The Darker Side of the Fiscal Cliff

Conspiracies are the guilty pleasure of modern America.

These days, almost no major public action can occur without a darker, nefarious explanation for events popping up among the chattering classes or the “black helicopter” crowd.

So with little new information to report as the “fiscal cliff” talks wallow in deadlock, what might be a possible, sordid conspiracy to explain this alarming stand-off?

For your reading pleasure, I posit one working theory regarding President Obama and the Democrats:

Public statements aside, the President and his progressive allies actually have no interest in resolving the “fiscal cliff” before December 31st. Instead of treating the cliff (and the 2013 debt ceiling deadline) as a governing issue – which requires immediate resolution to prevent grave damage to the American economy, and by ripple impact, the global economy, which would ensue- the Administration and the progressive grass roots viewed the cliff as a means to an end in a far more consequential ideological battle with Republicans and conservatives for long-term political dominance in the US.

Under this paradigm, the likely economic chaos that would ruin American lives and livelihoods from “cliff diving” and “debt baiting” are simply the price that must be paid to vanquish political opposition and pave the way for a fundamentally transformed America reflecting a progressive social justice agenda.

Farfetched? Maybe not as much as might appear at first blush.

The communists in the old Soviet Union famously talked about the “correlation of forces” – inevitable historical developments that would one day align and bring about the end of Western capitalism. From a progressive ideological perspective, a companion correlation of forces may have now taken shape in the United States.

The President just won re-election. The Republicans have been thrown back on their heels, sorting through the wreckage of campaign issues that did not resonate with voters, even as they grapple with the political reality of lost seats in the House and Senate, as well as an immediately uncertain future.

And while conservative pundits obsess about Obama’s narrow victory, his substantial loss of support from 2008 and the return of a GOP dominated House as proof of a voter intended constitutional counter-weight to Obama governance, there was also another message in the election exit polls tea leaves that would provide solid reassurance to progressives that the center-right has either missed or ignored.

According the CNN exit poll, by 55-39 percent, voters said that the US economic system favors the wealthy. A sobering 60 percent of Americans said they favored income tax increases; 47 percent of those calling for increases on those earning more than $250,000.

This would inform the President’s confident and apparently non-negotiable insistence in the fiscal cliff discussions that tax rates on the top 2 percent of earners rise if there is to be any deal before the end of the year.

And then there is this.

In exit poll questions on the economy, by 52-46 percent, voters said that the country was on the “wrong track.” A staggering 77 percent said that economic conditions in the country were either “not good” or “poor.” Notionally, this would be cautionary information for the President who managed only a 49-49 percent draw on whether voters had a positive or negative impression of his Administration.

Republicans and conservatives take heart in this data as incontrovertible proof of Obama’s manifest failures, and by extension, that these polling points serve as leverage for the GOP.

Except for this.

By a margin of 53-38 percent, voters said that President George W. Bush was more responsible for the current economic problems than President Obama.

This is astonishing and paradigm-shifting information. Indeed, this may be the single most important data point to come out of the exit polls and election.

A rolling, fulsome and comprehensive four-year Republican critique regarding the serial failure of the Obama administration to competently execute economic policy, the worst “recovery” in modern American history with the worst sustained deficits, geometrically expanded national debt and durably high, structural unemployment since the Great Depression, and the American people have given President Obama a pass.

So, far from seeing the nation as highly polarized and evenly divided – as is today’s conventional wisdom – progressives instead see an decisive alignment of public opinion in their favor with Americans believing that: the economic system is unfair, the rich are not paying enough in taxes, and, Republican policies were broadly responsible for the troubled economy, and by inference, while the President keeps trying, it is the GOP that keeps blocking constructive progress.

Given that case, then it is fair to reason that progressives would see a valuable ideological opportunity to break the Republican Party and conservative movement using that public support for the President’s positions to divide the GOP on its core ideological tenets and force a resolution on progressive terms. Audaciously, it would require the use of the fiscal cliff, and the need in February to raise the debt ceiling, as tools to frame GOP adherence to principled economic positions as obstructions that would immediately undermine the economy.

How?

For starters, go over “the cliff.”

This is not nearly as terrifying for progressives as it is for the rest of us. If people would just look, the actual details of the cliff are a progressive wish list anyway. It imposes an array of immediate and crushing taxes on the wealthy. And it sets up punishing, national security damaging, cuts on defense. These two elements have been standard fare for progressives since Reagan, and they are served up here without so much as a vote.

And the icing on the cake?

It is politically cost free for the President, at least for now. The latest Washington Post-Pew poll which shows that if Congress and the President fail to reach a deal on the fiscal cliff, 53 percent would blame Republicans, 27 percent would blame the President.

Yes, the middle class tax cuts expire too, as well as the payroll tax cut. The middle class would be looking at a gut punch just as they cling to economic survival.

