John Feehery: Speaking Engagements

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The Perils of Breaking Promises

Posted on August 6, 2009
This originally appeared on CNN.com

WASHINGTON (CNN) -- Like an early clue in a mystery novel, you could see that the line used by George H.W. Bush in his convention speech ("Read my lips. No new taxes.") was going to cause the first-term president some major problems when he ran for re-election.

Democratic leaders such as George Mitchell and Richard Gephardt spent the next couple of years doing everything they could to jam those words down the president's throat. Eventually, they got him to sign a budget agreement that included modest tax increases.

That budget agreement might have been good for the country fiscally, but it was terrible politically -- and the end result was eight years of Bill Clinton.

In a similar Shermanesque vein, President Obamahas said that the middle class won't face higher taxes under his administration. He has promised time and time again that instead of a tax increase, the middle class (the definition of which has been somewhat murky but now seems to be a family with an income of less than $250,000) actually will get a tax cut.

But the president then embarked on an ambitious spending program that has put the U.S budget under tremendous strain. His stimulus package will cost close to $1 trillion. His health care proposal will add another trillion or so.

Discretionary spending promises to go up to take care of key Democratic constituencies, such as labor unions, environmentalists and urban mayors, and that budget will add more money to the debt.

All of this requires money, and lots of it. Business has slowed down considerably, which means less money is coming into the Treasury. In fact, according to a report by The Associated Press, "Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion."

The problem for the Obama administration is that -- with all its big plans to spend money -- the people whom it wants to target to pay the freight, the so-called rich, already pay most of the taxes in America and they don't have enough to pay for the Obama agenda.

As The Wall Street Journal pointed out earlier this year, "the feds could take 100 percent of the taxable income of everyone in America earning more than $500,000 and still have raised only $1.3 trillion even in the boom year of 2006. The rich are fewer and less rich now, while the Obama budget is nearly $4 trillion."

And that is why the president's economic advisers let it leak out that they were revisiting the idea of increasing taxes for the middle class to pay for all the new spending. Larry Summers put it this way when asked if he could rule out a middle-class tax increase: "It is never a good idea to absolutely rule things out no matter what."

Treasury Secretary Timothy Geithner gave the real reason for the new tax increases, "We have to bring these deficits down very dramatically. And that's going to require some very hard choices." For those who don't read Treasury code, that means that the bond market will demand that the president become more serious about the deficit, or our bond rating could be degraded, costing us billions in additional dollars in borrowing costs.

Of course, the president already has raised taxes on regular folks, and his allies on Capitol Hill already are dreaming up ways to hit them harder. Indeed, the president signed a sharp increase in the federal tax on tobacco, which hits lower income people who happen to smoke the hardest, and there are many plans on the board that include new taxes on soft drinks, beer, wine, trans fats, gasoline and a myriad of other items enjoyed by many Americans who don't happen to be rich.

It is income tax rates where the Democrats can most be expected to increase taxes on middle-class earners. Because, as the famed criminal Willie Sutton once said about why he robbed banks, "That is where the money is."

But raising taxes in an economic slowdown -- should they choose to do so -- is not only bad economics, it is bad politics. People rightfully understand that when small businesses have to fork more money over to the government, they can't hire more employees. And when consumers have less money because of high taxes, they have less money to inject into a slowing economy.

The American people are also skeptical about paying higher taxes for a new health care plan. Indeed, according to a new Rasmussen poll, to the question "Are you willing to pay higher taxes so that all Americans can be provided with health insurance?" 60 percent of the American people said thanks, but no thanks.

The biggest problem for Obama though is that when it comes to taxes, his credibility in on the line. Yes, the American people are leery of paying more taxes, and yes, they are worried about the deficit and the national debt. But according to polls, they still like the president personally.

That will change once he breaks his word on taxing the middle class. A president who loses his credibility is a president who will see his popularity sink, his power diminish and his political future shorten considerably.

George H.W. Bush, at the conclusion of the first Gulf War, saw his popularity ratings hit 91 percent. But he lost his credibility with the voters when he broke his pledge on "no new taxes," and he lost his re-election campaign.

Should Obama follow Bush's example and raise taxes on the middle class, he may find himself out of a job in three years, no matter how popular he may be today.

The opinions expressed in this commentary are solely those of John Feehery.