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Posted: July 27, 2011

The Obama Proviso

The looming election is driving debate

Bart Taylor

In this surreal week, it's easy to buy-in to the dire forecasts relating to a government default. But a compromise will be reached, if one that postpones any meaningful resolution to the budget deficit issue - the "kicking the can down the road" idiom favored in Washington D.C. these days.

An equally serious issue is the state of federal policy-making and the troubling Obama proviso that now attends to deliberations in D.C.: much of what Mr. Obama touches will be debated on visceral, emotional grounds. Substantive dialogue has given way to a simple calculation involving political capital, as in, what does supporting or opposing this President mean for the 2012 election? Among Mr. Obama's foes, Sen. McConnell has confirmed as much.

The debate about raising the debt-limit has brought this reality into sharp relief.

Facts suggest there's plenty to agree about. David Kelly, Chief Market Strategist for J.P. Morgan Funds, put it like this last month:

"First, over the past 50 years, federal revenues have averaged 18.0 percent of GDP but in the current year they are set to amount to just 14.8 percent. During the same period, federal spending has average 20.5 percent of GDP but in the current fiscal year it should amount to 24.3 percent. This strongly suggests that any honest approach to balancing the budgets will require both revenue increases and spending cuts. Second, the budget cannot be balanced purely by hammering discretionary spending. The cold reality is that we are currently borrowing almost 40 percent of total government spending or $1.4 trillion. If we eliminate all non-defense discretionary spending, it would still amount to only half the current deficit. As an alternative, if we eliminated all spending on Social Security and defense, it would still just cover the deficit. As a practical matter, the federal budget cannot be balanced without increasing taxes and cutting spending on Medicare, Medicaid, Social Security and defense." (His bold and italics.)

A regular columnist on this site, Bill Greiner, president and chief investment officer of Scout Investment Advisors, has also suggested the numbers present a fairly straightforward case for action. In a briefing last year anticipating the current debate, Greiner was optimistic that politicians would eventually find the will to compromise and arrive at a balance of spending cuts and new tax revenues that would well received by global financial markets.

Would he be as optimistic forecasting similar events today? Does the political will exist to arrive at meaningful compromise on key issues with President Obama in the White House? Blame who you will; by now most of us have well-entrenched biases that transcend any one policy debate.

But even those who support Mr. Obama may be forced to concede that without a dramatic and unforeseen change, he may be incapable of leading the nation to an agreeable conclusion on key policy issues. And a Democratic primary may be in the cards as a result.

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Bart Taylor is the publisher of ColoradoBiz magazine. E-mail him at btaylor@cobizmag.com.

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Readers Respond

There are three ways that revenue can be raised and we must have all in addition to some cuts. 1). Jobs will raise revenues. We need a jobs program. This is not accomplished through lowering taxes. It doesn't work. 2). Raising taxes on the wealthy. 3). Close all tax loopholes. It is unconscionable that, with the fiscal problems of our country billionaires and oil companies are getting tax breaks, and GE is getting tax rebates. Close these shameful loopholes. It is also shameful that these corrupt owned and operated politicians on both sides of the aisles insist on keeping these tax breaks for their corporate masters while they're cutting benefits for the most vulnerable among us. By John Heckers, MA, CPC, BCPC on 2011 08 01
Any budget problem, business or Gov, can only be solved in three ways and all three ways must be applied for any hope of success: increase sales (revenues); improve productivity and organization; cut expenses without losing operational efficiency and flexibility. Unproven theory and political / economical fantasy will not help! Increasing revenues: increase taxes, cut tax benefits/loopholes and cancel subsidies. Increase productivity: Re-design organization and process in agencies and departments. Dictate a sharper goal oriented output with fewer exceptions and eliminate diverting objectives. Implement controls. Decrease Expenses: Abandon unnecessary spending; minimize non-vital outlays; create transparency and info transfer; hold back on programs that are not urgent. Do not start costly new activities unless it creates revenues and/or increases productivity. To think that we will fix anything without addressing and finding reasonable solutions to all aspects of a problem while appealing to the intelligence and the good will of all american people is insane. As it seems today, there are Millions of insane people in this country that express themselves without knowing the slightest thing about the subject matter with a a few hundred that stir it that way. Politics have become religious dogma! What a shame. How shameful for America the declined. By Carlo M. Rota on 2011 07 27
For years Washington has preached that raising taxes will solve our problems. Never happened. In the business world "sales solves problems" makes sense, but not in Washington where politicians control both revenue (taxes) and expenses. That doesn't happen in the real world, and it doesn't work in Washington. The solution is not more taxing but less expense and more productivity. You can work the numbers anyway you want but the fact is that we spend more than we take in. The "answer" is conceptually simple: prohibit Washington from charging taxes in any form while requiring a balanced budget, and push taxing to the states. Have the states pay a percentage of their revenue (which they collectively agree on) to fund Washington. Result: 1.)Washington's spending is in check, 2.) Sideline money enters the economy as confidence in the dollar increases, 3.)Productivity soars, revenues soar providing debt reduction capital. The list goes on. States will compete for the best and most efficient form of taxation (to draw businesses and their jobs). We won't fix the debt without fixing the economy first. That requires we fix our broken system. By Tony G on 2011 07 27

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