Obama Fiscal Cliff: The President Is Not Acting Like a Leader in Fiscal Cliff Negotiations

This Monday in Michigan, President Obama made it clear that he would not compromise on raising taxes on the wealthiest Americans. This announcement comes as no surprise since the President included mandatory tax increases on the wealthy in his fiscal cliff proposal released last week.

The president's fiscal cliff solution proves that he has no intention of working with Republicans to come up with a bipartisan bill. The president's proposed solution to the fiscal cliff ignores spending cuts completely and instead raises taxes on the wealthy and greatly expands the power of government. If President Obama was a true leader, he would have a serious conversation about real spending cuts and entitlement reform. 

Currently, the American public blames Republicans for the stalemate in Washington.

This is curious because in 2010 the American people gave Republicans a massive 62 seat swing in congress, reversing the majority away from Democrats. Republicans were charged with passing a national budget (something Democrats did not do with majorities in both sides of congress) and decreasing national spending. The temporary "solution" was the Budget Control Act of 2011 (BCA).

In exchange for a one-time debt limit increase, the BCA forced a serious conversation about spending cuts and created the "super committee" to agree on what should be cut. The bipartisain committee failed to agree on anything and rather than make serious budget decisions, they activated the automatic sequester cuts to government spending. This is the first component to the fiscal cliff. The second is the Bush Tax cuts expiring, both of which happen at the begining of next year.

So where does that leave us?

Last week, the president sent over a solution to avoid going over the fiscal cliff that we will hit at the end of the year. If the president is serious about a bipartisan solution, it should contain serious cuts in spending, especially if he wants to raise taxes on the wealthy.

According to Keith Hennessey, a national public policy expert, the president's plan actually raises spending accross the board.

The president proposes $4 trillion in deficit reduction. $1 trillion of these cuts were already passed in the Budget Control Act of 2011 and another $1 trillion comes from lowering spending caps in Iraq and Afganistan. While the first is double counting, the second is "cutting" spending that has not even been budgeted yet.

The other $2 trillion amounts to $400 billion in mandatory spending savings and $1.6 trillion in tax revenues. Mr. Hennessey also notes that only $106 billion of mandatory savings will go into effect now, "the other $290 might come in 2013 as a result of entitlement reform."

Currently, Republican's are pressing President Obama to figure out exactly where these spending cuts will come from.

In addition, President Obama wants to permanently raise the debt ceiling and permanently extend Medicare payments to doctors, a.k.a. the "doc fix." The last debt ceiling increase cost $400 billion and the "doc fix" will cost about $316 billion over the next decade without a carte blanche.

Regardless of wether or not you agree with the president's accounting methods, his bill increases spending, not decreases it. The majority of Americans do not favor increasing the debt ceiling without a plan for reform.

Critical to any reform plan is for legislators to agree on where these cuts will come from. This is where President Obama has been extremely vague in proposing his own reforms and extremely critical in dismissing Republican reforms (think Paul Ryan). This is also where the President's leadership is needed and has been absent for the past four years.

How much do you trust the information in this article?

Dylan Ewers

I am interested in Austrian Economics and how the Austrian Business Cycle applies to our current financial collapse and recession. I am also intensely interested in how New Institutional Economics (NIE) can explain how our system of government channels a new set of underlying incentives that produce unintended results. I majored in Economics and Business Administration at Hillsdale College. I have been a mortgage broker during the housing crisis, interned at Mercatus/IHS at George Mason University and currently work in commercial real estate in Gerogetown (DC).

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