Obama’s State of the Union and the Great Deficit Smackdown

By :: February 12th, 2013

House Republicans say they want to balance the budget in a decade with only spending cuts and no tax hikes. In his state of the union address tonight, President Obama—perhaps channeling his new pal New Jersey Governor Chris Christie—had a response. In a word, fuhgedaboutit.

Obama’s priorities: Gun control and immigration reform, along with a dozen new government programs that he says will improve the lot of the middle-class and won’t add to the deficit--but surely won’t cut it.

The fiscal goal he described is the same one he’s had for months: By his count $1.5 trillion in new deficit reduction over 10 years that would stabilize the debt at slightly below current levels—a far cry from balance.

The president would anchor that effort with a tax reform that he says will eliminate hundreds of billions of dollars in “tax loopholes and deductions for the well-off and the well-connected.” Of course, there are not hundreds of billions in loopholes in the Tax Code. There are, however, hundreds of billions of dollars in deductions and exclusions for mortgage interest, charitable gifts, employer-paid health insurance, and state and local taxes—none of which will be easily scaled back, even for the well off.

When it comes to spending, Obama continued to express a willingness to slow the growth of Medicare, but only around the edges. One positive note: he did say he’d push the ongoing effort to pay doctors and hospitals based on quality rather than volume. This is a good idea, though also easier said than done.

But the real battle, as ever, is over taxes. The GOP refuses to consider any additional revenues as part of a fiscal deal or as an element of tax reform. The Republican view: We already agreed to $600 billion in new taxes as part of the New Year’s fiscal cliff deal, now the Democrats have to come up with spending cuts. Obama’s view: We didn’t raise anyone’s taxes. All we did was let some temporary tax cuts expire as scheduled. Now, it is time for real tax hikes.

With the big deal seemingly off the table, Obama is left to propose a pile of modest new programs.  Check the boxes: a hike in the minimum wage, manufacturing hubs, education, repairing roads and bridges, community investment, etc.  I got a weird Bill Clinton-like “I feel your pain” vibe throughout the speech. Most of these will never pass the House, but so it goes.

Now, the real fight will be over the automatic spending cuts due to kick in in about two-and-a-half weeks and the government shut-down scheduled for a month after that. Congressional Republicans say they are perfectly happy to let the automatic spending cuts happen. And why shouldn’t they be, given what Obama said tonight?

Obama and Democrats seem to be relishing the prospect, envisioning a replay of the Newt Gingrich government shutdown catastrophe of 1995-1996. Tonight’s speech only confirmed what we already knew. The next few months will be interesting, but they won’t be pretty.

 

23Comments

  1. Tax Roundup, 2/13/2013: Shocker: The President wants more taxes. Because they’re doing such a good job with what they get now. « Roth & Company, P.C  ::  9:39 am on February 13th, 2013:

    […] Gleckman, Obama’s State of the Union and the Great Deficit Smackdown […]

  2. SteveinCH  ::  10:09 am on February 13th, 2013:

    My own view is that the real battle is not over taxes but over the distribution of taxes. There’s plenty of opportunity to raise taxes if one wants to use 2000 as a baseline; however, the opportunity, in terms of effective tax rates is everywhere except at the top of the income distribution.

    http://uspoliticaleconomics.blogspot.com/2013/02/the-fallacy-of-cause-and-effect.html

  3. Michael Bindner  ::  8:50 pm on February 13th, 2013:

    I suspect you are correct that it won’t be pretty, unless, of course both sides are talking about a grand bargain involving consumption taxes, which would essentially take wages off the able as a deduction for corporations and end the need of most people to file taxes at all. Now that would be a grand bargain that would make room for the ending of all kinds of deductions – consolidating them into a single deduction based on family size. Then the only argument left is a workers credit or a higher minimum wage (the argument being why taxpayers should fund marginal employers or marginal jobs).

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