The Fiscal Cliff: 3 Clear Goals

A couple of friends in London (here for the holidays) have asked “why would you Republicans risk so much damage to prevent 2% of the population from moving from a 35% to a 39.6% marginal tax rate.” Republicans are obviously terrible marketers, but there are three clear considerations as they manage their two points of leverage – the fiscal cliff, and the companion debt ceiling increase.

1.  We cannot continue with trillion dollar deficits and the Democrats refuse to slow down the pace of spending. In the short run there is little pain from the deficits- except for those looking for a job or trying to live on income from bonds – but in the long run high inflation is inevitable. That may not matter much to people on the dole or working people with salary leverage, but to the rest of us – particularly pensioners and bond-holders – it will be ugly. Very ugly.

2. The expansion of the federal government from 20% to 24% of the Gross Domestic Product under President Obama is not just a statistic. It reflects a transfer of power from individuals to government in the form of mandated healthcare insurance, control of student loans and the mortgage market, more payments for those not working, and more EPA and financial regulators and IRS agents. Like France where employers are reluctant to hire because they cannot fire unneeded employees (and top marginal tax rates are now 75%), American employers are reluctant to hire because of Obamacare mandates and a hostile tax environment.

Goals 1 and 2 say “lets go off of the cliff” and pick up the pieces. Recent history has shown that we do not have the discipline to manage our finances any other way.  Goal number 3 requires a more nuanced calculation.

3. Republicans must control the House to provide some check on a presidency controlled by the left wing of the Democratic party. In 2009 and 2010 when the Democrats controlled everything we got Obamacare and and an expensive, corrupt, and ineffective Stimulus Plan. With another Pelosi/Reid/Obama trifecta in 2014 we could get Democrat-dominated corporate and individual tax reform, blanket immigration amnesty, “cap and trade” climate legislation, and any number of other liberal wish list items. So, what is the risk of Republicans losing the House?

– Most Americans want taxes raised for those earning over $250,000, and that was enough of an issue to carry Obama to re-election with a lousy economy and scarce other ideas.  Few seem to care that a “tax the rich” victory would do little to solve our financial problems. While a majority now feel “a pox on both your houses” if agreement cannot be reached, the public’s attention span is short and the impact in November 2014 is anything but clear. If  Republican ideology is correct, a path to a balanced budget would be a major boon for the economy which would overshadow any residual blame for a two-year old conflict.

– And, few incumbents are really at risk.  In our polarized country only some 85 Congressional contests had two reasonable, well-funded candidates this year – 350 were not seriously contested. The allocation of seats to the states and the district boundaries shaped by the 2010 census together allowed Republicans to  win 54% of the House seats with 48% of the national House vote and will continue for a decade. Also making austerity more attractive, off-year elections draw lower turnouts favoring activists and partisans who usually have more to fear in primaries than in general elections.  With the Republicans holding a 234 to 201 majority in the new House (down seven from the exiting Congress), and relatively few facing a serious threat from the left in 2014, the Republicans would seem to have a secure blocking position, given the right leadership.

Perspectives change during prolonged, complex negotiations. Since impasse seems to be the only path to reducing spending and stopping the growth of government, and Boehner’s effort to go beyond the will of his caucus met a stiff-arm from Obama, the Republicans would be better to let the current forces work themselves out and hire some good PR people back home. The country will survive.


This week’s video offers a glimpse at soon-to-be Senator Tim Scott of South Carolina, another dynamic young Republican leader.