an agreement that cut spending for the first time in the reigns of many, many leaders.

But, alas, the spending cuts didn’t last long. And the knights never slayed the deficit. They only made it smaller for a little while. Pretty soon, both the deficit and the debt started growing again.

A new king soon came to power and, despite the fact that there was no war or financial crisis, the new king quickly grew the deficit back to levels that it had only seen during national emergencies under the old kings. The national debt looked like it might double again during the new king’s reign but this time no one was worried. In fact, one of the knights who had fought the deficit years before now said that no one had ever really worried about the deficit at all!

I wish I could say that this story has a happy ending where “they all lived happily ever after,” but obviously this is not true. This story doesn’t have an ending yet and this year the deficit monster is going to be as big as ever, feeding the national debt to levels that are unprecedented during peacetime with a good economy.

The sad truth for Americans is that the Republicans who valiantly fought the deficit during the Obama years, now don’t seem to care about it. While most Republicans are merely silent about the deficit, which will exceed $1 trillion this year, the highest point since 2012, none other than Rush Limbaugh has now embraced the once-liberal position that deficits don’t matter.

Responding to a caller last month who argued that President Trump was not a “fiscal conservative,” Rush responded, “Nobody is a fiscal conservative anymore. All this talk about concern for the deficit and the budget has been bogus for as long as it’s been around.”

Rush is wrong. There are many of us who are still fiscal conservatives and whose concerns about the deficit were genuine from the beginning. We may not hold office, but we do vote.

The unpleasant truth for Republicans is that Donald Trump is worse on the deficit than either Barack Obama or George W. Bush or any prior president. Trump’s deficit is going to rival the worst years of Barack Obama and be worse than that of any other president. This is without the excuse of a war or the Keynesian excuse of needing deficit spending to overcome a financial crisis. In the US today, deficit spending is the rule regardless of what is happening in the economy or the rest of the world.

To be fair, Donald Trump did inherit much of the mess. The largest part of the deficit is driven by mandatory spending on entitlements that Congress and the president don’t control on an annual basis. In the 2019 federal budget, Social Security, Medicare, unemployment, and health spending account for more than 60 percent of federal spending. In contrast, defense spending (including veteran’s benefits) makes up only 20 percent. Interest on the federal debt accounts for almost six percent by itself.

But Trump has made the problem worse. Under President Trump, federal spending reached a record high. This is partly due to increases in mandatory entitlement spending, but it is also due to increases in discretionary spending championed by Mr. Trump. Earlier this year, the president proposed a record $4.7 trillion budget, which would increase federal spending by almost a trillion dollars over the current year. The proposed budget cuts some programs but includes a big increase in military spending.

The Trump Administration has also hurt the income side of the deficit equation. Tax reform slashed corporate income tax rates, but, despite this, tax revenues are at a record high. They are not, however, as high as they would be in a growing economy if the tax rates had been left unchanged.

The theory is that the lower tax rates would help to grow the economy and to some extent that has been true. The theory did not account for President Trump’s tariff war, however. President Trump’s increases to tariff taxes have offset the benefits of tax reform for millions of American individuals and businesses. The higher the tariffs go, the more they are a drag on the economy.

Mr. Trump’s economy has not yet achieved his target growth rate of three percent per year. Despite achieving three percent growth in several quarters, Donald Trump’s annual growth rates average worse than Barack Obama’s. This is due in large part to his tariffs.

The best news for Republicans is that Democrats would probably be worse on deficits and the debt. With a number of Democrats proposing giveaway programs like free college tuition and Medicare-for-all, there is no political home for deficit hawks. Neither party really wants to cut spending. They just want to cut spending on the other side’s priorities so that they can shift tax dollars to their own programs. Meanwhile, politicians on both sides of the put on an Alfred E. Neuman grin and say, “What? Me Worry?”

The bad news for us all is that the overspending, particularly that of Barack Obama and Donald Trump, have boosted to the national debt to 104 percent of GDP. No one knows how such a high debt level will affect the world’s largest economy and the holder of the world’s reserve currency.

What we do know is that the high debt level restricts the number of tools that the Fed has to deal with future recessions and economic problems. For example, with interest rates at near-zero, there is little room to reduce them further to goose the economy. If the Fed raises interest rates, the deficit will go up as the government’s interest payments on the debt increase. The flip side is that low interest rates come at the cost of discouraging saving and investment.

Do deficits matter? We are about to find out.

Originally published on The Resurgent

How Tax Reform Could Hurt Charitable Giving

It is almost axiomatic that any government policy, however well-intended, will be subject to the Law of Unintended Consequences. This maxim holds that any action, especially those mandated by government, will have effects that reach beyond its intended purpose. One of the unintended consequences of the new tax reform law may be a detrimental effect on charitable giving.

Like many Americans, I was not fully aware of the effects of tax reform until I did my taxes. One of the most visible changes for individual filers is the increase to the standard deduction. Under the new rules, the standard deduction was almost doubled, increasing from $6,350 to $12,000 for single taxpayers and from $12,700 to $24,000 for married couples filing jointly.

In practical terms, this means that I had a pile of receipts that I didn’t need since the standard deduction was worth more than my itemized deductions. In most respects, this is a great thing for taxpayers because it simplifies preparing for and filing your taxes. In most cases, filling out a tax return is going to be as simple as filling out your income and taking the standard deduction.

Nevertheless, it did leave me wondering about how the change would affect charitable giving. Many people give to charities to get the tax deduction. The logical question is if people don’t get a tax benefit from charitable giving when they take the standard deduction, will they continue to give to charity?

Giving to charity to save on your taxes was never really quite as good an idea as many people thought. This is because in the past charitable donations counted as a tax deduction rather than a tax credit. This means that donations only affected the amount you paid in taxes indirectly. A tax deduction reduces the amount of taxable income, which in turn reduces the amount of tax that is owed.

The benefit of a tax deduction depends on a taxpayer’s personal circumstances, but a $1,000 tax deduction for a filer in the old 24 percent tax bracket would reduce the taxes owed by $240. In contrast, a tax credit directly reduces the taxes owed on a dollar-for-dollar basis. If you qualify for a $1,000 tax credit, you would owe $1,000 less in taxes. Because charitable giving was a deduction rather than a credit, givers didn’t get a full refund on their giving at a tax time, but it did help.

The flip side to the argument is that millions of taxpayers were already taking the old, lower standard deduction and they still gave to charity. In the past, taxpayers who didn’t have large deductions such as mortgage interest might well have not had enough deductions to make itemizing practical. The impact of tax reform on charitable giving would most likely affect middle-income donors who had enough deductions to itemize under the old law but not enough under the new tax reform.

