Thursday, December 6, 2012

Caution: Don't Overplay Your Hand

Every second term president thinks about his legacy.  President Obama is no exception.  The Affordable Care Act, the auto bailout and the elimination of Osama bin Laden will certainly secure Barak Obama’s name among our most accomplished chief executives.  But the president runs the risk of tarnishing that legacy with the ongoing negotiations about the fiscal cliff.
Secretary Geithner said yesterday that the White House is willing send the country over the fiscal cliff rather than continue to provide tax cuts for the wealthiest Americans.  Perhaps this is nothing more than negotiation bluster.  But if the president is serious about plunging over that cliff he needs to rethink his position.  Because when history recounts the events that put the country into another deep recession it will not remember the names Boehner, Geithner or Cantor.  But it will most certainly note that Barak Obama was the president that took the country over the cliff in order to make a political point.
If legacy is important, and believe us it is, the president needs to be very careful here.
The president is negotiating from a position of strength. 60% of the American people say that we should raise taxes on the wealthy.  While achieving that sense of fairness is important a more critical need for the country is finding an equitable path toward fiscal security.  A “Grand Bargain” would fulfill the president’s campaign promise on taxes and inject a sense of fiscal responsibility that has long been absent in Washington.  Legacy secured!
The president and congress seem to agree that they will retain the Bush tax cuts for the middle class.  The president has therefore urged congress to pass that agreement into law as a standalone bill.  Providing that sense of security for the country would be a very good thing.  But it would kill any chance of a Grand Bargain.
Let’s say Boehner is willing and able to get enough members of his caucus to pass such a bill before the New Year.  Maybe even bump the taxes on the top 2% up a couple of points.  After all, the president DID win the election.  Both sides would undoubtedly then agree to push back the sequestration cuts until sometime after the new congress takes office. 
Fiscal Cliff avoided!  No tax cuts for the middle class!  Victory for the president!
Not so fast.
Next February the parties will have to deal with raising the debt ceiling.  The Republicans will surely announce that they will refuse to raise the debt ceiling unless the president agrees to draconian cuts on Medicare, Medicaid, Social Security and other social programs.  They will remind the president that Republicans agreed to his terms on taxes…now it is his turn to swallow the bitter pill.  And make no mistake; the cuts that Republicans will demand on those social programs will make the tax increases on the rich seem insignificant. 
Raising taxes on the rich is a major component politically but a relatively insignificant aspect of financial reform.  The rich won’t feel a thing.  But social programs are the real drivers of our debt.  And since 98% of the American people depend to some degree on these social programs; the steep cuts that Republicans will demand are really going to hurt.
The president has an historic opportunity here to create a Grand Bargain that will be good for the country and monumental for his legacy. Raise taxes on the rich for short term stimulus; and reform “entitlements” for long term spending cuts. 
The President holds a strong hand.  He needs to be careful to not overplay it.

           

                 

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