Before the election ballots were fully counted last week, equity markets were sending President Obama a blunt vote of no confidence.
Forget all the political pundits who were heralding his narrow popular vote victory as a mandate for his soak-the-rich tax agenda. The sour message from the investment community that fuels our economy spoke volumes about a fundamentally status quo election.
The capital markets, stricken by uncertainty and sitting on nearly $2 trillion in cash, fear the weak, subpar, jobless Obama economy isn’t going to be significantly different in a second term than it was in his first.
That realization triggered last week’s postelection sell-off on Wall Street. The Dow Jones industrial average of blue chip stocks plunged nearly 400 points, the sharpest weekly decline in more than five months.
This week’s economic data for October were not expected to improve Wall Street’s bearish mood, either. Producer prices were expected to decline along with retail sales. Industrial output was forecast to slip, contrary to the president’s campaign TV ads that said U.S. “factories were humming.” Unemployment claims were likely to rise, too.
It was an inauspicious “new beginning” for the Obama administration, despite a week when the president and House Speaker John A. Boehner appeared to be ready to cut a year-end deal on spending cuts and tax revenues in the lame-duck Congress.
Appearances can be deceiving, especially when the positions on both sides are reinterpreted by the nightly network news shows, where they don’t know the difference between income “tax revenues” and income “tax rates.”
Mr. Obama and his fiscal nemesis, Mr. Boehner, quickly set out their markers last week as they plotted strategies for this Friday’s high-stakes meeting to prevent the economy from tumbling over the so-called “fiscal cliff” on Jan. 1. That’s when all of the Bush tax cuts and payroll-tax cuts will expire, raising everyone’s taxes in the new year, along with a mountain of automatic spending cuts that will deal a massive blow to a sluggish, high-unemployment economy. If both sides can’t agree on a way to prevent this calamity, the Congressional Budget Office says the result will be the elimination of 1.8 million jobs.
Mr. Boehner was the first to open the door to a deal, saying Republicans were “willing to accept new revenues,” but not by raising tax rates on the two top income brackets as Mr. Obama demanded in his first four years. That would push the highest tax rate to more than 40 percent.
With Republicans in firm control of the House, where the Constitution says all revenue bills must originate, that is never going to happen.
“Raising tax rates is unacceptable,” Mr. Boehner said last week in a postelection news conference. “Increased tax rates will destroy jobs in America by hurting small businesses across the country.”
House and Senate GOP leaders, along with their rank-and-file, want to reform the grossly inefficient tax code, making it simpler, fairer and, most importantly, pro-growth.
While you never hear this on the nightly network news, Republican leaders want to follow the tax reform outline set forth by the two top leaders of Mr. Obama’s deficit-cutting commission, which offered bipartisan proposals he ignored and shelved in his first term.
That commission, co-chaired by former President Bill Clinton’s chief of staff, Erskine Bowles, called for cleansing the cluttered tax code of corporate welfare, including other deductions, exemptions, credits, loopholes and assorted special-interest tax breaks.
This would bring more federal revenue into the Treasury to help reduce the deficit, allowing Congress to lower the tax rates to boost economic growth, accelerate job creation to bring down unemployment, and unlock capital investment for new business expansion.