The effect of the change will depend on how Americans view charitable giving. Do they give primarily to reduce their taxable income or do they give because generosity blesses both the giver and the recipient?

Many Americans have religious motives for giving to charity. About 80 percent of Americans identify with some religion per Gallup. Of these, about 70 percent are Christian, Jews and Mormons account for about two percent each and just under one percent are Muslim. All four faiths encourage adherents to give charitably. In particular, the Bible teaches believers to tithe, to give 10 percent of their earnings to support churches and the needy. Americans who take religious commands seriously are likely to keep giving even if it doesn’t change their taxes.

Another unintended consequence of tax reform on charitable giving is that there might be a movement away from government-approved charities to more direct giving. Rather than giving to charities that provide them with a tax-deductible receipt, more people might give directly to those in need. For example, a few years ago a friend wanted to fund a scholarship for a needy black student. He set up the donation through a church in part to reap the benefits of the tax-deductible contribution. Under the new rules, he might do just as well to write a check directly to the recipient.

So far, the effects of tax reform on charitable giving appear to be small, but Americans are still learning about the new law. CBS News reported in June 2018 that total revenue to nonprofits fell 2.4 percent in the first three months compared to 2017 while the total number of donors fell by 6.3 percent.

“We know that the main reason why people give to charity is not the tax incentive,” Steve Taylor, United Way Worldwide senior vice president and counsel for public policy said at the time. “We also know that the tax incentive allows people to give a little bit more than they would have otherwise. What you have is tens of millions of people who will give a little bit less, and that adds up to tens of billions of fewer dollars given to charity.”

We won’t know for several years exactly how changes to the tax law affect charitable giving. When the tax returns are filed and examined this year, new data will be available on how donations in 2018 differed over previous years. However, differences in returns this year may cause taxpayers to make changes in their behavior going forward, but those changes won’t be evident immediately. It will be interesting to watch and I'm sure that it will make a great research topic for some economist.

Originally published on The Resurgent

Tax Reform Law Induces Sticker Shock For Millions Of Taxpayers

Tax season is upon us and many taxpayers are discovering the changes to the tax code that were generated by the tax reform bill passed in December 2017. While most taxpayers will find at least modest savings from the new tax law, a growing number of filers are learning that they will pay more this year and they aren’t happy.

The tax reform law contains several features that lowered taxes for many Americans. The law kept the seven tax brackets that existed previously but lowered the tax rates. The new law also almost doubled the standard deduction and increased the child tax credit. The problem for many taxpayers, especially in blue states, is that the lower rates and higher standard deduction are not enough to offset the caps that were placed on the deductions for state and local taxes (SALT) and mortgage interest.

Under the old law, state and local property, income, and sales taxes were generally fully deductible. Tax reform capped the deductible portion of those taxes at $10,000. The new law also lowered the amount of mortgage interest that can be deducted from a principal amount of $1 million to $750,000. The new limits to these deductions are hitting middle and upper-class taxpayers in blue states hard.

Many of the irate taxpayers are blue collar workers who claim to have voted Republican. For example, Nycgirl tweeted to the White House:

https://twitter.com/nlnp99/status/1092606993792225281

Dennis Jordan, a veteran and Catholic, tweeted angrily to the GOP:

https://twitter.com/DennisMJordan/status/1092784259864109057

These tweets and others like them are easy to find as people get their W-2s and start to work on their 2018 tax returns. Especially for taxpayers in states with high property taxes and home values, many are finding that, with no other changes, tax reform has eliminated their tax refunds and left them with tax bills due. For many taxpayers, the list of deductions lost is greater than the increase in the standard deduction.

For example, in California, the median house value is now more than $600,000 which means that almost half of California homeowners cannot deduct all of their mortgage interest. If a home buyer takes out a mortgage for $1 million at five percent interest, the interest payments for the first year would total just under $50,000. Under the new tax law, more than $10,000 of that interest would no longer be deductible.

The problem is compounded by state and local property taxes. California doesn’t have the highest property tax rates (the state is actually 35^th), but due to the high price of housing there, the average property tax is $4,783 per USA Today. Northeast and Rust Belt states have even higher property tax rates. New Jersey has both the highest rates and the highest average tax at 2.31 percent and $8,477 respectively. New Jersey’s property tax alone almost reaches the cap for state and local tax deductions.

But wait, as they say, there’s more. Only a handful of states don’t have their own income taxes. In many cases, the states that have high property taxes also have high income tax rates. In addition, there are taxes on other personal property, such as cars, as well as income taxes levied by cities and counties. There is a long list of cities, many in red states, that take their own share of income from workers.

When all these taxes are added up, the tally is more than $10,000 for many Americans. These taxpayers have just lost thousands of dollars in deductions and that drives up the federal income tax that they owe. Last September, the General Accounting Office warned that as many as 4.5 million taxpayers could end up having to write checks to the IRS unless they increased the amount of the tax withheld from their paychecks.

There is a tendency for conservatives to dismiss concerns about the loss of these deductions because they primarily affect blue states, but that is not necessarily a safe assumption. The Tax Foundation published an interactive map that shows which areas benefit most from state and local tax deductions. As it turns out, even swing and red states have pockets of high tax areas.

While California was a large beneficiary of the deductions, Fulton County, Georgia had a higher average SALT deduction claimed ($5,814) than Los Angeles County ($5,405). Delaware County, the home of Columbus, in the must-win swing state of Ohio had an average SALT deduction of ($7,674). Other counties in Rust Belt states carried narrowly by Donald Trump in 2016 are also heavily impacted by the loss of the deduction. These include the Philadelphia suburbs of Montgomery and Bucks Counties, the Milwaukee suburbs of Waukesha and Dane Counties, and the Detroit suburb of Oakland and Washtenaw Counties.

The big question is whether the Republican tax increase on blue state voters would be enough to affect the outcome of an election. The answer is that it may already have. The Republican rout in the suburbs last year may have been at least partly due to those voters who were aware that their deductions for taxes and mortgage interest would be curtailed this year. Among the Republican losses in 2018 were six seats in the Los Angeles suburb of Orange County where the average SALT deduction was $6,569, among the highest in the nation. A Republican stronghold just a few years ago, Orange County is now completely dominated by Democrats. Many other suburban districts, often characterized by high property values and high-income voters, flipped from Republican to Democrat as well.

The tax reform bill was well-intended and provided a boost to the economy, but an unintended consequence was raising taxes on millions of voters in swing states and districts. That policy error may have combined with other factors to make 2018’s blue wave a reality even before most voters knew that they were paying more in taxes. If the error isn’t corrected, things could get worse in 2020 with millions more who saw their tax refunds turn into tax bills. Even though the assumption is that the 2020 election will be a referendum on Donald Trump, many swing voters may turn out to vote their pocketbooks against the party that increased their taxes.

