Obama and the Budget Deal

In the 1970’s, Jerry Brown (yes that Jerry Brown who was just elected governor this past year) opposed Proposition 13, which lowered property tax rates but was overwhelmingly passed by the people. After the Proposition passed, Brown won re-election as the governor who made the Proposition work, a bit of magic to say the least.

This past Monday, Barack Obama came to the podium and essentially said, “Republicans, you are right, tax rates matters in a slowing economy.” He surrendered to the GOP and turned his back on his own rhetoric and own ideas. The question that remains, will he be as adapt as Jerry Brown in running in 2012 by campaigning, “I made the tax system work better for us all?”

There is one reality, Obama enhanced his own shot of re-election since he did the steps necessary to prevent a double dip recession and he might just even lower unemployment with the various tax reduction included. What Congress did was to combined classic free market ideas (maintaining the tax rates lower) and old fashion short term stimulus (the temporary reduction in payroll tax, the various gimmicks that Obama wanted to include from his previous propositions and the complete write off for business over the coming year in one package design to perk the economy up just in time for the 2012 elections.

If Obama had done a similar plan in 2009, he would have seen a robust economy right now and be on his way to an easy path to re-election, but by putting together a failed stimulus and passing healthcare, he guaranteed a slow growing economy that sputtered and with the extension of the unemployment for 13 months, he also ensured that unemployment will be higher than what it should be.

As I previously stated in recent blogs, the intellectual debate is over on Obamanomics, it has failed and new approaches are called for. This particular package will increase the budget deficit but it may also lead to higher growth than what was expected over the next year. And it now opens the door for serious deficit reduction since the next Congress does not have to deal with taxes immediately and most taxpayers will know that they will not only see their taxes not go up, but in some cases, go down further. The tax issue is off the table and serious debate on restraining government spending will begin.

What the Republicans showed in the first round of budgetary battles, they will not raise taxes to make a deal but the hard part begins along with the demagoguery that will come from the left over the budget battles. The new consensus that has formed over the past year is that government spending as part of the overall economy matters, tax rate matters, government has expanded far too much in our lives and the main obstacles to a more permanent solution is the political left. (The left may yet vote the package down.)

This brings us to question of 2012; can Obama pull off a Jerry Brown or even a Bill Clinton and triangulate the budget issue?


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