If Obama Is Re-elected Will We Face Fiscal ARMAGEDDON?

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Do We Face Fiscal Armageddon if Obama is Re-elected?

In short, no. The Republicans have already said that they will have to compromise with the Democrats should Obama win.

January 1, 2013: The Day of Reckoning. This is the date where automatic across the board cuts are set to take effect, slashing entitlement programs and the national defense budget while simultaneously raising taxes on nearly all Americans. In the political arena, Democrats keen on keeping entitlement programs unscathed and raising taxes on the wealthy face Republicans fiercely pushing to stop these efforts and as they try to keep programs such as defense off the table.

Taxes and entitlements remain one of the key sticking points for both political parties this election term. Republicans have repeatedly struck down bills that would reduce the deficit because of tax increase measures. Many have signed the Norquist “Tax Payer Protection Pledge,” that commits politicians to vote against any bill that is accompanied by tax increases.

The tides have turned however since the Republicans signed the bill. Many in fact have asked to have their names taken off – as popularity has suffered due to last-years credit rating drop after the budget battles. Republicans want to show themselves as strict anti-tax dogs, and many of them are, but don’t be fooled – they won’t suffer anymore fallout.

Republican leaders have already indicated that they are willing to play ball and even the fiscal hawk Paul Ryan has come out in support of compromise.

“This is a referendum on taxes,” “If the president wins reelection, taxes are going up there’s not a lot we can do about that.” – Tom Cole (R-Okla.)

“We’re not going to save our defense unless we go along with the president’s wishes to raise taxes on small business… [AND] there are enough Republicans, I think, who are so afraid of defense cuts that they would probably give in.” – Sen. Jim DeMint (R-S.C.)

If Obama is re-elected, the Republicans really don’t have much leverage in negotiations – and without much doubt they will have to give in to the Democrats demands to put tax increases on the table.

Why?

  • The “Fiscal Cliff” option was really a win for Democrats should Obama win, Republicans will not accept defense spending cuts and will have to compromise on entitlements and taxes to keep them on the table.
  • Secondly, if the “Fiscal Cliff” comes into effect, taxes will already increase as part of the agreement (bush-era tax cuts will expire).
  • Lastly, if they don’t appear to compromise, like they did in late 2011, they will face the disdain of the public who grow tired of gridlock.

Paul Ryan has stated that going over the fiscal cliff would be “reckless” and has spoken out against all out austerity,

“We don’t want to have a situation on our hands where the credit markets have turned on us, and then we’re doing crisis management… Slowing down the economy, raising the youth unemployment rate, that’s what austerity is.”

If Obama wins, he will put into motion his budget for quick ratification – and the Republicans cannot wait 4 years to address the issue. Put yourself in the Republican’s shoes. They have just lost the presidential election, meaning they have 4-years with the “worst president ever,” Obama. Taxes are going up, and their defense budgets are being cut – unless they compromise. 

What will a compromise look like?

“If you deal with the Medicare issue, then Republicans are far more open to looking at revenues.” – Sen. Bob Corker (R-Tenn.).

“I don’t know what it would look like, but it would be a negotiation — not a capitulation,” Rep. Steve LaTourette (R-Ohio)

Following the 6-months of negotiation expect to see something very similar to Obama’s independent fiscal commission, with something like a 2-to-1 cut/tax increase ratio. Expect that entitlements will be touched only moderately, taxes will increase for those who make greater than $250,000 dollars and the bush-era cuts will expire. For the Republicans? The full defense budget is restored. (This is all I can see happening for them).Even though Obama will push for quick resolution, expect a temporary 6-month or so extension to keep the budget where it is at and the government running.

 

Ideafart: When did the word compromise become so bad? 

While I don’t agree with most senior Democrats that the taxes should be raised (even for the wealthy) at this time, I understand that compromise needs to happen. Compromise should be seen as a good thing, it actually makes the government work better. Compromise means no one wins, only the essential cuts are made and only the programs that run the worst are stripped. There isn’t any vengeance, no bad blood, just productive agreement.

Stay tuned, later this week we will be giving you insights on what happens if Romney is elected.

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