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Obama’s Full In-Tray

12:00 PM, Nov 10, 2012 • By IRWIN M. STELZER
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The robocalls have stopped. Television ads have gone from attacks on candidates to the usual pitches for medications and exercises that will enable you to live forever. Political post-mortems are under way. And the 2016 wannabees are lining up financing and staffs for their runs at the Democratic and Republican nominations. This will be a relatively easy task for the Clintons should Hillary decide to make a run, but might be more difficult for New Jersey governor Chris Christie, whose embrace of the president during their televised tour of the damage from Sandy helped Obama to dispel the notion that he couldn’t work across party lines. They say that revenge is best eaten cold, and Republican primary voters just might serve up that dish three or four years from now.

President Obama speaks to the nation from the Oval Office.

President Obama speaks to the nation from the Oval Office.

The Obamas don’t have to move back to Chicago, the Democrats still control the Senate, the Republicans still control the House of Representatives, and two fiscal “events” still loom. Before year-end America will hit the debt ceiling, which prevents it from borrowing money to meet its obligations—the ugly word for that is default. Then, as we ring out the old and ring in the new, we fall over “the fiscal cliff.”

Avoiding both events will require compromises, not politicians’ long suit. Don’t be fooled by President Obama’s victory speech, calling for a bipartisan coming together. It is almost verbatim the speech he made after his victory in 2008, before passing Obamacare without a single Republican vote and pushing through a stimulus package on almost the same partisan basis. So the country finds itself with a presidential believer in big government confronting an opposition that just as passionately believes in reducing the role of government in the lives of most Americans.

You will recall that the last battle over the debt ceiling resulted in the loss of our AAA bond rating. Because that downgrading had little or no effect on the interest rate paid by the Treasury on its bonds, both parties are emboldened to dig in their heels even at the risk of another downgrading. The Republicans say they will agree to raise the ceiling only if the Democrats agree to equal cuts in spending. My guess is that this will be solved by accounting fudges of the sort that would result in long prison sentences if indulged in by private sector businesses and their auditors.

The fiscal cliff poses a less easily solved problem. Unless some compromise is reached, tax increases and spending cuts will combine to slice 4.3 percent out of GDP—a cut of Grecian magnitude—just when most Americans are singing Auld Lang Syne. The Congressional Budget Office reckons that will cause the economy to shrink by 1.3 percent in the first half of 2013, before recovering sufficiently in the second half to produce full-year growth of 0.5 percent. The most reliable Washington sources (I am not unaware that “reliable” and “Washington sources” might be an oxymoron) tell me that there will be a deal to avoid a plunge over the cliff: Republicans will give in to a few Democratic demands to raise taxes, perhaps on those earning more than $1 million per year, and then both parties will “kick the can down the road,” giving them time to agree to some “grand bargain” to reduce the deficit.

Speaker Boehner has announced that he would agree to “revenue enhancements” if Democrats agree to spending cuts, especially on entitlement programs that, left in their present form, would bankrupt Medicare. “Revenue enhancements” differ importantly from increases in marginal tax rates, since the new revenues result from ending various tax breaks, such as lower tax rates on dividends and capital gains, and the deduction of interest payments on mortgages. This broadening of the tax base, which would hit mostly high earners, supposedly has bipartisan support, although the president continues to believe that “fairness” dictates levying higher marginal rates on everyone earning more than $200,000 ($250,000 for families). If he doesn’t get his way he very well might let the Bush cuts expire, and then introduce a bill to lower rates on all save the higher earners—and dare Republicans to vote against those tax cuts.  

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