From last week’s events it’s fair to conclude that President
Obama and congressional Democrats are willing to risk default on
America’s debts in order to get tax increases.
On August 2 the government will run out of borrowed money, all
$14 trillion of it. And — despite what you heard from a few idiots
posing as “constitutional scholars” last week — under the 14th
Amendment the president can’t borrow more unless congress
authorizes it.
So negotiations have gone on for months, in the Senate Gang of
Six, the Biden-led talks and several White House meetings, all to
no avail. The reason there has been no success is that the
Democrats want $2 in tax hikes for every dollar in reduced spending
and they want to delay the spending cuts so they don’t take effect
until a future date (before which they can renege on the deal and
restore the cuts).
On July 5, playing the role of a marriage counselor, President
Obama urged “both sides” to get out of their “comfort zones” to
reach a debt ceiling deal. It was classic Obama: posing publicly as
the disinterested arbiter urging compromise while privately making
irreconcilable demands for tax hikes.
In June, after a disappointing May unemployment report, Obama
said, “There are always going to be bumps on the road to recovery.”
Last Friday, he ran into a bigger bump in the latest unemployment
report. It showed that the supposed economic recovery has
stalled.
Fully 9.2 percent of Americans — over 14 million — are
unemployed, an increase of about 545,000 since March. (The 9.2
percent is misleadingly small given the fact that another 252,000
Americans had given up looking for a job and weren’t counted among
the unemployed.)
It was the 29th straight month in which unemployment was over 8
percent, the longest period of unemployment that high since the
1930s. One big reason the report wasn’t worse is that the Federal
Reserve — by pumping newly-printed money into the economy — has
lubricated the job market with free-flowing money. But the
“quantitative easing” program has come to an end. The Obama
administration - by pumping some of the Strategic Petroleum Reserve
oil into the commercial system - is unleashing a back-door
‘stimulus’ which is also holding inflation down.
After the unemployment figures were released, Obama gave a
speech in which he blamed the stalled economy on the Japanese
tsunami, the Greek economy and everything except his spending
spree.
Also on Friday, Senate Budget Committee Chairman Kent Conrad
(D-ND) briefed Obama on his secret budget plan endorsed by a
majority of Senate Dems. It called for $2 trillion in tax hikes and
$900 billion cuts in the Pentagon budget, both over the next
decade, and made no cuts to entitlements.
The transparency of Conrad’s ploy is such that only the media
will fall for it. Last December the Democrat-controlled Senate
voted down a bill to raise taxes on people earning over $250,000 a
year. On May 17, it failed to pass a bill to cut oil companies’ tax
breaks and on June 14, it voted down a bill to end ethanol tax
subsidies. Conrad can’t get Democrats to vote for tax hikes, so why
does he think Republicans will be dumb enough to bail him out?
Democrat desperation for tax hikes — and refusal to make big
cuts in federal spending — is plain in the statements of other Dem
leaders. Senate Majority Leader Harry Reid (D-NV) said cuts in
Social Security were “off the table.” And, as Senate Minority
Leader Mitch McConnell (R-KY) said on Fox News Sunday,”…the White
House and congressional Democrats are insisting on big tax
increases as a condition to do anything on the spending side.”
What comes next? Two things. There will be a last-minute deal to
raise the federal debt ceiling in the short term. And — because
the Fed has stopped pumping money into the system — inflation will
quickly become a growing problem.
Remember “stagflation”? A stagnant economy burdened with
inflation produced “stagflation” in the Ford and Carter years. You
heard it here first: unless the deal raising the federal debt
ceiling includes massive spending cuts — including a reduction of
the entitlement programs — stagflation will be back before year’s
end.
There’s an obstacle that Republicans have to overcome: they need
— at all costs - to avoid an “if-then” deal.
It’s the classic Washington deal that Republicans have fallen prey
to so often. The “if-then” deal is made when Republicans agree to a
compromise now in return for which the Democrats promise later
action on their half of the compromise.
Circumstances change, deals are reneged on, campaign imperatives
intervene, and “later” never comes.
The only way to make a deal is to have all elements of the deal
legislated together to become effective at the same time. If
Republicans don’t do this, they’ll betray every voter who chose a
Republican candidate last year, and may well doom those Republicans
- and more — next year.
House Speaker John Boehner reportedly offered Obama just such a
deal last week. Boehner’s proposal is a classic rope-a-dope,
and Obama wasn’t the one getting lassoed. According to reports in
the Wall Street Journal and the Washington Post,
Boehner offered a deal that extended Bush-era tax cuts for
middle-class taxpayers but let capital gains taxes and rates for
upper-income taxpayers expire in exchange for a Democratic
agreement to rewrite the tax code by the end of next year to
benefit all taxpayers.
It was a classic “if-then”: if you do something now, then we’ll
do something later. It’s the Wimpy Democrats: they will gladly pay
us Tuesday for a hamburger today.
Trying to figure out if the Republicans would fall for this —
again — I asked one of my favorite Hill sources point-blank: why
should we believe they won’t get suckered again? His answer was,
“Two words: Mitch McConnell.” That’s a good enough answer for me,
but there’s comfort in adding two more words: “Jeff Sessions.”
Yesterday, on “Face the Nation”, Alabama’s Sen. Jeff Sessions,
ranking member on the Senate Budget Committee, warned that a deal
— even one endorsed by Republican congressional leaders — won’t
necessarily be approved. (McConnell has said the same on earlier
occasions.)
Messrs. McConnell and Sessions are in the right place and the right
time to prevent the Republicans from falling into the usual
“if-then” trap. They need to stick to their guns.
Before the Sunday session, Speaker Boehner had backed off from
the “big deal” idea he and Obama publicly favored.
A small long-term deal benefits only Obama and Senate Dems. They
want to blame Republicans for failing to cut spending while
avoiding the blame Democrats should bear for refusing to abandon
their demand for massive tax increases and refusal to touch
entitlements. A short-term deal is better for Republicans so they
can keep the pressure on Obama and finally achieve the massive
spending cuts we need if our economy is to recover.
At this writing, the Sunday evening White House negotiations
have yet to occur. This morning will have dawned without a deal
being reached because Obama won’t compromise on spending and
Republicans can’t compromise on tax hikes without betraying the
mandate they received last November.
There are 22 days between now and August 2. As that number
diminishes, the Republicans’ hand only grows stronger.
