Opinion: Republicans finally have financial leverage

February 9, 2013


— For the first time since Election Day, President Obama is on the defensive. That’s because on March 1, automatic spending cuts (“sequestration”) go into effect — $1.2 trillion over 10 years, half from domestic (discretionary) programs, half from defense.

The idea had been proposed and promoted by the White House during the July 2011 debt-ceiling negotiations. The political calculation was that such draconian defense cuts would drive the GOP to offer concessions.

It backfired. The Republicans have offered no concessions. Obama’s bluff is being called and he’s the desperate party. He abhors the domestic cuts. And as commander in chief he must worry about indiscriminate Pentagon cuts that his own defense secretary calls catastrophic.

So Tuesday, Obama urgently called on Congress to head off the sequester with a short-term fix. But instead of offering an alternative $1.2 trillion in cuts, Obama demanded a “balanced approach,” coupling any cuts with new tax increases.

What should the Republicans do? Nothing.

Republicans should explain — message No. 1 — that in the fiscal-cliff deal the president already got major tax hikes with no corresponding spending cuts. Now it is time for a nation $16 trillion in debt to cut spending. That’s balance.

The Republicans finally have leverage. They should use it. Obama capitalized on the automaticity of the expiring Bush tax cuts to get what he wanted at the fiscal cliff — higher tax rates. Republicans now have automaticity on their side.

If they do nothing, the $1.2 trillion in cuts go into effect. This is the one time Republicans can get cuts under an administration that has no intent of cutting anything. Get them while you can.

Of course, the sequester is terrible policy. The domestic cuts will be crude and the Pentagon cuts damaging. This is why the Republican House has twice passed bills offering more rationally allocated cuts. (They curb, for example, entitlement spending as well.)

Naturally, the Democratic Senate, which hasn’t passed a budget since before the iPad, has done nothing. Nor has the president — until his Tuesday plea.

The GOP should reject it out of hand and plainly explain (message No. 2): We are quite prepared to cut elsewhere. But we already raised taxes last month. If the president wants to avoid the sequester — as we do — he must offer a substitute set of cuts. 

Otherwise, Mr. President, there is nothing to discuss. Your sequester — Republicans need to reiterate that the sequester was the president’s idea in the first place — will go ahead.

Obama is trying to sell his “balanced” approach with a linguistic sleight-of-hand. He insists on calling his proposed tax hikes — through eliminating deductions and exemptions — “tax reform.”

It’s not. Tax reform, as defined even by the White House’s own webpage on the subject, begins with lowering tax rates. It then makes up the lost revenue by closing loopholes.

Real tax reform is revenue neutral. It’s a way to clean the tax code by eliminating unfair, inefficient and market-distorting loopholes on the one hand while lowering rates to stimulate economic growth on the other.

Obama has zero interest in lowering tax rates. He just got through raising them at the fiscal cliff and has made perfectly clear ever since that he fully intends to keep raising taxes. His only interest in eliminating loopholes is to raise more cash for the Treasury — not to use them to lower rates.

That’s not tax reform. That’s a naked, old-fashioned tax increase.

Hence Republican message No. 3: The sequester is one thing, real tax reform quite another. The sequester is for cutting. The only question is whether it will be done automatically and indiscriminately — or whether the president will offer an alternative set of cuts.

Then we can take up real tax reform. Reprise the landmark Reagan-Tip O’Neill-Bill Bradley tax reform of 1986, a revenue-neutral spur to economic growth and efficiency, and to fairness for those not powerful enough to manipulate the tax code.

The country needs tax reform. But first it needs to rein in out-of-control spending. To succeed in doing that, Republicans must remain united under one demand: cuts with no taxes — or we will let the sequester go into effect.

The morning after, they should sit down with Obama for negotiations on real tax reform as recommended by the president’s own Simpson-Bowles commission: broaden the base, lower the rates.

Any time, any place. Geneva, perhaps? The skiing is good. Skeet shooting too.

— Charles Krauthammer is a columnist for Washington Post Writers Group.


just_another_bozo_on_this_bus 5 years, 3 months ago

"Republicans finally have financial leverage"

Translation-- Republicans get their way, or they precipitate another recession.

Ain't extortion grand for those lacking enough in scruples to employ it?

Liberty275 5 years, 3 months ago

Both sides are guilty. Obama thought the specter of military cuts would force another branch of government to accept his demands. It sounds like the house won't so easily be persuaded.

Take it down. Start cutting now. Bring our people in uniform back to the world.

jafs 5 years, 3 months ago

I really have to wonder if CK even believes the stuff he writes.

