Tax Impasse Will Make for Anxious 2012

Tax Impasse Will Make for Anxious 2012; Super Committee is No Disappointment; Newt’s Policy Paradox

Obama’s Biggest Gamble

“Everything we do here is worried about the next election. How it's going to affect them, who would help, who can they blame? This is not the blame game, and you never fixed a thing by blaming people. So, yes, we want to see the president take the leadership.”

-- Sen. Joe Manchin, D-W.Va., on “Face the Nation.”

The theme for Americans during the 2012 election will be high anxiety.

The debt-ceiling Super Committee is doing what it was designed to do – absorb blame for the rest of Congress over the pending $1.2 trillion increase to the federal credit limit.

While the rest of Congress has already skipped town for Thanksgiving, a dozen reliable partisans are still here to play out the final act of a trite old play. Democrats have vowed there will be no further reductions in future spending without tax increases and Republicans have vowed to block any tax increases. Stalemate.

This has been the same disagreement that has riled Washington every day since 2009 when Democrats took total control of Washington for the first time since 1993 and certainly since 2010 when they lost control of the House.

The Obama Democrats are adamant about a tax increase and the conservative Republicans are just as adamant that there will be none.

But Democrats didn’t use their two years of total control to push through changes in the tax code, having instead spent 18 months assembling a health law, now in extremis legally and politically. There was an effort to make higher taxes on upper incomes part of the funding stream for the new health insurance welfare program, but moderate Democrats blocked the move.

The decision to wait has left tax-seeking Democrats and President Obama in a jam. Their base voters won’t tolerate compromise but weary moderates and business leaders have grown weary of the pointless Punch and Judy show.

So how did they get here? The answer is simple: overconfidence.

Obama was elected while calling for a tax increase, and Democrats have learned through polls and focus groups that when the tax language is targeted on “millionaires and billionaires” and making them pay “their fair share,” there can actually be political advantage in calling for tax hike.

So, confident that discussion on taxes had finally swung back in their favor after 40 years going the other way, Democrats assumed that when current tax rates expired, Republicans would be unable to defend keeping rates low for those earning more than $200,000.

But as the clock counted down to what would have been an across-the-board tax increase for the approximately half of all adults who still pay federal income taxes, Republicans, buoyed by their best midterm showing since 1946, told the Obama Democrats to go pound salt.

Caught between his desire for higher taxes and his knowledge that he’d get the blame if the still-sputtering economy got crushed by the sudden imposition of Clinton-era tax rates at midnight on Jan. 1, 2011, Obama agreed to kick the tax question until after the next election.

That set the stage for the conflicts over funding the government and the ongoing struggle to rationalize taking the federal credit limit to $16.4 trillion. Democrats want higher taxes, still believing that not only is it the moral thing to do but, finally, politically advantageous.

It is this divide that is behind the failure of the Super Committee to come up with a way to avoid $1.2 trillion in automatic reductions and it will animate every budgetary and fiscal discussion that plays out in the next year. How to fund the government, whether to allow automatic cuts to Medicare to kick in, etc.

The president’s decision in December 2010 on taxes looks increasingly consequential as the government’s fiscal health and the nation’s economy dangle by the thinnest of threads.

A year from today, the discussion will be whether the newly elected Congress and whomever the president is going to be can work quickly enough to address the calendar-driven crisis on taxes, defense cuts and more.

Obama is betting that he’ll be re-elected and that the Republicans will have been blocked in their bid to take over the Senate and that he will be able to finally obtain his long-sought tax hike, turning the tables on GOPers who called his bluff in December 2010.

Americans have a Congress that can’t act because of deep ideological rifts and a president who won’t act, leaving Americans to endure a stressful, anxious 2012.

That will do nothing to improve the economy or public sentiment about the direction of the country, so it’s hard to imagine how Obama’s tax gamble will pay off.

Impossible for Super Committee to Disappoint

“I am committed to insuring that the American people get that deficit reduction that they were promised. But under the law, Congress will have 13 months to do that in a smarter, more prudent fashion."

-- Rep. Jeb Henserling, Republican foreman of the debt-ceiling Super Committee, on “FOX News Sunday with Chris Wallace.”

It’s funny to hear lawmakers talking about concerns that an announcement of the failure of the debt-ceiling Super Committee could rock global markets.

Not only have markets mostly ignored the Rube Goldberg contraption created in the debt-ceiling negotiations of August, but those investors who did pay attention have expected failure all along.

With the Euro teetering, holiday spending right around the corner, oil prices rising and Iran and Israel eyeing each other through crosshairs, it’s laughable to think that a final announcement that a dozen members of Congress failed to reach an agreement would be a bombshell.

If Congress opted to rescind the final tranche of the president’s debt-limit increase or acted to preemptively block the automatic $1.2 trillion in spending decreases that was part of the original deal, you might see some anxious trading. But you won’t see those things from a Congress that can’t act.

Another credit rating downgrade may be in the offing if one of the other ratings houses decides that the Super Committee’s failure is the final evidence they need to know that a divided Congress and a vulnerable president seeking re-election are unlikely to find common ground on taxes, spending and entitlements.

But if you needed to see this bit of kabuki to know that, you haven’t been paying attention.

Grace For Gingrich on Personal Life, But What About Policy?

“It is a pretty good symptom of how much the left has collapsed as a moral system in this country and why you need to reassert something as simple to them as ‘Go get a job right after you take a bath.’”

-- Former House Speaker Newt Gingrich discussing Occupy Wall Street at the Thanksgiving Family Forum in Des Moines, Iowa.

Evangelical voters in Iowa seem to have come to terms with the idea of a thrice-married Republican presidential nominee. Forgiveness is the cornerstone of their faith and they seem willing to extend it to Gingrich.

But the bigger question is whether Tea Party conservatives are willing to accept a nominee who has frequently espoused un-conservative ideas over the past decade.

Aside from his famous anti-global warming ad with Nancy Pelosi, there’s his former support for mandatory health insurance and free prescription drugs for senior citizens.

As Tim Carney of the Washington Examiner points out today, Gingrich’s statements that he did no lobbying work on behalf of the drug companies who patronized his for-profit health think tank depends on an Obamaian parsing of the word “lobbying.”

Gingrich wasn’t paid to lobby, nor was he registered as a lobbyist. But he did urge his former House colleagues to enact the new drug benefit that has been a boon to drug makers who gave him money. This is the same kind of slippery argument that allows the president to say he doesn’t accept contributions from lobbyists.

Gingrich is doing his best to knock down these stories as they pop up, but his multifaceted, very lucrative years out of office will provide lots of fodder for reporters looking to take a whack at the new leader of the pack.

Remember, what set Newt 1.0 off on a slide was his opposition to Paul Ryan’s Medicare overhaul as “right-wing social engineering.”