Saturday, January 22, 2011

The Obama Surge, The Budget Reality

President Obama - Popular Once More?
The last month has been the single best month in the entire Obama administration in terms of the change in his polling data. From his low point at the beginning of the year, the President's approve minus disapprove rating has surged approximately 9 points. Nearly every non-partisan poll now shows his approval rate exceeding his disapproval rate, the first time that has been the case since June of last year.

In terms of the implication on politics, there are many. The GOP can take solace in the fact that the President's approval was near its floor when the elections occurred in November, which helped to facilitate the large gains in the House of Representatives that the GOP was able to achieve, vaulting John Boehner into the leadership of a comfortably-sized GOP majority in the House.

In terms of the look forward, the poll numbers around this time are significant relative to the 2012 field. Right now is the critical time period when GOP A-listers will make key decisions about whether to run in 2012. If the President looks weak, the A listers will get in the game, if the President looks stronger, they will sit this one out.

Of course, we will have to see if this trend continues or is simply a short-term result of some better economic views and news coverage of legislative victories at the end of the year. A +5% or +6% rating would probably not be enough to discourage the TIm Pawlentys of the world from running, but if the trend continues into the double digits, it could significantly cut down the caliber of the GOP field.

Also, bear in mind that polls this time of year are not terribly predictive of ultimate election outcomes. The poster child for how quickly things can change is George Herbert Walker Bush, who had such strong poll numbers at this stage of the game that Democratic a-listers such as Mario Cuomo sat out the Democratic nomination process, allowing a little-known Governor from Arkansas to grab the Democratic nomination. You know the rest of that story.

In the monthly numbers, the surge is just starting to show up. The President's January average has turned positive for the first time in over 6 months, but still significantly trails his current daily averages, which implies a strong likelihood that these numbers will trend up in the coming couple of weeks.

How the Federal Government Spend Its Money and Why Current GOP Proposals Fail the Laugh Test
By 2020, 92% of our federal tax revenue will be consumed by entitlements and interest on the national debt. If we maintain current revenue levels and entitlements as they exist today, we would have to cut defense spending by 75% and all other government programs by 100% in order to balance the budget. That means no FBI, no USDA, no SEC and no federal highways. A defense infrastructure that is a shadow of its former self.

Simply put, the GOP deficit reduction plan as it has been expressed is a mathematical impossibility. You CANNOT:
(A) Not raise taxes
(B) Maintain defense spending
(C) Maintain entitlements
(D) Balance the budget

The GOP has put forward proposals to scale back domestic discretionary spending. These proposals are meaningful debates that are worthy of discussion. But they are wholly insufficient.

Without a comprehensive discussion on tax reform, entitlement reform and defense reform, we WILL fail to balance our budget.

In fact, the only perspectives in the modern world that we have had that led to balanced budgets are very instructive:
(a) The 40s and 50s
Massive cuts to our defense budget post-World War 2, massive tax increases, including a top marginal tax rate of over 90% and unprecedented economic growth led to a balanced budget

(b) The 90s
Two rounds of major tax hikes, one signed by George Herbert Walker Bush and one signed by Bill Clinton, combined with massive defense cuts (remember "the peace dividend"?) and major reductions in discretionary spending (welfare reform, the end of the "era of big government") led to a budgetary surplus.

This time around, we have the added burden of massive coming entitlement obligations as the baby boomers retire.

We will need a full court press not just on domestic discretionary spending, but on taxes, defense spending and entitlements if we are going to get our fiscal house in order.

How about some leadership from the party of the balanced budget amendment?

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