Obama Sequester Strategy Rests On GOP Tax Irrationality

February 5, 2013 9:29 am

As advertised, President Obama is calling on Congress to pay down the sequester for a few months with a mix of less abrupt spending cuts and new tax revenues. Specifically, he argues that Congress should buy itself time to hash out a unified budget — to create a glide path for further deficit reduction — instead of attempting to cobble together legislative priorities while the sequester takes its toll on government services and the economy.

“If congress can’t act immediately on a bigger package, if they can’t get a bigger package done by the time the sequester scheduled to go into effect, then I believe that they should at least pass a smaller package of spending cuts and tax reforms that would delay the economically damaging effects of the sequester for a few more months until congress finds a way to replace these cuts with a smarter solution,” Obama said. “Congress is already working towards a budget that would permently replace the sequester at the very least we should give them the chance to come up with this budget instead of making indiscriminate cuts now that will cost us jobs and significantly slow down our recovery.”This is in keeping with his pledge to veto legislation that replaces the sequester with spending cuts alone or eliminates it altogether. It also aligns him with Congressional Democrats, who have been telecasting this legislative strategy for a couple weeks.

Meanwhile Republicans have been steeling themselves to let the sequester hit if Democrats won’t agree to replace it with spending cuts only. So the Obama-Reid approach has the added political benefit of saddling Republicans with the consequences if the sequester hits. Voters will hear that Republicans prefer the sequester to raising even a small amount of revenue from oil companies and other unpopular interests — that the only thing Republicans want more than the sequester is a wide range of cuts to services for the poor. Defense contractors will hear that their Republican allies are prepared to abandon them unless and only unless Democrats agree to cut social insurance programs.

That will put a lot of pressure on the GOP to cut a deal. The irony is that if Republicans were to take the Democrats up on their small bore, but politically expedient, revenue proposals — like eliminating oil and gas company tax preferences, implementing the Buffett Rule, or even doing away with the carried interest loophole — it would only delay the sequester temporarily. Eventually Democrats would run out of “gimmicky” revenue raisers, and have to fight over the rest of the sequester on less politically advantageous terrain. If they have an upper hand in the political fight right now, its because Republicans have made their own irrationality about taxes a safe bet.

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