Obama Plays Hardball As GOP Wavers

It's starting to look like now that his second term is assured, President Obama is putting his foot down on taxes. He told progressives and union leaders a couple of days ago that there was no way he would agree to extend the Bush tax cuts for the rich again (like he did in 2010). And in his press conference yesterday, the president said:

"There is a package to be shaped, and I'm confident that parties -- folks of goodwill in both parties can make that happen. But what I'm not going to do is to extend Bush tax cuts for the wealthiest 2 percent that we can't afford and, according to economists, will have the least positive impact on our economy."

Meanwhile, it is starting to look like the Republicans are beginning to waver on getting more government revenue from the rich. They just don't want to get those new revenues by raising the tax rate on the rich. Instead, they want to hide the tax raise as much as possible (so they won't incur the wrath of the teabaggers in 2014 primaries) by eliminating some "loopholes and deductions". But the president has not bought into that as a solution, saying:

"It's very difficult to see how you make up that trillion dollars -- if we're serious about deficit reduction -- just by closing loopholes and deductions. The math tends not to work." 

The Republicans are definitely in the weaker position here, since the Bush tax cuts will automatically expire at the end of this year if Congress takes no action at all. That expiration would again raise the top two tax rates from the current 33% and 35% to the Clinton era rates of 36% and 39.6% (which would still rate among the lowest top tax rates since World War II). It would also raise the tax on investment income from 15% to 20% and tax dividends at the earned income tax rate -- both of which should be done.

The only real question, if the president and Democrats stick to their guns, is whether the tax rates for those making less than $200,000 a year ($250,000 for a married couple) will also be allowed to rise. The Democrats want to extend to lower taxes for those people, while the Republicans want lower rates to be extended for everyone (including the rich). The GOP used this as a club against the Democrats in 2010, and got the extension for everyone that they wanted. That's not going to work this time. The Democrats can just let everything expire and then introduce a bill to reduce rates for the bottom 98% -- and if the Republicans refuse to pass that, they will have to explain it to the voters in 2014.

Frankly, the more I think about this whole mess, the more I think that nothing should be done. Just let all the tax cuts expire, including the payroll tax cut and the sequestration cuts to government programs (including the cuts to the military, which are approved by the Pentagon). I know that many economists are predicting that will push the country off a "fiscal cliff", but I just don't believe that anymore. These are the same economists that told us everything was fine just before the recession hit. At best, they are guessing, and at worst, they are playing political games to keep their rich benefactors happy.

The Republicans (and a lot of Democrats) have been screaming for a couple of years now about the deficit. Well, if they are serious, the easiest way to reduce the deficit is to just do nothing and let the tax cuts expire and the sequestration cuts take place. If adjustments are needed, they could be done later -- since even if the economists are right, it would be more like a long slide than falling off a cliff.

There is just one thing that we need to be careful of when negotiating with the Republicans about this. They want to include the "reform" of Social Security and Medicare (meaning they want to cut Social Security benefits and turn Medicare into an unworkable voucher program) in whatever deal might be reached. That must NOT happen. Both programs can be fixed without reducing benefits or abolishing (or privatizing) them.