Originally published on The Resurgent

Justin Amash's Twitter Mic Drop In Defense Of Tax Reform

Justin Amash, a Republican congressman from Maine, isn’t typically the one you’d expect to drop the mic on Twitter, but he did so over the weekend. NBC News correspondent Kasie Hunt alleged that tax reform was responsible for the exploding deficit and Rep. Amash set the record straight in less than 180 characters.

On Sunday, Hunt tweeted an observation about Acting White House Chief of Staff Mick Mulvaney’s conversation with CNN’s Jake Tapper in which Mulvaney said that the $2 trillion deficit increase under President Trump required Democratic votes. Calling the comment “an outright falsehood,” Hunt added, “They used budget reconciliation to pass tax reform so they wouldn’t need Democrats.”

https://twitter.com/kasie/status/1081947628265443329

The problem for Hunt is that tax reform did not run up the deficit as Amash pointed out. “Do you believe tax reform caused a $2 trillion debt increase in one year?” he tweeted. “Tax reform is roughly $1.5 trillion over 10 years. The debt increase is almost entirely due to bipartisan discretionary spending increases and bipartisan apathy toward ever-increasing mandatory spending.”

https://twitter.com/justinamash/status/1082010264642428929

Is this an example of he said/she said or is one of the two definitively right?

To settle the dispute, we only need to look back a few months to the end of the federal fiscal year in September. At that time The Resurgent described how the deficit had risen to the highest level in six years:

“Total outlays for 2018 were $4.108 trillion compared to $3.981 trillion in 2017. The spending increases were driven by rising interest costs paid on a greater amount of federal debt as well as increased military spending, which rose by six percent, and Social Security spending which increased by four percent.”

Amash is correct that the majority of the increase in the deficit was due to increased spending. Some of these costs were mandatory spending which was originally authorized by both Democrats and Republicans. The increased cost of interest on the national debt and the rising cost of entitlements like Social Security were bipartisan commitments.

So was the increase in defense spending. The Bipartisan Budget Act of 2018 increased military spending to $716 billion, an increase that President Trump celebrated as the “most amount ever.” As its name suggests, this spending bill was passed with broad support from both parties.

This isn’t to say that tax reform has no part in the deficit increases, however. Amash’s use of the qualifier “almost entirely” suggest that he agrees that tax reform did play a role. There are two components to the deficit, spending and revenue, and both were factors in the deficit.

As we discussed back in October, federal revenue for the year was almost flat despite the booming economy:

“According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.”

So, the bottom line is that revenue for 2018 did not increase while spending did. Because revenue did not go down, it isn’t accurate to say that tax reform drove the increase in the deficit. It is fair to say, however, that without decreasing corporate tax rates, there would have been more revenue and the deficit would have been smaller. In fact, even as the economy boomed, tax revenues from businesses fell by more than 30 percent. Still, if spending had not increased, the deficit would not have increased.

It’s true that cutting corporate tax rates to make them more competitive with the rest of the world was the express purpose of tax reform. It’s also true that without tax reform there might have been a downturn rather than an economic boom, especially considering President Trump’s war on trade. The loss of tax revenue, which was retained by businesses and used by many for capital investments, was a driving factor in this year’s economic growth.

The big question is whether federal revenues will recover in coming years or whether the lost tax receipts will be a bigger driver of the deficit in the future. The conservative gamble is that revenue will be replaced by economic growth. If the government takes a smaller slice of a bigger pie, it will theoretically get the same total amount of pie, if not more.

The problem for conservatives in the Trump era is that the president’s trade policy is at odds with his tax policy. While tax reform let businesses keep more of their own revenues, tariffs and trade restrictions mean that many businesses will have fewer revenues to keep in the first place.

Amash is absolutely correct that spending remains the biggest problem, however. The ongoing shutdown illustrates that about three-quarters of the federal government is on autopilot and does not require appropriations from Congress. It is entitlement spending that is breaking the federal budget.

Meanwhile, neither party seems concerned with the deficit. Where the Republican Party of the Obama era held a hard line on spending, current Republicans have forced a shutdown to because they don’t think the government is spending enough.

Originally published on The Resurgent 

Deficit Reaches Highest Level In Six Years

The economy boomed in the three quarters that followed last year’s Republican tax reform, but economic news has become more mixed of late with a topsy-turvy stock market and Mr. Trump’s tariff war beginning to affect bottom lines and employment. Now comes more news about the deficit that should rankle any fiscal conservatives who remain in Congress or the country at large.

The fiscal year for the US government ended in September and the figures on the federal budget deficit are not good. In fact, even though the US economy is booming, the deficit is the largest deficit run by the government in six years. The deficit for the 2018 fiscal year was $779 billion, a 17 percent increase over the $666 billion deficit in fiscal 2017. The last time the deficit was higher was in 2012 when Barack Obama presided over a deficit of more than a trillion dollars.

The deficit is the difference between what the federal government spends and what it earns. When the federal government spends more than it receives in revenues, as it has every year since 1960 (with the exception of 1998), it must borrow the difference. Each annual deficit is added to the mountain of federal debt which currently stands at more than $21 trillion.

Democrats were quick to blame tax reform for the exploding deficit. A deficit of this magnitude in an economy this strong is historically unprecedented,” Jason Furman, chairman of the Council of Economic Advisers in the Democratic administration of President Obama and an economic policy professor at Harvard University, told the Wall Street Journal. “Undertaking permanent fiscal stimulus [through tax cuts] at this stage of the economic expansion is contrary to all sound tenets of economic policy.”

According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018 compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.

Under tax reform, withholding was lowered in February for individual taxpayers. Despite this, tax receipts from individuals increased by one percent. Tax payments by businesses fell more than 30 percent for the year, however.

Flat revenue was not the only contributor to the rising deficit. Federal spending also increased. Total outlays for 2018 were $4.108 trillion compared to $3.981 trillion in 2017. The spending increases were driven by rising interest costs paid on a greater amount of federal debt as well as increased military spending, which rose by six percent, and Social Security spending which increased by four percent.

Republicans argue that the tax reform is fueling economic growth, which will eventually lead to higher tax revenues. Nevertheless, Kevin Hassett, chairman of the Council of Economic Advisers, admits that spending and the deficit are big problems.

“The deficit is absolutely higher than anyone would like,” Hassett told Bloomberg last week. “As you watch our next budget come out -- and you’ll start to see things in the next few weeks -- then you’ll see a much more aggressive stance” on spending issues.

For the past half-century, the only combination that resulted in lower deficits was when a Republican Congress put the brakes on spending by a Democrat president. The much-maligned John Boehner led the Republican House to cut the deficit in real dollars between 2012 and 2015 thanks to the sequestration. Interestingly, once Republicans gained control of both houses of Congress in the 2014 elections, both spending and the deficit again started to climb. The same combination of Republican Congress and Democrat president yielded the last budget surplus in 1998.