The automatic cuts were an idea made necessary by the inability of Congress to work together on solving our problems, mostly by the obstructionist R.

They were structured so that neither side would like them.

It's odd to say that R should continue to obstruct and do nothing, since the large cuts in defense won't be to their liking, any more than cuts to social services/SS/Medicare would be for D.

And, if R have other ideas for spending cuts, they should propose them, not demand that the president do it instead. If they simply do nothing, and allow the cuts as planned, they'll take well deserved heat for it, just as D would if they did that.

Of course, if we didn't have a dysfunctional Congress to begin with, none of this nonsense would have happened, and it shouldn't have happened, in my view.

Armstrong 5 years, 3 months ago

"that in the fiscal-cliff deal the president already got major tax hikes with no corresponding spending cuts. Now it is time for a nation $16 trillion in debt to cut spending. That’s balance."

Pretty well sums it up

just_another_bozo_on_this_bus 5 years, 3 months ago


The US Should Grow the Deficit, Not Shrink It The US economy is too fragile to reduce spending and raise taxes. Fiscal austerity is a recipe for worse pain.

by Dean Baker

"There is an astounding level of confusion surrounding the current US deficit. There are three irrefutable facts about the deficits:

First, the United States has large deficits because the collapse of the housing bubble sank the economy.

Second, if we had smaller deficits the main result would slower growth and higher unemployment.

Third, large projected long-term deficits are the result of a broken health care system, not reckless government "entitlement" programs.


It (the deficit) wasn't because of a surge in reckless spending and/or a splurge of tax cuts, it exploded because tax collections plummeted when the economy went into a downturn. In addition, we increased spending on programs like unemployment insurance. We also had temporary stimulus measures that were explicitly intended to raise the deficit in order to boost the economy.

All of these changes were temporary. If the economy returned to its pre-recession level of unemployment tomorrow, deficits would again be quite manageable, even with no further budget cuts or tax increases.

This feeds directly into the second point: deficits are supporting the economy at present. Any steps that we take to reduce the deficit, either by cutting spending or raising taxes, would pull money out of the economy. This means slower growth and higher unemployment.


Finally, the long-term deficit horror stories that fill Washington parlor discussions are entirely the result of a health care system that now costs more than twice as much per person as the average for other wealthy countries. The ratio is projected to rise to three and four to one in the decades ahead.

Serious people talk about fixing the health care system, a process that may have already begun with Obamacare. Health care costs have increased far less than projected for the last five years. If this slower growth path continues, we will have no long-term deficit problem.


Austerity is a great recipe for pain today and even more pain tomorrow."

jafs 5 years, 3 months ago

That's just not convincing to me.

We have two problems - debts and deficits. Even if we had no budget deficits, our national debt has increased to a large amount over the last 30 years, equivalent to 100% (or more) of our current GDP.

That's an issue, and a lot of the money we're currently borrowing (and having to raise the debt ceiling to do so) goes towards servicing our national debt.

It's a bad thing.

Deficits are the increase in the national debt each year, and they're a clear result of spending more than we have, also a bad idea, generally speaking.

If we generally had balanced budgets, or even (gasp!) surpluses, and occasionally needed to borrow money to stimulate the economy, that might be ok, but that's not what we do.

I agree that health care costs are part of the problem, but hardly the whole story.

just_another_bozo_on_this_bus 5 years, 3 months ago

The math says you're wrong. I think you're arguing for conventional wisdom simply because it's conventional wisdom. Budget deficits do matter, but they're way way down the list in importance in creating a healthy economy and society that cares about more than just the plutocrats.

jhawkinsf 5 years, 3 months ago

There are two issues here that's it's important not to confuse. A budget deficit and the debt we have accumulated over the years. If there comes a time when servicing the debt, meaning we're paying interest only on that debt as the debt itself continues to grow, and there comes a time when the amount of that interest becomes large enough, then we're losing a significant ability to provide services because we're paying so much interest on the debt. When the interest becomes 5% of the budget, or 10% of the budget, we've lost a huge amount of money to provide services. If you then add additional budget deficits that will increase the debt, you've begun a downward spiral that will be very hard to break, without extreme measures. That's what Greece, Italy, etc. are facing. The austerity programs you're so opposed to is because they allowed things to get out of hand. Conventional wisdom suggests that should you find yourself in a ditch, stop digging, is wise advice when it comes to the debt.

