Tax Hikes On Wealthy: GOP Folds On Obama’s Bluff

While the nation is mourning the murdered children the news comes out that John Boehner as speaker of the House has caved to Obama’s demands for a tax hike for the rich. What does this mean?

First, it means the deficit will widen and the debt load will increase. Even if the government took 100 percent of the income of the wealthy, it would not cover the deficit. The only strategy that could possibly do anything meaningful for the national debt-burdened economy is for the government to cut massive amounts of spending out of the budget. All Obama has been willing to offer is a measly $400 billion reduction in planned spending over the next decade. Boehner is hoping to get more from him in return for tax hikes, but how much more? At this level, it is all way too measly. We know this is the case, because we’re reached another debt ceiling and are going to be expected to raise it again.

Second, Boehner’s cave is going to discourage Republicans and embolden Democrats. I hope Republican grass roots voters will not stay discouraged. I hope they will get mad and get to the voting booth in 2014 to drown Congress in Tea Party candidates. But this is an unmistakable spitting on the GOP base. Democrats, on the other hand, will have less reason to make concessions. They will think they have the power.

Third, economic growth will slow. The people most able to expand the economy and start businesses that meet needs and provide jobs will be hit with more confiscations. This means not only that money that could be used will go to the government, but that there will be fear and uncertainty that will motivate “the wealthy” to simply keep what money they have left and not risk it in the hope of profits. Since the debt situation for the United States is going to get worse instead of better, we were already facing an uphill struggle to find a way to put people to work. Now we will have tax increases on top of the worsening national deficit.

Fourth, when we reach the next Presidential election, it will be even harder to run a credible campaign that shows the GOP candidate represents an alternative to the Democrat candidate. Boehner and his cohorts have done to the Republican chances of reclaiming the White House roughly what George H. W. Bush did when he broke his “Read my lips: no new taxes” pledge. Republicans became disillusioned and Clinton won the White House.

One can argue that going over “the fiscal cliff” would have been just as bad on the economy. Maybe. But I suspect he deficit reduction in the fiscal cliff would have been much more significant than what we will get once Boehner and Obama are finished with their dance. And deficit reduction may have given investors more confidence. I certainly doubt that “the fiscal cliff” will be any worse than what Boehner and Obama cook up.

Of course, anyone with any grasp on economic reality knows most of this is nothing more arguing over the interior decorations in a cruise ship that is tipping over on its side. If our leaders had any idea at all how dangerous our situation is, they would cut the deficit to zero next year. Then they would start a conversation on how to reduce the coming entitlement tsunami by getting rid of Social Security, Medicare, and Medicaid.

I have no idea if Obama and Boehner are themselves deluded, or if they are simply deluding others to squeeze as much personal advantage out of the charade before it ends. But the results are the same regardless of whether or not they are ignorant. All our financial promises are going to end. The only question is whether or not we can soften the landing, or if we are going to take a surprise fall straight down into default and devastation.

This year both parties are electing the latter option.