In July, I pointed out that Obama’s second term agenda was to cut Medicare, Social Security, and/or Medicaid. And here comes the cavalry to make that a reality. This passage is from Politico’s Morning Money, which is a newsletter that spans the nexus between financial services lobbyists in DC and the financial sector in New York.
COMING POST-ELECTION: CEOs TO PUSH ON FISCAL CLIFF – In multiple conversations recently, top corporate executives have indicated to M.M. that following the election (and no matter the outcome) they will push hard for a broad tax and spending deal in Washington that will take the threat of the fiscal cliff off the table even if it means significant new revenues. The executives have said their efforts could help offer cover to Republicans afraid of signing onto any deal that might anger hard-core tea party leaders or anti-tax advocates such as Grover Norquist. “We don’t really care if our taxes go up a little if we can just get this done and take this threat away from the economy,” one top executive at a Fortune 100 company told MM this week.
These executives say either an Obama II or Romney administration could enlist them to sell a deal both inside and outside the Beltway. They all suggest the final package will look something like Simpson-Bowles. And many believe that coupled with a recovering housing market, a domestic energy boom and a lessening threat from Europe, a functional Washington could finally open the door to a significant economic expansion that would cut the jobless rate and slice into short term deficits and long-term debt.
So that’s the plan for 2013.
Simpson-Bowles includes cuts to Social Security, cuts to Medicare, and cuts to corporate taxes. As Obama puts it, he doesn’t want to “cut entitlements in any way that would hurt vulnerable populations.” In other words, certain types of cuts, like means-testing, or cuts for the middle class, are coming. And then there’s the fracking boom, which can significantly crimp water supplies. Interestingly, Simpson-Bowles also includes ending tax breaks for charity, the mortgage interest tax deduction, and the tax deduction for employer provided health care. The wealthy like these tax breaks for a variety of reasons, so it seems unlikely they’ll be included in the final bill. It’s unclear if the plan can work. The problem with any recovery is that oil prices, already at pre-recession levels during a time when demand is slumping, will spike if employment goes back up. Fracking is meant to keep the price of oil dampened even if there’s an increase in demand.
There’s a lot of risk here. Let’s say that boosting the housing market by restricting supply doesn’t work. Or that the fracking boom doesn’t pan out the way that CEOs think it will. Or that Europe isn’t contained. Or any number of other possible problems come to pass, such as crop failures, climate shocks, a Chinese slowdown, a pandemic, a supply chain shock, etc. Then we may be heading to what’s going on in Spain and Greece, which is massive protests and an authoritarian crackdown in response to brutal austerity. And if the plan works, then we’ll get there eventually, it’ll just take a few more years. As Obama put it, according to Bob Woodward, “I’m a blue dog. I want fiscal restraint and order.”