Time For A Hail Harry?

The House passed the Boehner bill debt ceiling bill last night and it took Senate Majority Leader Harry Reid and 58 other Senators less than an hour to table the bill.

What next?  We are now 3 days from reaching the debt limit that would effectively mean that over 40% of what the federal government spends money on will stop.

It is unfortunate it has come to this because if you look at this objectively there should be a clear path to an agreement.  Failure to put a deal together should rest squarely on the shoulders of President Obama.  He simply did nothing to lead.  He swore an oath to his country not to next year's election.

These should have been the goals and how a true leader would have worked toward a solution..

1. Increase the debt limit and do what was necessary to avoid a debt downgrade

• This should mean that the deficit reduction package should have been at least $5 trillion over the next decade.  Did we ever hear the President forcefully make this argument?  He was too busy talking about accelerated depreciation on corporate jets.  This tax provision amounts to about $300 million dollars a year out of a $1.5 trillion deficit.  The bottom line is that he wasted his pulpit talking about frivolous points that did nothing to move the country to a solution.  He seems conditioned to be a divider rather than a uniter.

2. Put all the Bush tax cuts (now the Obama tax cuts) on the table.

• As the law stands now these tax cuts expire at the end of next year.  If they expire, they raise revenue of approximately $3.6 trillion over the next 10 years according to the CBO.  About 80% of these tax benefits go to taxpayers earning less than $250,000 per year.  20%, or $720 billion, go to the wealthy. 
•  If President Obama believes so strongly in deficit reduction and in protecting Social Security, Medicare, welfare, green jobs and the life, why did he not start from the premise that current law is going to solve $3.6 trillion of the problem.? He could have then promoted a true "balanced" approach for $7.2 trillion in deficit reduction and negotiated from there.  
• If he had done this he would have given himself the opportunity to get his tax increase on the wealthy and also given the Republicans room to argue they did not increase taxes. The final negotiation would have actually resulted in a tax decrease compared to current law.  Even better, the Bush/Obama tax cuts for those making less than $250,000 would have been made permanent.  In addition, if President Obama really believed in the principle of shared sacrifice any tax increase should have been across the board.  Considering that the top 10% of wage earners pay 70% of the tax burden, 70% of an across the board tax increase would fall on the rich anyway.  The top 1% pays 38% and the top 5% pays 59%.  The bottom 50% bear less than 3%.

3. Any final deficit reduction deal should be composed of 80-85% spending cuts at a minimum.

• There have been a number of academic studies on the history of successful efforts to correct large fiscal imbalances like we have now.  This Goldman Sachs Economics Paper is an example.  The main findings are that in every major fiscal correction in the OECD since 1975, decisive budgetary adjustments that focused on reducing government expenditures were successful in correcting fiscal imbalances, boosting growth and resultant bond and equity market out performance.  Tax increases typically failed to correct the problem and also damaged growth.
• President Obama should have kept this research in mind as he brokered a final deal.  If you assume that what he really wanted was the $720 billion from the rich then he should have been willing to be agreeable to $4 trillion in spending reductions for a $4.7 trillion package. This would be an 85% spending cuts, 15% tax increase package that would be right on the money based on the empirical research.
• To make this even more palatable to Republicans, the tax increase portion of the package could have been made contingent by President Obama on the first half of the spending cuts taking place.  Thus, the current tax rates for higher incomes would actually have been extended compared to current law.

Why even bring up these what ifs?  All of this does not matter right now.  I agree.  It does not matter except as a lesson on choosing our leaders. Many voters do not think that it matters who we send to Washington.   I have tried to show above that this could have played out far differently if we had a real leader.

The bottom line is that I don't think I have ever seen poorer leadership or negotiation skills than has been exhibited by President Obama in this entire episode.  Every American is paying the price for his weak resume before assuming the Presidency.  He clearly is out of his element when rhetoric no longer works and it is required you work with reality.

It is now Senator Reid's turn.  It is time for a Hail Harry.  He needs to be able to do the equivalent of a 60 yard heave into the end zone with seconds on the clock to get 60 votes in the Senate.   Give credit to Speaker Boehner for getting the ball up the field for a shot at the end zone.  Give no credit to the starting QB- Obama- who benched himself barely into the game.