I was disappointed to hear yesterday that President Obama is returning from holiday in Hawaii to Washington to immerse himself in negotiations with the Republican leadership over the fiscal cliff and the debt limit. The President should simplify his role in the process by being more aloof and speaking directly to the American people. Moreover, he should, for now focus on getting us past the debt limit. Treasury Secretary Geithner, and the leaders in Congress – Boehner and McConnell for the Republicans, and Pelossi and Reid for the Democrats are all at the same level – let them negotiate. The President needs to be above that. He should state his position clearly to the American people, but otherwise stay aloof.
On the fiscal cliff – a central promise in President Obama’s campaign was to make the Bush Tax cuts permanent for everybody except those earning over $250,000. Since he was elected on that position he can’t immediately turn around and agree to something else (I know that sounds familiar).
On the debt limit – that is a matter for Congress — the constitution gives the President no role in setting the debt limit. President Obama should point emphasise to the public how urgent the matter is, but it is Congress’s job to ensure that the Treasury is empowered to pay the Federal Government’s debts. Then he should refuse to be drawn into discussion of it. Its not the President’s job to set the debt limit.
Ultimately it is best for Democrats if the Bush tax cuts are never renewed. Democrats were against the tax cuts in 2001 and 2003 because they were regressive and they were fiscally irresponsible. Well, what has changed? The Democrats’ position in 2001 and 2003 was principled and congruent with their belief in large transfer payments in the form of medicare and social security entitlements. The Democrats want a big role for the Federal Government, so ultimately to fund that they need to raise a lot of tax revenue. Why then don’t they just let the Bush tax cuts expire? Or, if they are concerned about the short term effect on growth, why not accept a two year extension for all taxpayers – just as they did in December 2010 and then let them expire in December 2014.
Making the tax cuts permanent is playing into the hands of the Tea Party. The reason that Republicans are so opposed to tax increases is because their long term strategy is to ‘starve the beast’. If taxes can be kept low enough for long enough, then Government has to shrink. The logic of this approach is ineluctable. By reversing their position in 2012 from what it was in 2001 and 2003 the Democrats are hastening the ultimate day of fiscal reckoning for Big Government.
In any case, the debt limit is a much bigger issue for the world economy. Going over the fiscal cliff will be a very slow motion and low impact train wreck and the train may not even come off the rails. In contrast, a default on US Treasury debt would smash consumer and business confidence around the world, with consequences for the weak global economy that cannot be predicted.
The Republicans want to use the debt limit for repeated bargaining every two years in which they get reductions in entitlements in exchange for an increase in the limit to last for two years. Why would the President play that game? He does not have to engage in negotiations at all. He just needs to repeatedly remind the American people that if they are worried about the debt limit then ring their Congressional representative because the debt limit is the business of Congress and not the Whitehouse.
Finally, President Obama should step back from the negotiations and remain aloof from them because he does not have a good track record with negotiations. Can you think of a single situation in which the President has persuaded or cajoled others into changing their position in his interest? With the Republicans in Congress? At the Global Warming Summit in Copenhagen? With the building of settlements by Israel? With the protection of the Taliban by Pakistan? Bomb building in Iran or North Korea? Currency manipulation in China? I can’t think of a single significant example of President Obama using the power of his office to get what he wants in negotiations. Better to let his lieutenant Geithner do the negotiating – but from a position that the President doesn’t really have to do anything either on the fiscal cliff or the debt limit.