The mainstream media won’t dare tell you this but as usual, I will. There is a strong argument to be made that President Obama wants the US to go over the fiscal cliff on January 1. By now, everyone reading this knows that there are serious negative implications for the economy if we go over the cliff.
The CBO estimates that the combination of higher taxes on everyone (not just the “rich”) and mandated spending cuts across the board (“sequestration”) would have a negative effect on the economy of $600+ billion over the next decade. The CBO warns that going over the fiscal cliff will send the overall economy back into a recession early next year.
We’re not far from it as we speak. While 3Q GDP came in at 2.7% in the second estimate versus 2.0% in the first estimate, most forecasters now expect more tepid growth of only about 1.0% for the 4Q. So it won’t take much to push us into a new recession, and going over the fiscal cliff would almost certainly do so.
According to the American Council For Capital Formation, the economy would go into recession in 2013 and the recession would likely continue at least through 2014, with zero growth in 2015 and only fractional growth in 2016 and 2017 – if we go over the fiscal cliff.
In that scenario, Americans will see unemployment rise, the nascent housing recovery fail, incomes fall and their personal standard of living will deteriorate. The drag on consumption and economic growth will lead to declines in the financial markets, further deteriorating the so-called “wealth effect.”
Why in the world then would President Obama want to see this happen? After four years of bailouts, incentives and programs to get the economy growing again, what incentive would there be to willingly go over the “cliff?” It is an interesting question.
Here’s why. Obama has made it abundantly clear that he will veto any plan that does not include raising income tax rates on individuals making over $200,000 and families making over $250,000. Period. He has even agreed to make the Bush tax cuts permanent for those making less than $200K/$250K right now.
The Republicans, on the other hand, don’t want to raise income tax rates on anyone. They are proposing limiting tax deductions in order to raise revenue. I could argue that the Republican plan is not much different in that it would mostly affect wealthier people, but that is a discussion for another day. The point is, Obama rejected it flatly and is holding firm.
What Obama is doing is playing a carefully crafted chess game that he expects to play out as follows. If the Republicans in the House don’t agree to Obama’s tax hikes on those making over $200K/$250K by the end of the year, we go over the fiscal cliff. The stock markets plunge. The economy slows down, headed for a recession. The American people will be disgusted, and the Obama administration and the mainstream media will place ALL of the blame squarely on the Republicans. Count on it!
Then early next year Obama will push for new legislation to bring back the Bush tax cuts for all but the “wealthy,” which will very likely pass easily, and he can claim that he is giving a new tax cut to the middle class. All the while he will continue to blame the Republicans for everything. Oh, and let’s not forget, this new legislation will include the permanent elimination of the debt ceiling.
The ultimate goal in all of this is to win back control of the House of Representatives in the 2014 mid-term congressional elections. If successful, Obama would have complete control of Congress for his final two years in office – allowing him to get through the rest of his agenda:
- Additional stimulus and bailout programs
- Additional expansion of social welfare programs
- Even more tax increases on the “wealthy” to redistribute wealth
- Greater expansion of government regulation and control
- Full implementation of ObamaCare
That, I believe, is the plan. This explains why Obama is willing to go over the fiscal cliff. Treasury Secretary Geithner confirmed that the Obama administration is committed to going over the fiscal cliff if they don’t get the tax increases on those making over $200K/$250K in an interview with CNBC this week. You can read those comments in this article on MoneyNews.com.
In the wake of the election, Obama’s heels are dug in. The Republicans probably lose however this ends up. Obama wants not only to defeat his opponents, he wants to eliminate them! Sadly, he may get his way.
Have a great weekend everyone!
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