HOW OBAMA, AND ONLY OBAMA, CAN PREVENT NATIONAL BANKRUPTCY

Discussion of what to do about our government’s looming financial catastrophe has become really interesting. It is increasingly obvious that disaster cannot be avoided if we continue political business as usual.

As Rand Paul has warned, our national debt is growing so fast that the interest paid on that debt will be bigger than our annual defense budget within a handful of years. This would obviously be intolerable. But when presidential commission co-chairs Alan Simpson and Erskine Bowles pointed out the tax increases and expenditure reductions necessary to reduce the annual deficit to a manageable 2% of the GDP, politicians all over the spectrum angrily declared the proposals dead on arrival.

David Brooks probably is right: without dramatic public opinion changes, Congress won’t dare to enact the changes proposed by Simpson and Bowles. Some congressmen might be willing to save the country even though it is political suicide for them personally. But a majority would not be willing, so these individuals won’t speak up since their suicides would serve no purpose.

The only person whose political suicide could save us is, therefore, President Obama. A proposal put forward recently by David Stockman suggests how the President could save the country without any cooperation from Congress. Stockman, Ronald Reagan’s director of the Office of Management and Budget, says that all of the Bush era tax reductions should be allowed to expire, not just the reductions for upper income people.

This would put taxes back where they were during the prosperous Clinton years and bring in huge amounts of extra revenue. Any short run harm to the economy, which various interests always exaggerate, would be outweighed by renewed confidence in the dollar and in the stability of our system.

Since the Bush tax cuts expire automatically on December 31, this fix would require no action by Congress. If Congress couldn’t resist extending some of the tax cuts, Obama could implement Stockman’s proposal by vetoing this legislation. He would then go on TV with a candid analysis of the disaster facing us if he didn’t veto the bill. He could point out that he is not increasing taxes in violation of his pledge, since the increase resulted from the expiration written into the law by an earlier, Republican congress. The key paragraph in his speech would be something along these lines:

“I am aware that by vetoing this bill I am probably signing my own political death warrant for 2012. But it is absolutely necessary for the general welfare. My sacrifice will be a small one compared to those made by our brave men and women serving in Afghanistan and Iraq.”

Of course Congress might override the veto. But the President could head this off by promising that if this veto is overridden (which would require bipartisan support) he and Vice President Biden will resign. They would not be willing to assume responsibility for the financial disasters that would then be inevitable. Since this would propel House Speaker John Boehner, Republican, into the White House, this should have a calming effect on Obama’s fellow Democrats.

Stockman’s proposal does not reduce government expenditures. But it increases revenues so much that smaller reductions in expenditures than those contemplated by Simpson and Bowles could put government finances on a solid footing. Given the new Republican majority in the House such modest reductions might be politically feasible.