It is hard to see how President Obama in particular and the Democrats in general can offer a real deficit reduction plan based on spending cuts alone without fatally alienating their base. That base, after all, consists of the very interests that have been driving the federal budget towards the cliff for decades. That leaves them basically two options in the current political climate.
They can play with numbers, such as talking about spending reductions—as yet largely unspecified—over 12 years. As everyone who follows federal budget matters knows, budget outlooks come in 1-year, 5-year, and 10-year varieties. So when President Obama mentioned 12 years in his speech last Wednesday, a lot of red-light political claptrap alerts started flashing. And they were right, as Keith Hennessey points out. This sort of statistical three-card monte works well enough with the Washington press corps and the New York Times editorial board, but it is working less and less with the economic press, and as Abe observed this morning, it is not working with the green-eye-shade boys at Standard and Poor either. It is hard to see how a president who cost the country its 94-year-old AAA bond rating could survive in an election. The 30-second TV attack ads almost write themselves.
The second option is to follow the late Senator Russell Long’s formula for political success: “Don’t tax you and don’t tax me, tax that man behind the tree.” The man behind the tree in this case, of course, is “the rich.” But, as the Wall Street Journal noted this morning, you could do to the rich what Philip the Fair did to the Knights Templar when he needed their money, and it still wouldn’t be enough. The real money is with the middle class. That means either raising marginal rates or cutting out major deductions, such as property-tax and mortgage interest deductions, that millions of families factored into budgetary assumptions when they bought their houses and now cannot easily undo. Ending those deductions would also very adversely affect property values, not exactly the high-road to political success, especially when housing prices are already depressed.
So the Dems are in a bind in Tea-Party America. One thing, however, seems clear. If the President’s speech last Wednesday is any indication, 2012 is going to be one ugly campaign.