It is perhaps ironic that the Republican deficit hawks would preside over a blowout in the deficit. It is unsurprising, however. Historically, the only thing the parties have been able to agree on is borrowing and spending at ever higher levels and the problem seems to get worse when one party controls both Congress and the White House.

Regardless of the outcome of the election, the deficit problem seems unlikely to change any time soon. Unless federal revenues can be increased or spending can be cut, the 2019 federal deficit is forecast to be on the wrong side of a trillion dollars once again.

Originally published on The Resurgent

Explaining Trump's Polling Bump

President Trump's approval rating is on the upswing or so a recent flurry of polling articles would have us believe. CNN and others have trumpeted the news that “Trump's job approval at the highest since taking office.” If even CNN admits that polling shows Trump as more popular than ever, it must be true, right? The reality isn't so clear.

The most obvious caution is that the Marist poll that CNN refers to is a single poll and any individual poll should be viewed in the context of other polls and the historical trends of that particular pollster. The second problem for Trump supporters is that the headline leaves unspoken the fact that the poll shows Trump's approval at 44 percent with 49 percent disapproval. While comparing this poll with previous Marist polls over the past few month does register a positive trend, Mr. Trump is still underwater in every poll listed on Real Clear Politics.

Because polling is not a precise science (see the 2016 election as exhibit A), it is helpful to look at polls in the context of similar polls from other sources. Both Real Clear Politics and FiveThirtyEight have graphs that incorporate the average of all presidential approval polls to aid in this analysis. FiveThirtyEight's average of polls shows Trump's highest approval as president on January 25, 2017 at 47.8 percent. This is the only period when his net approval rating was positive.

When these graphs are examined, we find that Trump's approval has been mostly flat since last spring, but it does show an increase from January to February followed by a sharp dip and recovery in late February. We can examine the news cycle to determine what has impacted President Trump's approval rating both positively and negatively.

The rise in President Trump's approval rating can be traced to December 17, 2017. This was the final stages of the tax reform fight in Congress. Initially, the tax reform bill was unpopular, but as voters came to understand that the bill included cuts for the majority of taxpayers, the bill gained favor. After the passage of the law, the economy picked up quickly with employers offering bonuses and announcing expansion plans. This good news, along with workers finding more money in their paychecks in January and February, obviously helped buoy Trump's approval.

The rise in the president's approval suffered a minor blip in late January. His average approval rating fell about two points from January 17 through January 24. Taking the polling lag into account, this coincides perfectly with run-up to the government shutdown that lasted from January 19 through January 22.

President Trump reached his peak approval in recent months on February 15, one day after the Parkland, Fl. school shooting. Trump's approval again fell two points over the next 10 days until it began to rebound on February 26. What happened around this date to turn things around?

The answer is in Trump's sudden embrace of gun control. On February 21,CNN reported that President Trump announced a de facto executive ban on bump stocks. The next day, Trump tweeted his support for mental health background checks and raising the minimum age to buy a gun to 21 as well as reiterating support for the bump stock ban. On February 26, Trump was in the midst of a series of attacks on the NRA. Although elected as a pro-gun candidate, Trump likely tapped into an upswing in support for anti-gun measures in the wake of the Parkland massacre that included 53 percent support from Republicans for new gun laws.

Trump's surge in popularity plateaued in the first days of March. This immediately followed his February 28 meeting in which he promised his support to congressional Democrats for a laundry list of gun control measures, making Dianne Feinstein (D-Calif.) giddy with anticipation. It was also at this meeting that Trump said, “Take the guns first, go through due process second,” prompting a backlash from conservative gun owners that could explain the abrupt halt in his rising approval.

At this point, President Trump's overall approval rating has been flat since the beginning of the month. His surprise announcement of tariffs on March 1 did little to move his approval rating in either direction. Polling showed that voters were roughly split into thirds over the plan with 40 percent approving, 35 percent opposing and 25 percent with no opinion. It is ironic given the free-trade and anti-tax history of the GOP that 65 percent of Republicans favored the new taxes on trade compared with 25 percent of Democrats. The real test will come after tariffs are implemented and begin to have an effect on the economy. Reaction from other countries and the possibility of a trade war will also impact Trump's approval.

In spite of the headlines, President Trump's approval rating appears to have recovered from a summer slump and is near its historic average. The reasons for the surge are not necessarily a reason for conservatives to celebrate. Part of Trump's approval is due to the quick success of the tax reform bill, which is a vindication of conservative economic principles. On the other hand, the president also got a quick boost from embracing liberal positions on gun control and the NRA. After discarding his pro-gun position so easily in the face of falling poll numbers, conservatives should be concerned about the future.

Originally published on The Resurgent

I Was Wrong (And Right) About Trump

In the wake of a historic tax reform bill and almost all the way through President Trump’s first year in office, I have a confession to make. I was wrong about Donald Trump.

Prior to the election, I had three major objections to Donald Trump. I felt that he was unqualified to be president, I doubted his conservative ideology and I had questions about his character and temperament. On the point of his political ideology at least, events have so proven my fears unfounded and I have to admit that the Trump Administration has accomplished more for conservatives than I expected. In addition to tax reform, Trump’s only significant legislative win thus far, his judicial appointments and deregulation represent important gains that should be applauded by conservatives like me.

In spite of the limited successes of the Trump Administration, I still cannot offer my unlimited support to President Trump. Even though his administration has governed far more conservatively than I dared hope, my other objections to a Trump presidency remain.

With respect to Trump’s qualification to lead the government, he has confirmed my fears. After 11 months as president, Trump has shown himself to be the same man that he was on the campaign trail. Trump’s successes seem to have more to do with his cabinet appointees than with Trump’s skill at governance. With respect to tax reform, the success seems to have come despite Trump rather than because of him. While Republican congressional leaders worked to write and gather support for the bill, Trump was tweeting about NFL players.

While Trump’s lack of legislative experience did not derail the tax reform bill, the president’s distracting behavior may have contributed to the bill’s unpopularity. Like the Democrats in 2010, Republicans have expended their political capital on a bill that most voters don’t want. Astoundingly, the Republican tax cuts are even less popular that some past tax increases. If President Trump had used his bully pulpit and Twitter account to educated the public about the positive effects of lowering the corporate tax rate, the chief goal of the bill, and how individual taxes will go down for most taxpayers as well, the GOP might have found more support for the legislation.

The grunt work of passing tax reform was carried out by Speaker Paul Ryan and Senate Majority Leader Mitch McConnell who get little credit for their efforts. Realizing this, President Trump was uncharacteristically gracious to McConnell in a tweet congratulating him on the passage of the tax reform bill.

