100% And Beyond!

The recent unemployment numbers gave the administration some breathing room since instead of sucking totally, they were merely mediocre. It presents a challenge to Republicans since the big debates on the budget have really just begun. As I mentioned in a previous posting, it doesn’t matter who “won” the debt ceiling debate since it did not change the dynamic of the basic debate nor change the basic underlying factor of the economy. (The reduction of our bond rating simply showed that the debt ceiling was but a sideshow to the real needs of turning this economy around.)

The economy is still suffering from serious debt problems exacerbated by the raising of the debt ceiling as our debt to GNP is now 100% or close to it. This is Greece territory, Spanish territory, Portugal territory and there is nothing over the horizon that will change that fact. Plus America has been downgraded, the first downgrade in our history.

The recent market declines are related to a lack of confidence in the ruling class both in Europe and in the United States. What investors see in the United States is an economy that is sputtering - not sure if a recession is just around the corner or we are just witnessing a slow growing economy with very little job growth. Either way, it is not good for the Democrats and Obama but it doesn’t mean that Obama can’t win in 2012, only it will be more difficult. Nor does it help that our bonds are being downgraded. This only adds to the perception that the United States is slowly sinking into the sunset.

What should Republicans and conservatives do to set the stage for victory in 2012? First, understand it is not just about winning, but winning big! Obama hurt himself politically in the debt ceiling debate, and there is little to suggest that he understands the economic problems facing him or how his policies have caused many of those problems. Republicans did not help themselves either, they simply looked better by comparison and their ideas won out in the end, but we should be uncomfortable about the fact that Republicans may win strictly by default as they did in 2010. The victory in the 2010 elections was less about how the public viewed the Republican Parties and more about how they felt about Obama.

I have advised conservatives and Republicans that key to victory in 2012 is to control the narrative. Writer Stanley Kurtz, who has studied Obama's career in depth, noted that “It was all Bush’s fault” does have appeal with many Americans. There are more than enough Americans who still blame Bush for their present misery and that Obama saved our economy from getting worse.

The coming tax battle will see Democrats and Obama make the following arguments: that the wealthy need to share in the sacrifice, and we are simply returning tax rates to the golden era of Clinton when life was all swell. 

The narrative needs to change to a more truthful story beginning with the financial collapse as a result of government policies in which Obama, working with ACORN as a community organizer and later as United States Senator, had a hand in. The good news for Republicans is that the most likely candidate they nominate was not involved in dealing with the crisis. With the exception of Ron Paul and Michele Bachmann, most of the other leading candidates were governors or ex-governor and not living in Washington. Both Ron Paul and Michele Bachmann are viewed by many of the grassroots of being part of the solution to the mess created by team Bush and team Obama and not the problem.

This relieves Republicans of having to defend Bush’s role in the mess and correctly talk about how government policies encourage the financial collapse. As minimum standards were ditched when it came to lending standards, much of it encouraged by Freddie Mac and Fannie Mae. Stanley Kurtz outlines how ACORN in Chicago forced banks to lower standards in the name of racial justice and Obama did work with ACORN in the 1990’s and probably played his part in their various campaigns with local banks.

Authors Gretchen Morgenson and Joshua Rosner detailed in their book Reckless Endangerment many of these policies starting in the Clinton administration and including the support of cast of characters like Barney Frank and Chris Dodd. The policy resulted in lower mortgage standards as part of a strategy to increase home ownership, with the end result being the financial meltdown. Republicans need to emphasize the government role in the financial meltdown and subsequently the role of those Democrats left in Washington who were also involved. Obama was not an innocent bystander but part of the problem.

For Republicans, the following objections need to be dealt with.

First, Obama and the Democrats saved us from a great Depression. The truth is that the economy, according to most observers, began to recover six months into the Obama administration, and the recovery has been the weakest on record. Contrast Obama's approach, which has left us trillion of dollars more in debt with the Reagan approach, which emphasizes marginal tax rates reduction, less regulations, better control on spending and nearly three decades worth of growth. By this time in the Reagan recovery, job creations and economic growth was exploding. Obama's approach has delayed recovery. It is a point I have made previously, but it is worth repeating.

Second, if the Bush tax cuts are allowed to expired, we will merely return to the Clinton era of taxation. Which is true, but this is an easy objection to deal with. First, Bush’s tax reduction leads to increase revenues among the most wealthy, and this mirrored the Reagan tax rates reduction that also led to both growth and increase revenues among the wealthy. During the Clinton years, capital gain taxes were cut, growth of the federal government slowed, the debt as a percentage of the GNP was half of what is today, and federal spending as percentage of the GNP was significantly lower. Also, Clinton supported the expansion of trade agreements which lowered prices on goods and Hillary care was defeated in his first years; eliminating another entitlement that would have added to the cost of doing business. Least we forget, welfare reform was passed and there were no significant business regulations added that raised the cost of doing business.

If Obama wants to repeat the Clinton years, he has to cut capital gains tax and business taxes, cut the budget significantly, repeal Obamacare, reduce regulations that are strangling America businesses, pass what trade agreements that are on the table, and reform entitlements!

Three, we must deal with the claim that cutting marginal tax rates for the wealthy is giving the rich a bounty. The reality is that over the past three years, there have been calls to reform the tax systems that include reducing marginal tax rates in exchange for a reduction of deductions. So if billionaires lose their deduction for their private jet planes, they are rewarded by a lower marginal tax rates. There have been proposals to do exactly that from Liberal Ron Wyden, eleven members of the Bowles-Simpson commission report, conservative Paul Ryan and former Senator Judd Gregg (who worked with Wyden on tax reform.) Obama demand to raise marginal tax rates among the rich is great political theater but running against the consensus.

Republicans should not concede the argument that Obama saved the economy, instead make the argument that his policy has delayed the recovery and we need to change course. The question to ask, do we want to the travel the path to Greece or the path to future greatness? Do we want to live in a downgraded America?

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