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Obama's cynical sequester strategy

 

President Obama has taken the middle class hostage in a thinly veiled bid to hike their taxes.

Having refused to work with Congress to reduce spending by $1.2 trillion over ten years, as he agreed to do when drafting the Budget Act of 2011, the president must now implement $85 billion in across-the-board cuts to defense and non-entitlement government spending.

House Republicans have offered to ease the burdens on the public—by increasing administration flexibility in implementing those cuts in the continuing resolution to keep the government funded past March 27—but the president wants no part of that.

Mr. Obama talks like President Truman but taxes like King George.

Instead, he is campaigning across the country, painting the dire consequences sequestration will impose on all of America if new taxes are not imposed on the wealthy. That is a cynical ploy—Mr. Obama talks like President Truman but taxes like King George.

Taxes imposed at his insistence on January 1 have eliminated 80 percent of the benefits of tax deductions—mortgage interest, state income taxes, local property levies, and the like—for wealthier households. Any substantial gains from further tightening deductions, as President Obama proposes, must come from similarly limiting their use by middle-class taxpayers.

Already, by hiking payroll taxes, the majority of $150 billion in additional revenue obtained on January 1 was extracted from the working poor and middle class families, and federal revenues share of GDP will now substantially exceed its average for the last 40 years.

President Obama is also unwilling to acknowledge government spending is completely out of control. Over the last five years, outlays are up by $1 trillion—three times the amount required by inflation—and tax revenues are short because high rates and burdensome regulations are choking economic growth and jobs creation.

Instead, the president threatens America with the dire scenario of furloughed meat inspectors, food shortages and streets without police. His cabinet secretaries threaten three hour waits in airport security lines, reduced embassy protection and border patrols. The list goes on and on.

Appropriation legislation does limit President Obama’s ability to allocate the cuts among departments. However, even without additional legislation, he has considerable discretion in allocating the 10 percent spending cuts within departments, but he has refused to entertain options that would limit the pain in his pursuit of higher taxes.

For example, the Agriculture Department has one of the largest staffs of economists in the world—surely, safe food is more important than yet another dull research paper. Military bands could also stand down to maintain Marine guards at embassies.

Repeatedly, President Obama has proclaimed that if Congressional Republicans don’t cooperate, spending cuts now could derail our hard won economic recovery. It puzzles why he believes $85 billion in spending cuts could make such a difference, when avoiding those cuts through higher taxes would not.

Whether a second recession occurs is already baked in the cake. Mr. Obama’s $150 billion January tax hikes, and similar rate increases imposed by Democratic governors from Maryland to California, have forced consumers to trim purchases. Retailers and wholesalers are reporting weaker sales traffic and are trimming inventories. Corporate leaders have announced plans to cut new investments and hiring owing to weak demand and more burdensome health care costs and regulations.

When Americans can’t get hamburger at the supermarket and unemployment rises this spring, President Obama will place the blame squarely on Republicans for permitting sequestration, but it is the American people who will bear the burden of his inflexibility, his disregard for the facts and his neglect in undertaking the responsibilities of his office.

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.