Engines of economy will indeed become nervous looking at the impeding clash of tax policy in coming days. As Ezra points, possibility of all this impacting on growth is real and it is true.
Obama does not have any more honorable and politically palatable choices. Otherwise the alternative is to become hostage to short sighted thinking of Market - that it is always better to post-pone tax / class fight to avoid 'boiling investor sentiment and people's willingness to spend'. There are number of powerful reasons why America's true leadership need to ignore 'craving' for any such approval from the rich class:
- Since when Market has been right about our medium term to longer term financial well being?
- In the final analysis is it unavoidable for USA to increase revenue to address the mounting debt? When one discounts the fairy tale of 'tax cuts for rich propels growth' - having seen travesty of such policy in Bush years; all it means real revenue increase is needed without banking on future growth. If Defense and Entitlements are hard to touch politically, every other revenue increasing measure would hurt Middle or Lower Class unless we specifically make the choice of Rich extending helping hand here.
- Once we understand this policy as the only choice left, why would not propose / re-iterate it now? It is already late. 3 years have gone waiting for coming prosperity and growth. Intransigent Republicans, their willingness to 'drown America in order to sink Obama' and external challenges like Euro and slowdown in BRICS; all have played the role in delaying full recovery. Prudence demand that we do not harbor any wishful thinking in this regard and plan next few years as equally treacherous too. Meaning, today is equally good as like tomorrow in staking out this policy.
- Finally, not staking out ground here means acquiescence to the Republican Policy of extending Bush cuts to rich as well. But numbers do not lie and come next year, America will have to find some revenue along with spending cut. We all know where 'cuts' are going to come in Republican Era - enter the 'hatchet master Paul Ryan' who will convert Medicaid to block grants, curtail drastically Medicare for coming retirees and all other social spending will reduce drastically. In a way Obama's salvo here to exclude Rich (above $250K) from continued Bush tax cuts is a way of paying entitlement and welfare which goes to 'have-nots'.
No one is arguing that we do not need reforms for pruning entitlement and welfare spending. In fact that is precisely the second part which Obama needs to argue to complete his full case. Then only Americans will have reasonable understanding of what it takes to get out of this mess. To tell that, that is true leadership; everything else is Romney campaign theater.