An early indicator of whether President Obama will be bold or weak in his second term will come in how he handles the so-called fiscal cliff. Last year, Obama offered spending cuts to tax increases on a 3 to 1 ratio, but Speaker John Boehner couldn’t get his House Republicans to agree. Now, Obama has been re-elected by people who want the rich to pay more and expect the president to preserve the safety net.
The deficit and debt are not the most critical economic issues facing the country. Jobs and slow growth are. We also have a public investment problem. U.S. Treasuries are coveted and interest rates low. The dollar is strong. Inflation is tame. We are neither Greece nor the EU. Even so, deficit hysteria is widespread among the chattering classes and the Robert Rubin wing of the Democratic Party, which has long sought to “reform” Social Security and Medicare. Yet the experience in Europe shows that austerity doesn’t work. We can only grow our way out of red ink that is the result of two wars, the Bush tax cuts, Medicare D and the Great Recession. And yes, taxes on the wealthiest can go up without wrecking the country. Even conservative mandarin Bill Kristol thinks so. This election was a mandate for the wealthy to pay slightly more.
If the House remains intransigent over raising taxes, Obama should temporarily step off the fiscal curb, as Washington Sen. Patty Murray advises.
“If the Republicans will not agree with that, we will reach a point at the end of this year where all the tax cuts expire and we’ll start over next year,” said Murray on ABC’s This Week. “And whatever we do will be a tax cut for whatever package we put together. That may be the way to get past this.”
Will it cause a recession? Not if the president and chastened lawmakers move quickly to restore lower rates for most taxpayers, as he has pledged to do. And remember, even the richest will pay those lower rates up to $250,000. This may be the only way to break an impasse that has gone on scandalously far too long, with Republican lawmakers terrified of anti-tax lobbyist Grover Norquist willing to risk default to bring down the president. Nobody elected Norquist to anything. Obama should ask only question: What would Truman or LBJ do?
The next marker: Obama’s pick for Treasury secretary.
And Don’t Miss: Is job creation on Obama’s second-term agenda || Economic Policy Institute
Today’s Econ Haiku:
Run a big bank, won’t get caught
They screwed the country