Likely 2012 Battle Line Set on Taxes

Now that Congress has passed the tax deal, a battle line for 2012 has probably been set. While a lot can happen in the next two years, President Obama will probably have to make a choice in his re-election campaign. Does he run on his record, or against it?

President Obama has largely vindicated some of President Bush’s major policies on taxes and national security. Those policies are among the same ones Obama ran against in 2008 as the anti-Bush. Will Obama reject the wars he has continued? Will he reject the tax rates he just extended? Essentially, will he run as the anti-Bush again when some of those Bush policies have become his own? Or will he run on his record, mostly vindicating Bush?

My prediction: Obama will run as he did in 2008, his liberal base will follow him even though Obama has continued policies they hate, and Obama will try to use the record he rejects as evidence for the center-right and center-left that he is a moderate. And some of us will point out how absurd that marketing is.

Perhaps the biggest question for the 2012 election, no matter how President Obama wants to frame it, is whether we want our taxes going up in 2013 or not. Think about that, because we will be talking about it again.

“Two Californias”

The news that California’s state legislature will adopt carbon trading, a.k.a. cap-and-trade, serves as another warning for a state about to fall off a cliff. California has an immense regulatory scheme and high taxes that have contributed to people and jobs leaving the state. Everyday conversations now feature questions about what the country might do if California or any other state goes bankrupt. In San Francisco, they are banning Happy Meals. The Democrats of California keep voting for more Democrats, and therefore the same policies that have led the state to this disastrous predicament.

Yet for all the state’s attempts to regulate, there are places within it where people live in what seem like uncivilized communities outside the apparent reach of the vast government. Victor Davis Hanson writes about these parts of California as he has spent a few weeks traveling the state and making observations. One cannot help but feel some combination of shock and sadness to read experiences like this:

Many of the rural trailer-house compounds I saw appear to the naked eye no different from what I have seen in the Third World. There is a Caribbean look to the junked cars, electric wires crisscrossing between various outbuildings, plastic tarps substituting for replacement shingles, lean-tos cobbled together as auxiliary housing, pit bulls unleashed, and geese, goats, and chickens roaming around the yards. The public hears about all sorts of tough California regulations that stymie business — rigid zoning laws, strict building codes, constant inspections — but apparently none of that applies out here.

…

Many of the rented-out rural shacks and stationary Winnebagos are on former small farms — the vineyards overgrown with weeds, or torn out with the ground lying fallow. I pass on the cultural consequences to communities from  the loss of thousands of small farming families. I don’t think I can remember another time when so many acres in the eastern part of the valley have gone out of production, even though farm prices have recently rebounded. Apparently it is simply not worth the gamble of investing $7,000 to $10,000 an acre in a new orchard or vineyard. What an anomaly — with suddenly soaring farm prices, still we have thousands of acres in the world’s richest agricultural belt, with available water on the east side of the valley and plentiful labor, gone idle or in disuse. Is credit frozen? Are there simply no more farmers? Are the schools so bad as to scare away potential agricultural entrepreneurs? Or are we all terrified by the national debt and uncertain future?

Hanson recognizes the underbelly of California, and contrasts it with the issues that progressives and elites of the state instead focus on. Voters could have begun to change course in November like much of the country opted to do, but instead voted for more of the same. There is now a Democrat governor in place, increasing the likelihood that the legislature will address its fiscal problems with higher taxes, and its perceived environmental problems with systems like cap-and-trade.

These ideas may make the elites happy, but the state will continue to crumble unless the real problems are addressed. Right now, there are indeed two Californias.

Virginia Health Law Ruling: Health Insurance or Healthcare?

A federal district judge in Virginia determined this week that the individual insurance mandate is unconstitutional. In doing so, the judge rejected the government’s Commerce Clause, Necessary and Proper Clause, and tax arguments. I’ll leave the legal analysis to the legal experts. There is good discussion at Volokh and at the NYT. Instead, I’ll address what I see as an important problem with an argument the federal government uses in the case.