Sadly, events have also confirmed my fears about Trump’s character and temperament. The president’s behavior has caused several notable setbacks for the Republican Party over the past few months. Mr. Trump’s war of words with North Korean dictator Kim Jong Un, while popular with conservatives, has brought the United States to the brink of a second Korean War. President Trump originally had the right instincts in Alabama when he said that Republican candidate Roy Moore should withdraw. Moore stayed in and Mr. Trump eventually reversed course and endorsed Moore, shortly before Moore suffered an embarrassing defeat. Moore’s behavior and Trump’s endorsement damaged the Republican brand.

If 2017 has shown anything, it is that the Trump Administration has a surprising amount of potential. Possibly because President Trump is an outsider with few preconceived notions of acceptable policy positions there are opportunities for significant changes, such as the recognition of Jerusalem as the Israeli capital, during his presidency.

The downside is that Trump’s erratic behavior and low approval ratings continue to dog the GOP. Polling shows that Democrats have an enormous lead in the generic congressional ballot leading into 2018. If Republicans and President Trump cannot win voters over to their agenda, then future “winning” will be impossible and previous gains will be endangered.

I don’t view Donald Trump as a conservative savior or as the only man who could have turned the country around. Any of the other Republican candidates would have arguably done a better job and accomplished more, such as passing the health care reform bill. Nevertheless, Donald Trump is the president that we have. Looking at his record objectively, Trump is undoubtedly “better than Hillary,” which is a low bar in itself.

If Trump wants to be great, he must change and rise to the occasion. He must put down his phone and show himself to be the dealmaker that he claimed to be during the campaign. Trump must tone down the rhetoric and reach beyond his base to moderate voters. Trump’s presidency depends on winning the support of people who did not vote for him in 2016. He cannot assume that will cruise to re-election with another popular vote loss and victory in the Electoral College. The tax reform bill may help, but it won’t be enough to stave off an electoral landslide by itself.

The stakes are high. If the Democrats win control of Congress next year, prospects for advancing the Republican agenda will be nil. Worse, President Trump’s entire legacy would be at risk. A Democrat Congress might be able to start rolling back the accomplishments of 2017 and impeachment would be a real possibility.

The best way for Trump to defend his legacy and continue to advance his agenda is make peace with Democrats. Tax reform was passed with a simple majority, but other bills will require Democrat votes for cloture. The already small Republican majority will be smaller yet when Doug Jones (D-Ala.) joins the Senate.

Trump may realize this. In a tweet that sounds as if it could have been written by Democrat, Trump said, “At some point, and for the good of the country, I predict we will start working with the Democrats in a Bipartisan fashion. Infrastructure would be a perfect place to start. After having foolishly spent $7 trillion in the Middle East, it is time to start rebuilding our country!”

If Trump can successfully pivot to the center, he may be able to appeal to moderate voters and save his presidency.

Originally published on The Resurgent

Ted Cruz: Dems Told Single Moms 'Tough Luck' on Tax Reform

When the Republicans need a fiery orator to make a point, the most obvious senator that comes to mind is Ted Cruz (R-Texas). The staunch conservative typically pulls no punches and that was the case this week when he delivered a blistering criticism of Democrat opposition to the tax reform bill on the Senate floor.

Cruz pointed out that the bill doubles the child tax from $1,000 to $2,000, a provision that would particularly help single parents, yet “Every single Democrat in this body is going to say to the single mom ‘tough luck. We aren’t cutting your taxes,’” Cruz said. He also noted that his amendment to the bill includes an expansion of educational savings plans to allow parents to spend the educational IRA money on K-12 schools.

The senator called out the Democrat claim that the bill would make taxes go up for most Americans. “In January, take a look at your paystubs,” Cruz said. “The Democrats are claiming, wildly falsely, that somehow your taxes are going to go up. Let me tell you, for virtually every American taxpayer in the country, your taxes are going to go down.”

To prove his point, Cruz noted that “every single income tax bracket is going down.” He also pointed out that the standard deduction is being doubled.

“There is one subset of people whose taxes will go up,” Cruz conceded, “Rich people in high tax Democratic states.”

Cruz urged voters to look at their paystubs in January and, “if they weren’t telling the truth, if you’re paying less taxes, you ought to stop and ask yourself, ‘Gosh, why did 48 Democrats in the Senate all tell me something that was false?’”

After noting that Democrats have crossed the aisle to vote with Republicans for tax relief in the past, Cruz answered the question of why the current Democratic caucus voted in lockstep against the reform bill.

“Because they can’t stand the President,” Cruz said. “They’re angry at the President. That’s fine. If they’re angry at the President, stand up and yell at the President, but don’t take it out on kids who are homeschooled. Don’t take it out on kids with disabilities.”

The tax reform bill passed on Wednesday with a party line vote. Despite providing tax relief for the middle class, the bill was largely unpopular among voters. FiveThirtyEight pointed out that the tax cuts were even less popular than some tax increases have been.

The responsibility for the bill’s unpopularity lies with media misrepresentations of the bill based on Democratic falsehoods, but Republicans who did not adequately defend and explain the legislation share the blame. If every Republican spoke as strongly in favor of tax reform as Sen. Cruz, public opinion would be very different.

Originally published on The Resurgent

GOP Tax Reform Unveiled

Republicans have finally released their proposal for tax reform. The bill includes dramatic changes to the current tax code that, if enacted, will be largest overhaul of the tax system since the Reagan era.

The new plan maintains the top individual tax rate at 39.6 percent per Politico, but would reduce the corporate tax rate to 20 percent. New individual tax brackets of 12, 25 and 35 percent would be created. Income levels for these brackets are not yet available.

The plan doubles the standard deduction and increases the child tax credit to $1,600. The exemption for the estate tax would be doubled and the estate tax would be repealed after six years. The plan also keeps the popular retirement savings vehicle, the 401(k) account, which some Republicans had hinted could be eliminated.

The plan’s treatment of the mortgage interest deduction is sure to be controversial. The bill would limit this popular deduction to newly purchased homes less than $500,000. Realtor associations are already gearing up to oppose this change.

Republicans also maintained the deduction for state and local taxes. The new plan allows taxpayers to write off up to $10,000 in state and local property taxes, which critics say subsidizes states with high tax levels. Republicans from high tax states sought to preserve this deduction, but the limit is less than property taxes in many blue states.

The tax rate cuts would be offset by the elimination of targeted tax loopholes that favor certain industries and activities. The details of the loopholes to be closed are not yet available.

There are other questions that have yet to be answered as well. There was no clear indication on whether the tax rate cuts would be permanent or have a sunset clause as the 2001 Bush tax cuts did.

