United States President Barack Obama has thrown caution
to the wind, secure in the knowledge he will not have to stand
for public office again and emboldened by the strong showing of
the Democrats at last month's elections.
That flash of swagger reflects growing White House confidence
it has boxed in Republicans when it comes to the looming
showdown between scheduled spending cuts and tax increases.
Taxes will go up for all Americans on January 1 when rate
cuts dating from the George W. Bush era expire. The White
House credits its strategy, crafted from painful lessons
learned from past skirmishes with the Republican-led House.
Rather than engaging intensely with the Republican leadership
in high-profile meetings, Mr Obama has sought to isolate
Republicans and exert pressure from all sides. He has picked
a line and is sticking to it.
Instead of sitting in Washington DC waiting for a result, Mr
Obama has hit the hustings, speaking directly to the people
about what he wants to achieve. Despite receiving scathing
reviews from Republican opponents, Mr Obama is receiving
complimentary headlines and news broadcasts from all but the
most staunch of right-wing media. This is his moment, and he
By Mr Obama insisting on higher tax rates for affluent
Americans and winning public support for the idea,
Congressional Republicans now find themselves in an
increasingly difficult spot. Senior Republicans are quoted as
saying they are contemplating a fallback position, since a
standoff over expiring tax rates will be portrayed by
Democrats as evidence their opponents are willing to allow
taxes on the middle class to rise to keep taxes on the rich
from rising. Republican intransigence could mean taxes go up
on rich, poor and middle class alike. Mr Obama wants to
extend tax cuts for the middle class and to raise $US1
trillion ($NZ1.23 trillion) to pay down the deficit by
letting the top rate rise from 35% to 39.6% for families
earning more than $US250,000 a year. That income figure is
not insignificant and is being used as a weapon of sorts by
Mr Obama to bludgeon Republicans into submission.
Opinion is falling behind Mr Obama, as his staunch supporters
(comprising poorer Americans, African Americans and Hispanics
- in fact most immigrants) start to question the amount of
money earned by the mainly white male supporters of the
Republican party. The tax and spending cuts debate is
starting to divide the nation.
A handful of Republicans are suggesting Congress should pass
the middle-class tax cut extensions now, leaving the fight
over taxes and spending until later. Americans should not be
questioning that Congress would ultimately raise taxes on low
to middle-income people, they say. Congress should take that
off the table while it grapples with tax cuts for the
The issue is as important for the global economy as for Mr
Obama and the Republicans. In the US, any move towards
Republican compromise with Democrats on fiscal issues quickly
comes under attack from conservatives as a surrender, and
unsettles the GOP's grassroots supporters. Around the world,
including in New Zealand, left-supporting politicians are
contemplating tax increases in some form or another. And the
rich are the easiest target.
The United States is still the world's largest economy and,
while there are signs that economic growth will start in
earnest next year, its huge debt problem is a major issue for
the rest of the world.
The Republicans have one last card to play: a make or break
issue for the party in many respects. Raising the debt
ceiling is the next issue to be confronted by the president,
who has requested he be given the authority to unilaterally
raise the level of debt the United States requires early next
year to pay its bills. Republicans could still demand deep
concessions on spending and changes to Medicare and social
security as a price for raising the debt ceiling. With two
short weeks left before Christmas, the chances of another US
recession are increasing daily.