A crucial argument for the federal government is that inactivity in opting to not purchase health insurance should be considered an activity that the federal government can regulate. The logic is that most or all people will consume healthcare at some time, and if a person does not have insurance, he/she will pass the cost of that care to others. The problems with this argument include a lack of differentiation between healthcare and health insurance, and the impact of one on the other.

One should recognize that health insurance is not the same as healthcare. Insurance doesn’t guarantee that healthcare will be affordable or accessible. If a person does not have health insurance, their consumption of healthcare does not necessarily mean that the cost of that care will be passed on to someone else; a person can pay for healthcare without insurance. On the other side of the coin, a person with insurance is not certain to be able to obtain and pay for healthcare. Recognizing this should hurt the federal government’s argument that the insurance mandate is a necessary mechanism for ensuring access to affordable care.

Health insurance is a way for someone to purchase healthcare. The federal government’s goal is not to ensure access to insurance, but to ensure access to care. Essentially, the federal government wants to use the insurance mandate to subsidize healthcare. There are other more traditional ways to do this, including methods that are clearly constitutional. That the federal government is trying to use an unusual and perhaps unprecedented mechanism for regulating commerce when more accepted practices are available hurts the argument that the mandate is necessary for providing healthcare.

Also, if the federal government were allowed to mandate the purchase of a product (insurance) because the economic activity or inactivity associated with that product could impact the commerce of another product (healthcare), then what are the limits of what activity the federal government could mandate? Basic economics can show how unrelated activities can impact others, so what would the line be for when some activity that might have some impact on another cannot be regulated for its impact on the other? The federal government’s argument doesn’t seem to draw that line, and the judge in this case determined that there is no limit based on the logic used by the federal government.

Yuval Levin examines the argument made by Secretary Sebelius and Attorney General Holder, and he makes a similar point:

Their argument, in essence, is that the government has the right to do anything it wants to in the health-care arena because all human beings get sick, and their getting sick can have economic consequences. The choice of some not to purchase insurance means that when they get sick they might incur some costs that would have to be shouldered by others. “For decades,” Holder and Sebelius write, “Supreme Court decisions have made clear that the Constitution allows Congress to adopt rules to deal with such harmful economic effects.” And the way the new health-care law would “deal with” such harmful effects is to make it illegal to make the choice not to purchase insurance. Simple.

By the same logic, of course, you might argue that the government can require each of us to exercise every day and eat our vegetables. Our choice not to do so has grave economic consequences, after all, and under Obamacare, those consequences will be borne by our fellow citizens to an even greater degree than they are today.

We shouldn’t be arguing over how to insure everyone, but instead about how to maximize access to healthcare. Having insurance is neither a necessary nor sufficient condition for affordable access to healthcare, and the argument that mandating insurance purchases to regulate access to healthcare raises serious questions about the limits of regulating one product because of its potential impact on another.

Republicans Want No Tax Increases, While Democrats Are Unsure

Regardless of whether or not Republicans should support the president’s tax deal – and there is a good debate to be had about that – all Republicans should be communicating a simple message: Republicans want no tax increases for anyone, while Democrats are unsure. It’s that simple, which is why House Democrats just rejected the tax deal. Consider the following:

1. A large Democrat majority in Congress needing little to no Republican support to pass legislation could have extended the current tax rates at any time in the past two years, especially before the midterm election, and did not.
2. That large Democrat majority could have raised rates at any time in the past two years, and did not.
3. President Obama did not make any hard push for extending tax rates until after his party was handily defeated in the midterm, and he is only now telling us that extending the tax rates is necessary to save jobs.
4. Congressional Democrats do not currently have the votes to avoid tax increases.

The explanation for these facts is not complicated. The simple truth is that there are some Democrats who want to raise taxes, and that’s why there has been no approved deal. President Obama is now conveying a sense of urgency to save jobs, but if he knew that extending the tax rates was necessary to save jobs, then why didn’t he say so before? Why wait until the last minute? It’s hard to conclude that avoiding tax increases was not a priority, further suggesting that this deal is more of a response to the midterm and a way to get the best deal he can before more Republicans come to Congress next year.

