Obama vs. the Democrats

Today, Friday July 22, Obama and House majority leader, Boehner, are reportedly about to agree to a $3 trillion spending cuts only deal. Their original agreement earlier this month, which blew up due to Teapublican radicals’ opposition, called for a $4 trillion combined package of $3 trillion in cuts with $1 trillion from tax loophole closing to raise revenues. Now Obama is about to drop raising tax revenues altogether to get an agreement with Boehner and the Teapublicans to raise the debt ceiling.


Last spring he caved in and gave the House radicals and Boehner $38 of the $39 billion in spending cuts in the 2011 budget they were demanding from a reopening of last year’s budget. Now it looks like Obama is about to give them exactly what they want yet again! Only now it’s 100 times as large.


This $3 trillion spending only proposal will likely be agreed to by the House radicals if Boehner takes it back for a vote. After all, it conforms to their central principle all along. Teapublicans and the House have consistently demanded spending only cuts and no tax revenues. Tax revenue discussions will be addressed after the $3 trillion in spending cuts and debt ceiling is raised, according to business press reports. That will require a major revision of the tax code to follow later this year.


But only the naïve can believe that when the tax code revisions are addressed that the House radicals won’t demand even further spending cuts. Already some of the most extreme right-wingers in the House and Senate, among their ranks, have introduced proposals to cut spending by $5 and even $9 trillion.


Future tax code revisions will begin with the ‘Gang of Six’ program that was raised earlier this week. The Gang’s deal, by the way, is essentially the Simpson-Bowles Deficit Commission’s recommendations on tax code revision published last November 2010. What are these Commission-Gang of Six tax proposals? They aren’t simply closing tax loopholes. The Simpson-Bowles, now ‘Gang of Six’, tax program calls for additional massive tax cuts for the rich and corporations.


For example, the Gang’s plan reduces the top marginal personal income tax rate from its current 35% to 23%-29%. That’s hundreds of billions in more tax cuts for the rich, in addition to the roughly $500 billion in continuing tax cuts for the rich and corporations passed less than a year ago as a result of Obama’s two year extension of the Bush tax cuts last December 2010.


But that’s not all. The Gang of Six plan also calls for a similar cut in the corporate tax rate, from 35% to 23%-29%. That adds still more hundreds of billions added to the deficit. Then there’s their proposed abolition of the Alternative Minimum Tax that requires those earning more than approximately $150,000 a year to pay some amount of tax despite credits, exemptions, and loopholes. That’s potentially worth another $1.7 trillion. These three measures alone account conservatively for another $2.5 trillion in tax cuts for the wealthiest over the next decade.


How does the ‘Gang of Six’ plan propose to pay for these additional $2.5 trillion tax cuts for the rich and their corporations? By mostly cutting Medicare, Medicaid and Social Security, plus across the board cuts in virtually all government departments. How much does the Gang’s plan call for in defense spending cuts? Only $8 billion a year.


And remember, that’s spending cuts in addition to the proposed $3 trillion in spending cuts that Obama and Boehner today are reportedly about to agree to.


So, after Obama agrees to cut $3 trillion in spending only and kicks the tax revenue can down the road, bargaining begins again on how to cut spending even more to pay for another $2.5 trillion in tax cuts.


By dropping all demands to raise tax revenues now and by agreeing with Boehner to cut $3 trillion in spending immediately, Obama is essentially adopting the Teaparty proposals. But he is also painting himself and the Democratic Party into an impossible corner.


By proposing $3 trillion in spending cuts only, should the House radicals agree to the deal, Obama maneuvers his own Democrats in Congress into a ‘lose-lose’ position. They either agree immediately to massive $trillion dollar spending cuts (including Medicare, Medicaid, education, etc.), or they oppose the cuts and consequently take the blame for holding up the debt ceiling increase. Instead of Republicans getting blamed for debt ceiling default, now the Democrats will appear to be the cause of holding up a deal and for a possible default.


Obama’s latest move strategically means he has put his own party in a box. Democrats in Congress will take the heat—and suffer the losses in the next election if they agree to massive spending cuts that include Medicare and other programs. Democrats will also no longer appear as the defenders of social security and Medicare against mercenary Republicans bent on destroying those programs. But Obama by this move gets to appear as the big spending cutter. That will no doubt translate into more corporate campaign contributions. It is a move designed to appeal to the independents and moderate Republican vote in the next election, at the expense of his own base. Obama and his advisors are no doubt betting his own Democratic voter base will stick with him against some crazy right wing opponent in the presidential elections. But the Republicans will not prove so stupid to run a Bachmann type. And Obama’s base, which already last year showed serious signs of being demoralized by the President’s constant concessions, and stayed home in last year’s midterm elections, will once again not come out to vote in 2012. They will stay home.


This is 1978-1980 redux and Obama should change his first name from ‘Barack’ to ‘Jimmy’. Or perhaps to ‘Jimmy Bill Obama’. That gives him an acronym of JBO, which is ‘jobs’ misspelled and backwards. But that’s another problem with his administration, as next months jobs will data will continue to show.


Jack Rasmus is the author of EPIC RECESSION: PRELUDE TO GLOBAL DEPRESSION, Palgrave-Macmillan and Pluto Press, May 2010; and the forthcoming OBAMA’s ECONOMY: RECOVERY FOR THE FEW, same publishers, late 2011. His blog is jackrasmus.com and website: www.kyklosproductions.com.  

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