But from a progressive ideological perspective, you have to break a few organic eggs to get an egg-white omelet. Geithner can re-arrange the tax withholding tables and delay the actual collection of the tax increases. Yes, there will be uncertainty, and that will trigger a cascade effect on business and the economy. Unemployment will jump, growth will tank, but the diamond-crushing political pressure to get a deal after Jan 1, would make it a safe gamble that at the end of 2013, the middle class won’t pay higher taxes, at least as a result of the cliff.

And on January 1, 2013, it’s a whole new game.

With the cliff is breached, taxes go up, spending gets cut, and the President and the eagerly compliant Fourth Estate begin a two pronged attack on Republicans, with a barrage of blame: 1) GOP obstinacy to protect the top 2 percent forced the nation over the cliff, 2) GOP obstinacy to re-enact tax cuts for the top 2 percent is the only obstacle to restoring tax relief for 98 percent of Americans.

The GOP would now be in a lose-lose.

If the party doesn’t agree to immediate action to restore the middle class tax cuts, then they bear the blame for tax hikes on 98 percent of tax payers and, catastrophically, essentially cede the tax issue to the Democrats who will be in every paper, blog and talk show demonstrating their commitment to immediate tax relief.

Serious budgeters will know that if they vote on a middle class tax cut bill without any companion changes to entitlements, taxes will go up on the wealthy, without any corresponding restraint in spending. But holding that principled position becomes an immediate political liability. Not to mention the philosophical war this will trigger within the GOP regarding how to apply small government orthodoxy in this political crisis.

Simply put, Americans looking at a tangibly higher tax bill are not going to be swayed by GOP arguments over abstract, future spending. And no one in the middle class is going to go to the mat and pay higher taxes now so that a tax break can be granted to the richest Americans.

The urgency of the tax crisis and its economic ripples from it will serve to effectively de-link the priority of middle class tax relief from entitlement reform, a point that the President will no doubt capitalize on, issuing reassuring statements regarding his plans for comprehensive tax and entitlement reform later in the year, and blaming the Republicans for economic chaos, a gyrating stock market and international financial anxiety amid a deteriorating economy.

Progressives will giggle with delight as Republican savage each other trying to cope with their own internal fissures on tax orthodoxy.

Speaker Boehner is already taking heat from conservatives for having ceded $800 billion in new revenue by closing loopholes. While Boehner’s leadership team signed on, it has yet to be tested in a vote among the Party faithful. It is fair guessing that if the President – in an unlikely wave of munificence – were to somehow give up and bless the Boehner plan, that Boehner would need Nancy Pelosi’s support to get the legislation to approval, jeopardizing Boehner’s leadership position, and that of his top lieutenants.

Indeed, it is unclear that the most conservative congressional Republicans would agree to a tax cut for the 98 percent that did not include some measures for the small business owners captured at the top, or without real entitlement reform. It could lead to a leadership crisis in the GOP, even though voting down or holding middle class tax relief hostage to a fairer tax code or entitlement reform would be effective political suicide.

And then for fluttering progressive hearts, there is the debt ceiling debate to come.

POTUS has already put down his marker here too, and his position fairly brims with confidence. President Obama has proposed that Congress simply cede him authority to raise the debt limit at his pleasure, without any additional Congressional action. That would put an end to the tiresome Republican efforts to tie increases in the nation’s borrowing limit to real and tangible spending restraint.

That such action would effectively eviscerate congressional control over the budget in a way that was never envisioned in the Constitution or in over 200 years of legislative history since seems not to matter to the President or his allies.

But as with the fiscal cliff, the debt limit fight is only apocalyptic if you view it through the lens of economic impact and not that of ideology. What is a little short term chaos and economic pain to secure longer-term ideological dominance?

The US will reach it national borrowings limit sometime February. Without authority to borrow more (we are still running trillion dollar deficits) the US could be placed in the position of a sovereign default, or at a minimum, be required to cut up to a trillion in spending in 2013 alone (a little less than 30 percent of the federal budget) to ensure that spending did not exceed revenues. That would easily be the most draconian spending cut in American history and would have vast economic repercussions.

In the last confrontation with the President in 2011, the GOP used the debt limit as leverage to force spending cuts – ironically creating the fiscal cliff as a result – but in a game of political chicken that deeply disturbed international markets and consumer confidence.

POTUS has said he’s not going to play that game again, demanding that Congress raise the limit without conditions. Republicans steadfastly refuse, at least for now, rightly seeing the ceiling as perhaps their last tool to enforce spending discipline.

But as with the cliff, what if POTUS is willing, indeed, itching to force a debt limit borrowing crisis?

At 12:01am, on January 1, 2013, POTUS and Congress will be dealing with the immediate fallout from crossing the cliff. The debt ceiling debate will only be, at most, six weeks away. One crisis will almost certainly bleed into the other.

Already under back-breaking pressure because of the cliff, Republicans will be under enormous additional pressure to authorize an increase in the debt ceiling, just to stave off a deeper economic crisis.