Currently, we spend about 6% of the total budget just on interest payments, or something close to 1.5% of total GDP. As the old saying goes, a billion here and a billion there and pretty soon you're talking about real money. Isn't there something else you'd like the government to spend that couple of hundred billion dollars on rather than interest paid to multinational bankers? Services for the poor? Tax cuts for the middle class?

jafs 5 years, 3 months ago

What math?

I provided you with two numbers - one, the total national debt, which currently exceeds our GDP, for the first time since WWII, and two, that a lot of the money we're currently borrowing goes to service our national debt (and that's the reason given for needing to raise the debt ceiling each year, that we don't default on existing debt).

Your math?

jafs 5 years, 3 months ago

Some numbers.

Government issued debt is essentially "unsecured debt", like credit card debt. It differs from mortgages and car payments in that creditors have no assets they can liquidate in case the borrower defaults.

Our credit card debt limits seem to be about 1/3 of our annual income, and we're financially pretty sound, with good credit ratings, etc.

That would translate to about $5 trillion with a $16 trillion GDP - maybe we should get our national debt down to that, and then keep it there, and/or even pay it down over time from there (credit card companies don't really like it if you keep your debt at your top limit over time).

just_another_bozo_on_this_bus 5 years, 3 months ago

There is absolutely no comparison between the finances of individuals or businesses and that of a sovereign government. That's especially true of the US government, which is the main driver of the world economy. Currently, it can borrow money at very low and even negative interest rates. The US government can print up however much money it wishes. That's not to say doing so won't have repercussions throughout the economy of one sort or another, inflation among them. But despite the size of the deficits of the last 5 years, inflation is very low. And history shows that increasing the money supply by a sovereign government creates hyperinflation only in very extreme circumstances, such as post war when means of production and distribution have been largely destroyed, and the increase in money supply doesn't bring with it a matching increase in productivity.

As to the math, it's very, very obvious that the cause of the current economic crisis was the collapse of the housing bubble, and the resulting loss of income, and hence collection of income taxes, to millions of people. It's been exacerbated by the outlays necessary to cover unemployment and other benefits to those millions of people. The cure to any problem is to address the cause. Deficits are the effect, not the cause. High unemployment is the cause. Deficit spending, if done right, can increase productivity in areas that need it, and there are lots of them. That will increase employment, and tax collections, thus reducing the deficit.

jafs 5 years, 3 months ago

There is absolutely some comparison, although there are differences, of course.

Basic principles of fiscal soundness apply to individuals, businesses and governments.

You continue to ignore our $16 trillion national debt, which wasn't created in the last couple of years. And, the fact that we've been operating with deficit spending for many years before now. Our national debt was about $4 trillion from WWII until the 80's, and then shot up to 4x that amount over the last 30 years or so.

You can't possibly ascribe all of that increase to a recent housing bubble - it doesn't make sense. It's the result of spending more than we take in for a long time, and borrowing money consistently over that time to cover that spending.

That's just not fiscally sound, as far as I can tell.

I've said before that some deficit spending, if absolutely necessary, might be ok. But when it's the rule rather than the exception, that's not ok to me - it's a bad idea.

And, please elaborate on borrowing money at "negative interest rates" - you mean somebody's willing to pay us interest to borrow our money?

Richard Heckler 5 years, 3 months ago

The Guardian follows the philosophy of many. IF congress spends the money to create new industry,new jobs thus new wealth for the nations workers it will be smart spending.

IF congress relies on the big banks too much of OUR money will go up in smoke . The USA needs 15-20 million new jobs which means the gov't will need to step up and manage the spending as well.

As for higher education and vo-tech spending the gov't should bypass all the financial institutions and send money directly to students and/or educational institutions. WE taxpayers cannot afford white collar crooks managing our tax dollars.

Richard Heckler 5 years, 3 months ago

Next the gov't should get on with Medicare Single Payer Insurance offering to all of those who wish to sign up. This would be good for business and would create more new jobs in the health care industry.

Alyosha 5 years, 3 months ago

"Big spender" only in your fantasies. See http://www.forbes.com/sites/rickungar/2012/05/24/who-is-the-smallest-government-spender-since-eisenhower-would-you-believe-its-barack-obama/

It's quite odd for to continually post things which are demonstrably false, and we wonder why you do it, Rockchalk.

Armstrong 5 years, 3 months ago

Don't worry Aloysh, if Barry gets his way he will eclise any "Big spender" in the history of mankind.

UneasyRider 5 years, 3 months ago

Guess I have a problem understanding the extreme hatred some, apparently mostly Republican supporters, have for the President. Is this racism or not? I don't think I can determine that, but it appears to be. Considering the economic conditions he inherited from the previous administration, I think he's doing a pretty good job.

