Obama Won The “Fiscal Cliff” Political Battle – He Convinced America That Problems Will Be Solved With Higher Taxes For The Rich – Very Clever, But Untrue – US Needs Entitlement Reform, New Taxes Will Solve Nothing

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By Paolo von Schirach

December 22, 2012

WASHINGTON – So far at least, it would appear that President Obama would rather be a successful leader of the Democratic Party as opposed to being remembered as a great President.

Exploit GOP vulnerabilities

The way he is conducting the “Fiscal Cliff” negotiations shows that his main intent is to exploit to his advantage the (rather silly) Republican anti-tax pledge. By saying that he would agree to have some unspecified spending cuts, as long as the GOP would accept up front tax rates increases for the wealthy, Obama started a fight among House Republicans. Some would accept Obama’s terms, assuming (or just hoping) that their surrender on taxes would lead to a deal on real spending cuts. But many Republican House members would never, ever agree to support higher taxes.

With his caucus split into two camps, Speaker Boehner cannot deliver the votes of his own troops. He is weakened as a leader, the GOP is divided and Obama can say that the unreasonable Republicans are the only obstacle to a balanced deal that would fairly distribute the burdens of deficit reduction.

Obama framed the argument: the rich have to pay more

Nice job, Mr. President. The Republicans are in a pretty bad spot because Obama framed the issue and they could not do it. Speaker Boehner did say that America has a spending problem rather than a lack of revenue problem. But this did not sway public opinion.

Right now, thanks to President Obama’s unwillingness to properly describe America’s structural deficit and debt crisis, not enough voters really understand how serious our $ 16 trillion debt problem is. Furthermore, very few realize that most of our deficits are caused by large entitlement programs (Social Security, Medicare and Medicaid) that were designed in a different era, at a time in which nobody could fathom how much they would end costing today. Which is to say that we shall never successfully “bend the spending curve”, this way starting a debt reduction process, without restructuring entitlements so that they can become self-sustaining. And yes, any serious reform will mean that future recipients will end up getting smaller benefits, and a later age.

No straight talk about entitlement reform

Obama has yet to say any of this publicly. My hunch is that he never will, because it would be politically inconvenient. Instead the President managed to convince a majority of Americans –opinion polls indicate this much– that to the extent that we do have a deficit problem, this should be reduced by having rich Americans pay higher taxes –their “fair share”– at the same time tweaking spending a little bit, here and there.

Our central problem, as the President described it, is that the rich are not paying enough. Now, it may very well be true that the rich should pay higher taxes. However, this is not our central problem. If Obama were serious about deficit reduction, he would recognize that higher taxes for the rich do not even begin to resolve our structural deficits. But the President insists on higher taxes for the wealthy because this embarasses the GOP, not because it is an indispensible component of any serious fiscal reform plan.

Obama won the battle

So far at least Obama won the political argument. The GOP lost. The Republicans are now blamed as the ideological obstructionists who are preventing a fair deal. I am not sure how they can get out of this box. Probably they cannot.

So, Obama and the Democrats are winning. Good for them. But America loses. Our structural fiscal and debt crisis will not go away simply because President Obama chose to describe it in a way that it is politically convenient for him and for the Democrats.

The deficit/debt crisis will get worse

Without serious reforms that will have to include downsizing, the cost of our large entitlement programs will rise more and more. And new taxes will not solve the problem. At some point America will no longer be in a position to borrow the money necessary to pay for Social Security, Medicare and Medicaid. And that is when we become just like Southern Europe: another exhausted country burdened by unsustainable social spending that progressively absorbed most of our national wealth.

Sure enough, we may be a long away from becoming another Greece or Spain. Most likely Obama, having completed his second term, will be gone from the scene. But his lack of leadership on entitlement reform for the sake of short term political gain will be remembered.

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