However, if stalwart Republicans, who see the debt ceiling as the last line of defense to create spending restraint refuse to back down in sufficient numbers – triggering catastrophic cuts in US spending, down to and including Social Security checks, or worse, a sovereign default – POTUS and the progressives will double down on Republicans for tanking the economy; a position an already furious electorate will likely agree with.

The monumental stresses here would be enough to rip the Republican Party apart at the seams.

The irony – and the ever increasing progressive glee – would be found in the paradox that by holding out for common sense economic policies to move the nation forward, the GOP would actually be a catalyst for the political trigger causing an economic calamity of unknown but no doubt grave proportions.

The GOP was ruined for a generation by Hoover and the Great Depression. And when the GOP finally again took power, it had quietly made peace with the welfare state that had been created during its years in the wilderness. What would come now could only be worse.

And what does POTUS and his progressive allies get out of the economic pandemonium that they have allowed to occur through diktat instead of compromise? Tax hikes on the wealthy without meaningful spending cuts. A debt limit increase without meaningful entitlement reform. They cement the new reputation of Democrats as the party of middle class tax relief. They effectively destroy the reputation and integrity of the GOP as a governing party.

And the global economic downturn is actually a gift for progressives. A traumatized electorate will be clamoring for additional government aid and assistance in a way that makes 2009 appear quaint by comparison. Big government will make a big comeback – big time.

President Obama will probably initiate tax and entitlement reform later in 2013, after the economy has stabilized, but this exercise will be on his terms.

Those loophole closings that the GOP wanted to substitute for tax rate increases, will now be a new revenue stream for the government on top of the tax rate increases already in place, further stifling productive deployment of private sector investment dollars, and creating the conditions for capital flight.

Entitlement reform will be an exercise in posturing over substance. And while all eyes are on Medicare and Medicaid, maybe even Social Security, HHS will be quietly implementing Obamacare, which will add a cool trillion dollars in spending in the next decade in any event, dwarfing any technical changes that generate savings from other entitlements.

The paradox of the progressive path here is that while it moves America closer to a progressive utopia envisioned over decades and was made possible by President Obama’s election/re-election, that America will still be on a collision course with a fiscal reckoning which simply cannot be avoided. Without meaningful incentives to grow the economy, and with and escalating pace of debt accumulation, that reckoning will come sooner.

In a final twist, a sobered electorate, finally conscious of the disastrous path the nation had traveled might well elect a Republican president in 2016. But with the progressive policy paradigm deeply embedded in the American social fabric, it will be left to the GOP to undertake the radical but necessary reform measures that will require economic pain and dislocation; not unlike that which is going on in Europe today, with the same political instability. No entitlement created and deployed by the US government has ever been repealed.

That there would be profound economic damage from these actions is not in dispute. Millions in America and hundreds of millions abroad would be touched by the crisis. Indeed, the crisis could metastasize in a manner that policy makers never foresaw, perhaps meaning even more profound hardship.

But the well-being of people has never been the priority of progressive ideologues. The manner of their governance has been the goal. If you believe the economic system is corrupt and biased, then you have little incentive to intervene on its behalf, particularly when you life’s objectives are within reach. The short term pain of economic trauma is easily worth the long term political policy gains that would be cemented as a result.

So, is any of this even remotely possible?

At no time during his career before becoming President, nor in his first term, has President Obama ever been a pragmatic deal maker. With the exception of the 2010 budget deal – which came after the shellacking the Democrats suffered in the 2010 elections – the President has been an ideological, “my way or the highway” leader.

He showed it in the Stimulus. He showed it again in Obamacare, going so far as to continue to push for the law even as political results from around the nation indicated that the American people did not agree and that the legislation passed without any GOP votes. POTUS showed this strain again in his comments regarding the Supreme Court’s consideration of Obamacare, which was all but a threat to John Roberts and his court (apparently effective).

The President has shown his serial distain for Congress through his empowerment of the EPA and other regulatory agencies to operate, effectively by fiat; his refusal to seek congressional permission for US military operations in Libya (though he did seek and get a UN vote of approval) and his use of recess appointment authority in bald-faced contradiction to the existing rules of the Senate and decades of precedence.

In addition, since the election, the President has thrown his support behind Harry Reid’s toxic proposal to alter the rules of the Senate filibuster when the new Senate takes power in January on a partisan vote, without the support of Republicans; something that has never been done before in this manner.

In each instance, it appears that the President’s concept of compromise is the opposition accepting his proposals in total. In the face of political opposition, the Administration has sought to impose partisan solutions and limit or ignore the traditional checks and balances in federal power, whether they be constitutional or matters of historical precedence. To remove the institutional power of other branches of government to control or oppose the President’s agenda.

Much was said before November that freed from the requirements of re-election, President Obama would be able to go for broke on the most progressive elements of his agenda. Is that in play now?

It would seem we have a good conspiracy to chew on.