Our nation is experiencing a serious dearth of leadership. Frankly, the president and the speaker have been incapable of negotiating a fair deal to avoid the fiscal cliff. To make matters worse, America (and the world) must once again deal with a debt-ceiling crisis. President Barack Obama and Speaker of the House John Boehner (R-Ohio) have proven to be among the most incompetent negotiators to ever have held their positions. Here, I will look to examine each man’s negotiating posture and point out the flaws of each that makes a leap into the financial abyss a likely event.
Obama has been so adamant about raising taxes on the rich that he has been blinded from the real issue affecting our country: spending. Many Americans have begun to recognize that spending is the critical area that needs to be reformed, and raising taxes for the wealthiest 2% will be a relatively small donation to our burgeoning national debt. Nevertheless, Obama’s relentless class warfare jihad, in which he has attempted to recruit 98% of Americans to join him in demanding more from the 2%, has been successful. But, does it really matter and will it really make a difference?
Our national debt has now surpassed $16 trillion. Reversion to higher tax rates for the rich will generate $1.6 billion during the next 10 years. Meanwhile, the CBO predicts that federal debt will grow to $25 trillion by 2021. It should be noted that the CBO has been critically off target in past forecasts of the federal debt; since 1997, it have been wrong by a margin of 40%, on average. If the agency is off again to the same extent prospectively, the federal debt figure will be $35 trillion in 2021. The mere pittance being extracted from the rich will not have any meaningful impact on this ominous debt load. Democrats, led by Obama, need to see the forest through the trees, begin to take action, and implement reforms on the large entitlement programs.
The associated interest expense that will be payable is estimated to be $1 trillion per year in 2021 assuming interest rates stay at today’s artificially low (and Federal Reserve influenced) level. If the rate averages 4.7% (the 2003 level), interest expense will be $1.6 trillion, a number that dwarfs current federal expenditures aside from rapidly growing medical expenses and Social Security.
The situation is so blatantly obvious that it is shocking that the president and congressional Democrats have been focusing on one small class of Americans rather than on the big picture, expenditures that will lead us to bankruptcy. One final note on this subject is the fact that U.S. debt in 2012 will be 150% of GDP, which is equal to Greece’s ratio. This situation will definitely have an impact on the country’s ability to borrow money to fund the deficits that will take our national debt over $20 trillion. Our nation’s debt capacity is not unlimited notwithstanding the assertions to the contrary.
John Boehner proposed to the president a tax reversion on all those earning more than $1 million, among other things. This stand is a dramatic turnaround from Republican dogma that came into prominence when George W. H. Bush broke his 1988 Republican Conventions vow to never raise taxes, and then lost to Bill Clinton. It was a seminal moment that has greatly impacted how Republicans have dealt with fiscal policy since then. Formerly, even under Ronald Reagan, a more sensible approach that included a mix of revenues and tax increases was the way conservatives responded to the growing needs of the country to fund defense and social programs, in particular.
Now, tax increases are anathema to conservative Republicans, and conservative voters have punished any member of the party who dares challenge this covenant. The Tea Party and Grover Norquist have led this charge by demanding absurd vows of compliance. Boehner may become the latest casualty of the radical right for having the audacity to propose increased taxes. The speaker has been unable to sell his plan to his caucus, which might increase the odds even further that he will be replace momentarily.
The no new tax perspective is not workable in today’s political environment, as a majority of Americans who earn less than $250,000 want the rich to share their “pain.” Many wealthy Americans have already resigned themselves to a tax increase, and certain powerful business people have actually endorsed higher taxes publicly.
Obama has successfully led this challenge to right-wing Republican sentiment. Ironically, the real pain for the masses has not yet occurred from a fiscal point of view. Entitlements and every sort of new aid package have been showered upon the middle and lower classes in recent years. Some of these people are in dire need of such benefits as unemployment insurance and food stamps. In the future, the lower classes are going to have to live with a reduced social net and less medical support.
An inability to negotiate a deal that includes tax increases and entitlement reform (now) is the real reason why our government cannot make a grand bargain. Democrats have illogically responded to an illogical Republican perspective. The former will not agree to address the long-term issue of entitlements, which is critical to stemming the growth of our national debt, and the Republicans refuse to agree to very popular tax increases for the rich. Both of these negotiating perspectives must be altered for our country to successfully move forward and avoid economic chaos associated with the fiscal cliff.