Two dangerous bombs are headed toward the USA. Each has the potential for tremendous damage if it goes off. One actually involves a literal bomb. It is the delicate matter of Iran obtaining the fuel and technology to build and deliver an atomic bomb. The other figurative bomb is the “tax bomb” set to go off on January 1, 2011, when the Bush tax-cuts of 2001 and 2003 expire.
The threat of the Iran Bomb has been out there for some time – extending back through all of George W. Bush’s terms and probably well into Bill Clinton’s administration. Much conflicting “intelligence” surrounded Iran’s development of nuclear-bomb technology, including a report which insisted that Iran had halted its nuclear program in 2003. Whether the report was true remains a matter of dispute. But it did take the heat off the Bush administration to stop Iran’s nuclear weapon development. Diplomacy always involves a large dose of wishful thinking – or so it seems to this observer.
Whatever may or may not have happened before 2007 – when it became known that Iran was pushing ahead with its uranium enrichment efforts – it is now manifestly clear that Iran has abandoned all pretense and is going full-bore for the prize of nuclear weapons capability. Iran’s President Ahmadinejad parleys with the USA and other nations, contests our limp-wristed sanctions, and argues Iran’s “right” to become a nuclear power. Savvy diplomats like former UN Ambassador John Bolton say Iran’s diplomatic activity is merely a stalling tactic to give her more time to get the bomb. Nuclear experts estimate Iran’s date for producing a nuclear weapon at between a few months and a year from now. She has also been developing medium-range missiles, which could deliver nuclear warheads to Middle-eastern and European targets.
The situation is like watching a slow-motion train-wreck. The question that comes to mind continually, with respect to the Obama administration, is: “What can they be thinking?” One can only conclude that President Obama and Secretary of State Hillary Clinton have given up on stopping Iran from getting nuclear weapons. Instead, they appear to be engaged in a rearguard action to delay the Moment of Truth as long as possible – perhaps long enough to lay the blame off on George Bush, or else to give Israel time to execute a military attack on Iran’s nuclear facilities. It is very hard to interpret Mr. Obama’s policy toward Iran in any other way. Iran is driving ahead, and we seem to be watching from the bleachers.
The Wild Card in the deck, of course, is Israel. Prime Minister Benjamin Netanyahu has made it clear (beyond peradventure of doubt) that Israel cannot tolerate or co-exist with a nuclear-armed Iran, under any conceivable circumstances. Mr. Netanyahu holds his cards close to the vest, but he has not ruled out the possibility of Israel using military force to keep Iran from gaining a nuclear-strike capability.
Israel’s unstated but implicit threat to do this has credibility because the Israeli air force crippled an Iraqi nuclear-testing facility at Osirak in 1981. The strike was executed to keep Iraq from developing a nuclear weapon – Saddam Hussein’s stated intention as early as 1975. Military analysts evaluated the strike as highly successful.
An Israeli military strike would appear to be the best possible Iran-option, from Mr. Obama’s perspective. It offers the double advantage of letting Mr. Obama keep his hands clean of military action, while solving the nettlesome and dangerous problem of a nuclear-armed Iran. As an added bonus, he might also find it possible to posture against “Israeli militarism” before his Arab friends. What’s not to like?
However, several problems derive from this pusillanimous “solution” to the Iran situation. In the first place, an Israeli strike would make the United States look weak and ineffectual in international affairs. What country will fear and respect us if we are seen letting a small country do our military dirty work for us? Worse still, that perception will be correct. We are weak and ineffectual on Iran because we fear the side-effects that might flow from taking military action against this pivotal Muslim country. Mr. Obama’s presidency is committed to a diplomatic Muslim-Outreach. This limits his range of action – especially military – against Muslim countries. Thus, his options with respect to Iran are: (1) to appear weak; or (2) to appear anti-Muslim. Neither is a good outcome.
A second problem stemming from Israeli military action against Iran will be that Mr. Obama will still be seen as complicit in this anti-Muslim action, by imputation. As a known ally of the USA, Israel’s actions will automatically be laid at our door. The “hands-clean” strategy won’t wash, no matter who strikes the blow. I cannot gauge whether Mr. Obama: (A) is too inexperienced to see this, or (B) believes he can undo the linkage to Israel’s actions simply by disclaiming it in a speech from an arena adorned with Greek columns and wreaths. “A” is a serious flaw in a president; “B” represents a fatal delusion.