The bill also reportedly contains elements to discourage corporations from relocating to other countries. These details also have yet to be revealed.

There was also no word on whether the border adjustment, a tariff on imports, was part of the final plan. Tim Phillips, the president of Americans For Prosperity, had previously warned against the import tax, saying, “We strongly oppose adding a new tax that would raise prices on everyday goods while disproportionally hurting the poor and middle class.”

A weakness of the bill is the failure to lower the top tax rate. While cutting taxes for the wealthy is politically unpopular, per OMB Director Mick Mulvaney the top 20 percent of taxpayers pay 95 percent of the taxes. These taxpayers will benefit from rate cuts to lower brackets, but a cut in the top rate would also be beneficial.

Now that the Republican tax plan is written, the next step is to sell it to the country. Democrat disinformation is already being used to attack the reform proposal with the result that Americans oppose the plan out of the gate by 35-25 percent in a new NBC News  poll. The good news is that almost 40 percent have not made up their minds.

If Republicans can unite and if Donald Trump can stay focused on the issue at hand, tax reform may turn out to be the first real GOP legislative victory of the Trump era. Republicans need this win badly.

Originally published in The Resurgent 

Cruz Says Tax Reform May Be Delayed Until Next Year

After the disappointment on Obamacare, Republicans looked to tax reform to score an elusive legislative victory. Speaker Paul Ryan (R-Wisc.) set a goal for passing the tax reform bill by the end of the year, but Sen. Ted Cruz (R-Texas) is casting doubt on that timetable.

On CNBC, Cruz said, “I believe that we will get tax reform done,” but that it will be “late this year or early next year.”

There are big obstacles in the way. FiveThirtyEight explained that there was one major division among Republicans on healthcare, while there are at least three different GOP divisions on tax reform. Sen. Bob Corker (R-Tenn.), who has been under attack by President Trump in recent weeks, leads a faction of deficit hawks who insist that tax reform not add to the deficit.

There is the question of whether to make the tax cuts permanent or temporary. Under reconciliation rules, the bill cannot increase the deficit after 10 years. One way of preventing the CBO from scoring the bill as increasing the deficit is to make the cuts temporary. Temporary tax cuts can lead to a fiscal cliff like the one Congress faced under President Obama.

A third question is who gets the tax cuts. Senators Rand Paul (R-Ky.), Marco Rubio (R-Fl.) and Mike Lee (R-Utah) have indicated that the current plan does not cut taxes enough on the middle class. In particular, Paul said that the bill “should not be a tax hike on anyone.” But if tax cuts are increased for one group, the questions of deficit scoring and whether they are to be permanent are raised once again.

The question of whether to end the federal tax deduction for state income taxes has been particularly thorny. Cruz said, “We can end that deduction if we're lowering the tax rate enough that even people in those blue states are seeing a net tax reduction.”

“I do think virtually every Republican wants to get to yes,” Cruz said, but noted that the slim Republican majority in the Senate made passing any major bill difficult.

“We have an excruciatingly narrow majority, 52 Republicans” Cruz said. “That means if any three Republicans jump ship, we’re toast. Wrangling together 50 out of 52 Republicans with this very diverse, fractious conference is not easy.”

There are already four Republicans who have been identified as potential mavericks on the bill. Bob Corker, who is concerned about the effect on the deficit, as well as John McCain (R-Ariz.) and perennial swing votes Susan Collins (R-Maine) and Lisa Murkowski (R-Alaska) will be senators to watch.

The new Alabama senator may present a problem as well. Even if Republican Roy Moore wins the senate race there, Moore is an avowed opponent of Majority Leader Mitch McConnell and is unlikely to be a reliable vote. Moore’s position on the tax bill is uncertain, but he had opposed the Republican Obamacare reform bill.

Passing tax reform may be critical for Republicans in the 2018 midterms. Cruz acknowledged that “people are frustrated” because the Republican congressional majority is “not getting the job done.” With former White House strategist Steve Bannon leading a right-wing revolt against incumbent Republican senators, failure to win a victory on taxes could have dire consequences for the party.

Originally Published On The Resurgent

Conservatives Are Unifying Around Tax Reform... For Now

Republican unity has long been a problem. Factional fighting within the GOP is a problem that predates President Trump, but things have not gotten better under the new administration as Republican infighting resulted in the death of the Obamacare reform bill. Now, however, there are signs that conservatives may be uniting around President Trump’s framework for tax reform.

In contrast to the Republican healthcare bill, broad support is emerging for the tax reform plan. A coalition of 30 conservative organizations has sent a letter of support for the plan to House members.

“We urge Congress to expeditiously pass a budget resolution with reconciliation instructions so that the promise of tax reform can be made a reality,” the letter, which is posted in its entirety on the Chamber of Commerce website, says. “It has been 31 years since Congress last reformed the tax code. Since then, the code has become an anchor weighing down the economy, job creation, and wage growth for American families.”

“The single-most important next step is for Congress to adopt a budget resolution with reconciliation instructions that will permit tax reform to move forward without the threat of a filibuster,” the group said. Using a budget reconciliation will allow the tax reform bill to be enacted with only 51 votes in the Senate, but subjects the bill to additional restrictions.

At this point, the tax reform legislation is still being written, so many of the specifics of the plan are not known. As the bill is put together, factional differences over details may make it difficult for some Republicans to support the final product. It was these factional differences between the party’s conservatives and moderates that doomed the party’s healthcare reform effort.

With only 52 Republicans in the Senate, a loss of more than two votes would kill tax reform. Conservatives will be watching senators such as John McCain (R-Ariz.), Lisa Murkowski (R-Alaska), and Susan Collins (R- Maine) closely for signs of wobbliness.

If Republicans can stay unified on the issue, they may finally be able to score a legislative victory on one of the core issues of the 2016 campaign. If they can’t pull off tax reform, it will likely give a boost to Steve Bannon’s effort to remake the party in President Trump’s image.    

Originally published on The Resurgent

McConnell Plans To Pass Tax Reform With Only GOP Votes

Majority Leader Mitch McConnell has announced his intention to move forward on tax reform with no Democrat support. To advance the bill without a filibuster by Democrats, Republicans will need to use the Senate’s budget reconciliation process that requires only 51 votes for cloture.

“We will need to use reconciliation,” McConnell told reporters, adding that Democrats are “not interested in addressing” items that Republicans favor. McConnell referenced a letter signed by 45 of the 48 Senate Democrats in which they refused to consider tax plans that cut rates for “the top 1 percent” or that added to the deficit. At the same time, Democrats called for a bipartisan reform bill.

“I don’t think this is going to be 1986, when you had a bipartisan effort to scrub the code,” McConnell said. He added, “Democratic senators who did not sign the letter who may be open to pro-growth tax reform.”