Armstrong 5 years, 3 months ago

What Barry doesn't understand is you can't tax and spend your way to prosperity, it's basic economics

UneasyRider 5 years, 3 months ago

Explain how starting 2 wars and not attempting to pay for them is good economics? Somehow giving tax cuts while not paying for 2 wars doesn't make economic sense.

jhawkinsf 5 years, 3 months ago

In other words, both "tax and spend" and "borrow and spend" are wrong.

However, you're suggestions that race or racism has been involved should be reserved for times when those suggestions are more clear. It does happen some. And it should be loudly condemned when it does happen. But making that accusation when not appropriate diminishes the strength of the accusations when it is appropriate.

Katara 5 years, 3 months ago

So what do you think the point of identifying a person's race where it has nothing to do with the subject at all?

Ex: "... Dr. Benjamin Carson, a black pediatric neurosurgeon with Johns Hopkins Hospital..."

jhawkinsf 5 years, 3 months ago

Point taken. Rockchalk1977 has exhibited a pattern of animus that one might conclude race plays a part. However, UneasyRider then goes on and expands it well beyond that, to many unnamed, mostly Republicans. That expansion seems overly broad and unwarranted to me.

jafs 5 years, 3 months ago

Tax and spend is clearly better than borrow and spend, since you don't wind up in debt that way, providing you don't spend more than you take in.

just_another_bozo_on_this_bus 5 years, 3 months ago

Not always. Running deficits is sometimes the right thing to do. Now is one of those times.

That's not to say that the tax code can't be made fairer-- the wealthy over the last 30 years have been given substantial tax cuts that have not been used to grow the US economy. Or that spending is always done wisely-- imperial war machines are very expensive, and the spending for it provides a very small multiplier effect in the economy.

jhawkinsf 5 years, 3 months ago

So what you're saying is that deficit spending, if done correctly, will provide for a net benefit. Further, you're saying that although we currently engage in deficit spending, it's being done in such a way as to be counterproductive towards the aims you desire. My question to you is this, if we should continue to spend at a deficit, even expanding that deficit, what confidence do you have that such deficit spending will be done smartly, given that that isn't being done now? Why do you believe that spenders in Washington will suddenly change the way they've been conducting business? And if you lack such confidence, as I do, why would you then advocate for increased deficit spending if all that will mean in reality is more unwise spending while increasing our future debt? Or to put it colloquially, you're asking a tiger to change his strips. Is that realistic?

jafs 5 years, 3 months ago

Why would borrow and spend be better than tax and spend? Under what circumstances?

And, see my above post - if we did it every once in a while, under extraordinary circumstances, and effectively and efficiently, that would be one thing. But that's not how we do it.

Liberty275 5 years, 3 months ago

We control 2 nations with large mineral reserves that will be our allies, The Chinese or the Russians don't. Give it 50 years and check the balance sheet on Iraq and Afghanistan.

Without commenting whether they are wrong or right, they will serve America the same way as WWII and Korea.

Liberty275 5 years, 3 months ago

You should ask them if they really dislike Jimmy Carter. Obama is just Carter version 2, but unfortunately for the right, Romney was not Reagan version 2,

Only a real loon cares about the color of people's skin, and these are not the right-wingers you are looking for. Those around here don't like him because they disagree with him.

Keith 5 years, 3 months ago

Is Krauthammer trying to take Bill Kristol's wrong every time award?

William Weissbeck 5 years, 3 months ago

This whole debate is premised on the idea that the defense budget can't be cut. If it can (and most likely it should) be cut, then the sequestor is as good of a mechanism as any other. The Congress simply can't form a majority to agree to the cuts that need to be made. It's little different than the old military base closing commissions. If the cuts are allowed to happen, each Congressman can claim to have a clear conscience.

tomatogrower 5 years, 3 months ago

"Naturally, the Democratic Senate, which hasn’t passed a budget since before the iPad, has done nothing. Nor has the president — until his Tuesday plea."

Why do the Tea Party people always say they defend the constitution? Spending and tax bills are suppose to originate in the House; the Senate can offer one, but it must be offered through the House. Who has been in charge of the House recently? Why not pass a bill to balance the budget? It's like the bus driver standing at the bus stop, wondering when his bus is going to leave. Read the constitution, then put forth your bill. Yes, it may be vetoed by the president, but maybe not. Or are you not willing to give up your own special pork which helps you get reelected? What a self righteous crock. People think the president makes all these decisions, like he is some kind of dictator. Republicans talk a good game, but they have become the do nothing party.

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