Politics & Policy

Republicans Must Get Wise to Obama’s Hard-Line Fiscal Strategy

As was the case with Obamacare, he won’t give in.

Judging from the speech Obama gave following the deal to end the government shutdown, Republicans better get wise to the president’s next fiscal gambit when the three-month stop-gap budget and debt measures come due. As was the case with his hard-line defense of Obamacare, the president likely will be inflexible on ending sequestration budget caps, pushing for massive tax hikes, and permitting only the most inconsequential entitlement reforms.

Obama is interested in busting the GOP in 2014. He’s not interested in true budget restraint or other economic-growth measures.  

Example: This week, instead of a conciliatory work-together message for the negotiations ahead, President Obama gave us another Republican scold speech: “All of us need to stop focusing on lobbyists and bloggers and talking heads on radio, and professional activists who profit from conflict.”

But of course, it was Obama who wouldn’t negotiate. And it was Obama and his followers who demonized the GOP with words like “hostage,” “ransom,” and “terrorists.”

Another example: Out of nowhere in his post-shutdown speech, the president pledged to “close these corporate-tax loopholes that don’t help create jobs, and freeze up resources for the things that do help us grow, like education and infrastructure and research.”

Huh? Where did this come from? There’s no discussion of corporate tax reform in the whole speech, except for this one derogatory mention. So don’t count on progress for the single biggest growth and jobs creator, namely full-fledged business tax reform. It may be in Obama’s budget, but it’s not really on his agenda.

The real agenda is to jack up taxes on businesses and the wealthy. On top of this year’s $700 billion tax hike, the Democrats are going back to the $1 trillion tax-hike idea mentioned in recent years by Obama, Harry Reid, and Nancy Pelosi.

True pro-growth tax reform should broaden the base, lower marginal rates, and simplify the code. The Democratic objective, however, is to raise as much additional taxpayer money as possible.

Why? Well, of course, to provide the spending fuel after they get rid of the budget-capping sequester. The Obama democrats are manic about this. They know that the sequester has effectively stopped their grandiose spending plans, and is actually bringing the discretionary budget back to 2007 levels. In fact, the real budget-winning move of recent years was the Republican reverse bait and switch (the bait came from the White House) in 2011 to embrace the sequester and implement it. It’s the only true pro-growth fiscal measure we’ve seen in the Obama years.

Closing tax loopholes is a good idea so long as it is accompanied by lower marginal tax rates on the other side. (Repatriating over $1 trillion in overseas corporate profits at a minimal sanction of 5 percent would also help grow the economy.) So companies, wealthy entrepreneurs, and small-business owners shouldn’t be fooled when they hear the president talk about closing tax loopholes. Why is he saying this? That’s easy: He wants to spend more money on his pet projects. More for the teachers’ unions, the local construction unions, the quick-fix, shovel-ready infrastructure projects, the clean-energy Solyndras, and all the other oddball social programs put in place by this administration.

Government spending cuts amount to tax cuts, which provide economic stimulus. But Obama and the Democrats want no part of it. Step back and read the president’s economic speeches in August and September. You see a pattern: Raise taxes on business and successful entrepreneurs, kill the sequester, and use the new tax revenues to spend more and grow the government — and probably even finance Obamacare, which is going bankrupt even before it starts, and has become the laughingstock of the country with its catastrophic breakout.

Finally, while Obama again may occasionally say otherwise, the Democratic party opposes all manner of entitlement reforms. All. That includes the chain-CPI reform (which would lower benefits), Medicare means testing, longer retirement eligibility, and higher co-pays for federal-employee benefits.

Labor doesn’t want this stuff. House and Senate Democrats don’t want it. And I seriously doubt if the president would push for it. Which means, in terms of the new budget conference (another fiscal cliff?) due to report in mid December, the GOP better be super careful not to end the sequester budget caps in return for phony entitlement reforms.

Republicans had no coherent message going into the shutdown fiasco. But they can change that. They can now adopt a clear policy that maintains the sequester budget caps, pushes hard for pro-growth tax reform, and makes no apologies for rolling back the taxing, spending, mandating, budget-busting behemoth that is Obamacare.

The budget and debt battle of the next three months is actually going to be war. Obama knows this. Does the GOP?

 

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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