Unlike healthcare reform, where no Democrats broke ranks to vote with Republicans, the failure of three Democrats to sign the letter on tax reform may represent an opening to Republicans. Joe Manchin (D-W.V.), Heidi Heitkamp (D-N.D.) and Joe Donnelly (D-Ind.) are all up for reelection in 2018 in states that Donald Trump won. They are expected to have tough re-election battles, which may inspire them to side with Republicans on the tax bill.

There are difficulties for the Republicans as well. McConnell faced heavy criticism from his own side for his heavy-handed tactics and secret drafting of the healthcare bill. The secrecy and rapid changes in the content of the bill apparently swayed some senators to vote against the Obamacare reform.

Grover Norquist, president of Americans for Tax Reform, recently told Politico that there was less disagreement among Republicans on tax reform than there had been on healthcare. Norquist claimed that the GOP was at “97 percent” agreement after the decision to drop the border adjustment tax on imports, adding, “It’s now a question of making it fit” within the rules for reconciliation bills.

Under Senate rules, reconciliations can be used to pass bills that increase the deficit, but, per the Center on Budget and Policy Priorities, senators can still block bills that are projected to raise deficits beyond the period that the budget resolution covers. Because scoring by the Congressional Budget Office often predicts that tax cuts will add to the deficit, these changes may be required to be temporary, probably less than 10 years, in order to be enacted as a budget reconciliation.

If McConnell and congressional Republicans can avoid the mistakes and division that they experienced in the run-up to the healthcare vote, they stand a slightly better chance of enacting tax reform. If Republicans can split off some Democrat votes to pass a bipartisan bill it would be a major victory for the Trump Administration and one that is sorely needed.

Originally published on The Resurgent

Obamacare repeal meets bipartisan opposition

The Republican promise to repeal Obamacare is meeting bipartisan opposition. Democrats are protesting the entire idea of repeal. Meanwhile, some Republicans are seeking to delay the repeal or protect some facets of the Affordable Care Act until a replacement can be written.

A core dispute among Republicans is whether Obamacare should be repealed before a replacement bill is ready. Obamacare can’t simply be repealed because it remade the American health care system. Not all of the healthcare eggs that Obamacare scrambled can be unbroken. Removing the law would not restore healthcare to its previous status quo, which was unpopular anyway.

The ultimate solution must take into consideration that an estimated 20 million people are insured under Obamacare. And, believe it or not, some of them even like it. To be politically viable, the Republican plan for repeal and replacement must find more coverage for these Americans.

Democrats contributed to the discussion about how to handle Obamacare with a five-hour talkathon on the Senate floor. The evening bull session among Democrats began at 6:45 p.m. on Monday and lasted into the wee hours of Tuesday morning. The Democrats boiled down their message to what The Hill calls “The Pottery Barn” rule: You break it, you buy it. Ironically, this is the same rule that gave Republicans control of Congress after Democrats passed Obamacare in 2010.

“Get real, [Republicans] don't have a clue what to do next," Sen. Elizabeth Warren (D-Mass.) said in The Hill. "Repeal and run. That's the Republican plan.”

Some Republicans agree that they don’t know what to do next. That is the essence of the debate among Republicans. One faction wants to pass a budget resolution to start the repeal and then follow up with a replacement later. The budget reconciliation is the same trick that Democrats used in passing the original Affordable Care Act to avoid a filibuster by Republicans. The resolution contains language that would direct House and Senate committees to write a bill to repeal and replace Obamacare by Jan. 27.

An amendment introduced by Sen. Bob Corker (R-Tenn.) would extend the deadline to craft a replacement law until March 3. Corker is joined by Rob Portman (R-Ohio), Lisa Murkowski (R-Alaska), Susan Collins (R-Maine) and Bill Cassidy (R-La.) in favoring more time to write the new law.

“This amendment will give the incoming administration more time to outline its priorities after its chief healthcare official assumes office and fully reviews the tools currently at his disposal,” Corker told the Washington Examiner. “By extending the deadline for budget reconciliation instructions until March, Congress and the incoming administration will each have additional time to get the policy right.

Republicans all favor a repeal of Obamacare, but they have not agreed on a replacement. The original bill allows only a few weeks to write a complex bill to restructure the health insurance industry. Corker’s amendment would extend that time to a few months.

In either case, Obamacare will probably not go away instantly. MarketWatch reports that Republicans may delay full repeal for two to four years while the replacement law is written and implemented. At the same time, they will also be working on reforming the tax code, another massive undertaking which will be passed by the same budget resolution tactic.

While the budget reconciliation to repeal Obamacare would be passed by a simple majority vote, subsequent bills to replace it would be subject to cloture votes that require 60 votes. This would allow the 48 Senate Democrats to block bills that Republicans try to pass separately from the budget resolution.

Republicans can’t count on the Democrats to pitch in. “I take (Senate Minority Leader Chuck) Schumer at his word that if we just go ahead and repeal, Democrats won't provide one vote for enacting the replacement," Sen. Ron Johnson (R-Wis.) told CNN. "So I think we need to actually have a game plan.

One sticking point among Republicans is whether Obamacare’s taxes should be repealed immediately. Bloomberg reports that some Republicans, among them Sen. Cassidy and Rep. Pete Sessions of Texas, believe that the Obamacare taxes should be repealed as part of the tax reform.

The problem, according to Cassidy, is that most Republicans have taken a pledge not to raise taxes. If the Obamacare taxes are repealed immediately, “then you’re in a hole” where Republicans politically cannot enact a new healthcare law because they can’t vote to pay for it.

“If we don’t like ’em, we can replace them,” Cassidy said. “But we can do it in a way where you overall are lowering tax rates and making the tax code more efficient. There will be enough there for people to win.”

Other Republicans say that the taxes must go immediately. “Repeal it, get rid of it, every single bit of it, don’t keep any of it,” said Rep. Jim Jordan (R-Ohio). “That’s all the taxes, all the mandates, all the things that are in this thing that the American people don’t like and that I think have driven up the cost of medicine, hurt economic growth. I think we’ve got to do what we told voters we were going to do.”

A second problem is defunding Planned Parenthood, which will also be part of the budget reconciliation. Pro-abortion Republicans Susan Collins and Lisa Murkowski may not vote for the budget bill if it defunds the abortion provider. The loss of their votes could derail the repeal effort.

Corker told CNN that it “doesn’t seem very intelligent” to repeal the law without knowing what is going to replace it. Rand Paul agreed, “I will do everything in my power to have a vote on it the day we repeal Obamacare.”

Nevertheless, the Republican leadership is still pressing for a quick repeal and eventual replacement. “We're not going to do a comprehensive bill,” said Sen. John Cornyn (R-Tex.). “We are going to do it in a step-by-step basis” with a series of smaller bills.

