Tuesday, December 4, 2012

The Fiscal Cliff: What Does Obama Really Want?

Taxes hikes are a distraction. It is all about spending.

Barack Obama is a master magician. The great ones keep your attention focused on their right hand while they pick your pocket with their left. For a lawyer who voluntarily surrendered his law license, Barack Obama has proven an exceptional ability to frame the public debate.

When presenting the administration’s “fiscal cliff” proposal to Congress, Treasury Secretary Geithner asked for three things; taxes, spending and executive authority to unilaterally raise the debt limit. In reply, House GOP “Leadership” acquiesced agreeing to cap deductions including the mortgage interest deduction effectively raising taxes. Barack Obama proposes to raise taxes to cover eight days of government spending. The Republicans countered with four. Both parties claim to be raising “revenue” and not levying taxes.

House “Leadership” claims to promote fiscal restraint while removing fiscal hawks from key leadership positions. The Democrat Senate does not pass a budget for three years while quietly incorporating the 2009 Obama “stimulus” into the spending baseline thereby enacting a permanent stimulus. By claiming that “it’s time to rip the Band-Aid off and reach a deal” or “it won’t kill the country if we raise taxes a little bit on millionaires,” Republicans are validating the virtue of these new spending levels and relinquishing their mantle as the party of low taxes and limited government.

While some have suggested Obama’s objective is to "kill” the Republican Party by forcing it to relinquish its core principles, the “tell” to Obama’s principal goal is Treasury Secretary Geithner’s proposal to “lift the debt limit to infinity.” Obama understands the only leverage fiscal conservatives have at forcing any measure of spending restraint or entitlement reform is through debt limit negotiations. Obama has not presented any spending cuts during "fiscal cliff" "negotiations" because they are not in his political interest. If Republicans agree to raise taxes, Obama forces them to go back on their pledge and achieves a political “win”. If Republicans hold firm on their principles, Obama gets massive tax hikes on everyone to pay for increased spending. Obama is buying ad time to try and force the Republicans’ hands, something conservative talk show host Mark Levin suggested Republicans do to explain the virtue of cutting spending and not raising taxes.

The only way Republicans regain the upper hand is to hold firm to their principals, articulate their position and exert their leverage at the upcoming debt limit negotiations. Capitulation will hurt the country as Obama has demonstrated an unwillingness to cut spending and proposed tax hikes will cover little current spending. Moreover, members who capitulate will pay a heavy political price as they will force conservatives into open revolt.