To further emphasize the lack of Democrat priority in avoiding tax increases, consider that they could have passed a budget resolution this year that would have made a tax vote easier via reconciliation. Remember how clever the House and Senate were in maneuvering ObamaCare? What does that say about their priorities? The answer is obvious, and every Republican should be making that case right now.

UPDATE: I’m reading some accounts saying that there are enough votes to pass the tax deal in the House, but that Speaker Pelosi will not allow a vote on it. President Obama is suggesting a deal is near. Regardless, the point remains that we are at this point because at least some Democrats want to raise taxes.

Who Wins in This Tax Deal?

There are a variety of opinions on this tax deal, with many on both the left and right not thrilled. The guys at Power Line like it, Ed Morrissey thinks it’s a good but not great deal, and Hugh Hewitt is fired up against it. It’s a small win for Republicans and a loss for President Obama and the Democrats, but that’s not the full story. I have mixed feelings about the agreement, but I side close to Hugh Hewitt in that I think the deal is insufficient and that the Republicans are missing a crucial opportunity. Here’s why.

First, as Hugh Hewitt points out, Republicans had the momentum from the election. People sent a message for smaller government. Plus, with a struggling economy, most people recognize that tax increases are a bad idea. Therefore, the Republicans could have received more than a two-year extension on current tax rates. President Obama was not going to hold out and let taxes increase on everyone; he would have caved. And if not, he and the Democrats would have paid politically as the new Congress tried to retroactively change the rates next year.

Second, the impact of the tax rate extension and the new cuts will probably be minimized by their short-term sunset. Yes, this deal is better than letting all the rates go up, but long-term growth is unlikely with the tax increases still looming. Therefore, the economic impact might not be significantly positive. Plus, there is still a huge spending problem, and in return for the tax rates, President Obama secured another extension of unemployment benefits that will cost billions more.

Third, this compromise will probably be a bargaining chip for President Obama. He’ll try to take credit for any economic improvement, or he’ll blame Republicans for a lack of improvement. He will point to this as if it’s some dramatic example of compromise so that he can paint himself as bipartisan and Republicans as unwilling to work with him on some issue(s) in the future.

All this said, I don’t see this helping President Obama much. He can take credit for economic success following the deal or he can blame Republicans for failure, but everyone knows that tax cuts are the Republican policy and that the expanding government and deficits along with looming tax increases are bringing us down. If the economy continues to sputter, who is going to accept tax increases in 2013? If the economy improves, the threat of ruining that success with tax increases will still exist. This issue should be a slam dunk for Republicans in 2012.

Because President Obama probably won’t get much help from this deal, I have to believe that he took it to preempt a larger compromise. In other words, he minimized his loss. Instead of permanent or long-term extensions that would be a bigger political loss for him and would have further angered his base, he gets to say that these are only temporary. And in the meantime, he may push for tax increases in other places.

If the Republicans, the Democrats, President Obama, and the economy don’t win much in this deal, then who benefits? So far, the biggest winner seems to be George W. Bush, whose policies – largely criticized by Obama and the left – have been largely vindicated by their continuation in this administration.

Fear not, however, as there is some opposition in Congress led by people like Senator DeMint and Congresswoman Bachmann, and it’s not certain that this deal will actually be implemented.

Taxes Over Unemployment Benefits

Taxes are set to increase in 2011 while the economy struggles and the job market remains slow, yet Democrats are trying to tie unemployment benefits to an extension of the current tax rates instead of just voting to keep the tax rates as they are. Forget the legislative and political games, because the bottom line is simple: Too many Democrats want to raise taxes on at least a portion of Americans. As I asked prior to the election, why not stop tax increases before an election if you were going to at all? Instead, Democrats are trying to paint themselves as for the middle class and the Republicans as for the rich.

If we had responsible leadership, we could act to help the economy. Instead, we’re stuck for a few more weeks with a Congress that wants to play politics to divide voters, even if at the economy’s expense. There are probably more than a few liberals in Congress now who’d be happy to let tax increases hit everyone in 2011, so long as they can somehow blame Republicans.

The best way to help the unemployed would be to spur economic growth so people can have a better chance to find jobs. Step one to doing that would be to stop tax increases in 2011.