The direction that the GOP will take will soon be evident. The Senate plans to vote on the budget reconciliation authorizing the repeal of Obamacare this week. 

Originally published on The Resurgent

The story of the sequester

On Friday, the deadline for the federal spending sequester passed without an agreement between Democrats and Republicans on what portions of the federal budget to cut. Many may wonder exactly what the sequester is and how the nation reached the point where $85 billion will be cut from federal spending with no one in Washington taking responsibility.

The sequester has its origins in the debt limit debate of the summer of 2011. As the nation’s credit rating was downgraded and the federal government neared the end of its ability to borrow, President Obama pressed Congress to raise the debt limit. In exchange for doing so, House Republicans insisted on spending cuts. By 2011, President Obama was spending nearly a trillion dollars per year more than 2008, President Bush’s most expensive year, according to the White House Office of Management and Budget. Nevertheless, President Obama and the Democrats fiercely resisted any attempts to rein in spending. For their part, Republicans were equally tenacious in their opposition to tax increases.

The stalemate was broken by the sequester. According to investigative journalist Bob Woodward, whose book, “the Price of Politics,” details the negotiations from the summer of 2011, the stalemate was broken by an agreement to delay the decision on taxes and spending cuts. Part of the agreement was a “doomsday” plan in which taxes and cuts would automatically take place if Congress failed to take action by January 1, 2013. The combination of automatic tax increases and spending cuts came to be known as the “fiscal cliff.” The compromise was signed into law as the Budget Control Act of 2011.

The 2012 election threw a wrench into the plans of both Congress and President Obama for dealing with the cliff. Both parties expected to win a convincing victory. Neither party expected that the election would end in a stalemate, a continuation of the status quo in which the Democrats controlled the presidency and the Senate and Republicans kept control of the House of Representatives, but that is exactly what happened. The election results meant that the stalemate of 2011 was doomed to be repeated.

The tax section of the fiscal cliff was settled on New Year’s Day with a compromise that raised taxes on upper income Americans and let the payroll tax holiday expire for everyone else in what the Wall St. Journal called the “largest tax increase in two decades.” Part of the tax cliff compromise included extending the deadline to deal with the spending cuts, the sequester, until March 1.

As the deadline for the sequester approached, President Obama and the Democrats reneged on the agreement that tax increases would be balanced with spending cuts. In December 2012, the Republicans offered a tax reform package that would have raised $800 billion in revenues without raising tax rates. The plan would have closed loopholes and eliminated some deductions for the wealthy. Now President Obama, according to Factcheck, wants the revenue package previously offered by Speaker Boehner along with the tax increases that he has already received.

After the fiscal cliff deal, Republicans warned President Obama that they would accept no more tax increases. Mitch McConnell (R-Ky.) wrote in an op-ed on Yahoo, “That debate is over. Now the conversation turns to cutting spending on the government programs that are the real source of the nation’s fiscal imbalance.”

Because the tax increases in January were automatic, the Republicans had no leverage. If they had not compromised with the Democrats, tax rates would have gone up even more and impacted virtually every American. In the sequester, the opposite is true: Spending will be cut automatically if Congress does not act.

President Obama and the Democrats desperately want to avoid any sort of cuts to federal spending. Nevertheless, by tying sensible cuts to tax hikes that the Republicans find unpalatable they have guaranteed that the sequester will happen. There are three possible reasons for this strategy.

First, having agreed to the spending cuts only to get an increase in the debt ceiling in 2011, the Democrats now want to make the cuts as haphazard and painful to American voters as possible. If they can cause pain to the voters and make them believe that the Republicans are responsible, it may give them a victory at the polls in 2014 that will guarantee future tax hikes and avoid any possibility of reining in spending.

Second, Obama undoubtedly expects that if he can force the Republicans to cave into his demands once again that it will further splinter the party. With the Republicans fragmented, demoralized and pointing fingers at each other, it will be easy for Obama to gain new concessions in the future. He will need them. The federal government will reach its debt limit again in a few months.

Third, political observer Dick Morris theorizes that Obama wants the sequester to take effect so that he can blame Republicans for the economic downturn that his policies are causing. Writing in The Hill, Morris notes that Obama and the Democrats have imposed a multitude of new taxes totaling $300 billion. According to an analysis by the Washington Post, the cuts for 2013 only come to $85 billion, 28 percent of the amount that Obama’s tax increases have removed from the economy.

President Obama has attempted to cast the blame for the sequester on Congress, but Bob Woodward who was present during the 2011 negotiations disputes that. Writing in the Washington Post, Woodward described how the idea for the sequester originated with Jack Lew, at the time the White House chief of staff, and Rob Nabors, the White House chief of congressional relations. According to Woodward, President Obama personally approved the plan before it was presented to Senate Majority Leader Harry Reid (D-Nev.).

Woodward reported that representatives of the Obama Administration told him that he would “regret doing this” after he pointed out the inconsistencies in the Obama Administration’s statements. The exchange is detailed in the Wall St. Journal, which also points out that administration officials have attempted to intimidate at least two other journalists who have published stories critical of Obama.

There were several congressional attempts to limit the impact of the sequester. Factcheck agrees that Republicans in the House passed two bills in 2012 that would have replaced the sequester’s defense cuts with entitlement cuts. These bills died in the Senate. In the current term, two bills were proposed in the Senate, but neither passed. A Democratic bill would have replaced the sequester cuts with alternative cuts and more tax increases. The Republican version would have required President Obama to propose alternative cuts without tax increases.

In last days of February, Republicans offered to give President Obama the power to choose which programs to cut in order to mitigate the pain of the sequester. President Obama threatened to veto the bill if it passed Congress, instead opting for the across-the-board, untargeted cuts. The White House told the Defense News, “There is no way to cut spending this dramatically over a seven-month period without drastically affecting national security and economic priorities. Moreover, [it] would explicitly protect pork barrel spending and, in so doing, would reduce the President’s ability to protect national security.”

In reality, even though the sequester cuts almost a trillion dollars from federal spending over ten years, total federal spending will increase even if there is no compromise to avert the cuts. According to an analysis of Congressional Budget Office spending figures in Forbes, the sequester cuts are subtracted after adding in inflation adjustments and spending exempted from the cuts. The result is that spending will increase by $110 billion after the sequester cuts are accounted for.

On Friday, the sequester officially took effect as Obama ordered federal agencies to begin the initial $85 billion in cuts. As the Wall St. Journal pointed out, President Obama may be the biggest loser if Americans find that spending cuts really aren’t so bad after all.

Originally published on Examiner:

http://www.examiner.com/article/week-review-the-sequester-takes-effect?cid=db_articles