Third, and perhaps worst, the USA’s foreign policy will be viewed as dictated by Israel. This perception might be inaccurate, but it cannot be corrected without a public admission that the Obama administration has engaged in secret parleys with Israel to plan a strike against Iran’s nuclear facilities. Surely this would be so, but it’s the last thing Mr. Obama would want to admit. Thus, the perception would linger that Israel pipes the tune, and we dance to it. This has been a decades-old canard of anti-Semites, which we shall once again validate by preserving the appearance that Israel is leading and we are following on Iran.
The so-called “tax bomb” – the expiration of the Bush tax-cuts of 2001 and 2003 – won’t blow anybody up (not literally, at least) but the damage to the American economy will be great if it is allowed to hit on New Year’s Day, 2011. Tax rates will be raised in every tax bracket; the lowest (10%) bracket will disappear; the rate for the top bracket will revert to 39.5%; and rates on capital gains and dividends will revert to higher, pre-2001 levels. Also, the death-tax will reappear at the pre-2001 rate of 55%. (It disappeared entirely in 2010.) This would be the largest tax-increase in history, affecting nearly every tax-payer in the country. According to the Joint Committee on Taxation, taxpayers making between $40,000 and $50,000 a year will pay an average of $923 more in tax, per year. Those earning between $50,000 and $75,000 would pay $1126 more a year. In higher brackets, the increases would be much larger.
Most taxpayers are vaguely aware that the Bush cuts will expire, but significant numbers of younger workers, who started working after the cuts were enacted, don’t realize how high tax rates were before Mr. Bush’s cuts. If Congress and Mr. Obama let the increases take effect on schedule, the shock to all those Hope and Change voters who bought the “your taxes won’t go up by a single dime” line will be profound. Whatever credibility Mr. Obama and the Democrats still enjoy will be lost for a long time – perhaps for most of a generation. Letting the Bush tax-cuts expire will be political suicide.
Then there is the small matter of the economy. (Small, and getting smaller, as some wags have cracked.) Democrats are waking in cold sweats from nightmares about the economy and the stock market crashing under the weight of tax increases levied at the depth of the worst recession since…well, since the Great Depression (as the estimable Bill Clinton liked to say). This is why congressional pressure is mounting for extension of the Bush tax cuts – at least for workers earning less than $200,000 a year ($250,000 for married couples). Even Mr. Obama advocates this move.
Republicans, on the other hand – sensing a political opportunity borne of Democratic panic – want all of the Bush cuts made permanent, including those for taxpayers the Democrats call “the rich.” Republicans at all political levels warn that the economy could collapse under the weight of these tax-increases. The stock market is already anticipating them, as investors (including Yours Truly) look toward 2011 with caution and some trepidation. Politicians and pundits scratch their heads, wondering why business sits on $2 trillion in cash, refusing to invest in expansion that could produce new jobs and economic growth. A third-grader with a lemonade stand might explain it to them.
Dramatic tax rises in the 1930s were FDR’s classic mistake. Economists now realize they prolonged a garden-variety recession and gave the Great Depression its name. Many Democrats are now coming round to supporting at least a one- or two-year extension of the entire suite of Bush cuts, while some advocate making them permanent.
The Congressional Budget Office estimates that making the Bush cuts permanent will cost the Treasury $3.9 trillion in lost revenue over ten years, but these estimates are based on the premise that higher taxes will not affect taxpayer behavior. History does not bear this out, however. FDR’s dramatic tax increases of 1937 drove the economy into a ditch and produced nowhere near the revenues expected, while Ronald Reagan’s cuts of 1982 produced a booming economy and far higher revenues than had been projected under the old tax schedule.
With Democratic candidates heading for the falls in a rudderless boat, Mr. Obama is playing “chicken” with the economy by holding out for punitive taxation on “the rich.” His congressional compadres are paddling like mad, but they are going over the falls – and the economy with them – unless they can knock some sense into their True-believin’ president’s noggin.
During his presidential campaign, Mr. Obama was shown data indicating that raising taxes on capital gains would not produce increased revenues, since investors could choose to avoid the tax by not realizing the gain. Mr. Obama insisted, however, that raising those taxes represented basic “fairness” – thereby implying that investors who realized capital gains did not deserve to keep that profit. In a now-famous speech he denounced those who were making profits during a recession. There would be time to make profits, he declaimed, “but that time is not now.”
This is the wrong-headed mindset investors and voters are up against. Unless he is stopped, a block-headed president could crash the economy into a double-dip recession and hurt the entire country.