The upcoming presidential election will likely go down in history as the great Super Pac race—given the tremendous amount of cash the campaigns are taking in and starting to spend. This is particularly true on the Republican side of the ticket where a small number of extremely wealthy families are giving minor fortunes to support the Romney ticket—the total take is rapidly approaching $200 million and it’s not even August.
And, be assured, the cash flow isn’t just about ideology. Ridiculous assertions about President Obama being a foreign-born Muslim socialist who hates successful people aside, this really boils down to good old fashioned cost benefit analysis. These families are making a bid investment to try and head off what will surely be a very large increase in their tax bill in 2012 if Obama wins reelection.
You may be thinking that for years now Obama has failed in his attempts to unwind the Bush era tax cuts that so heavily favor the richest Americans—and single handedly explain Mr. Romney’s 14% income tax rate. Why would it be different this time? The answer is what I’ve termed “ Tax-maggedon.” This is when the Bush tax cuts, and the payroll tax cuts and cuts in spending that occurred as a result of the failure to negotiate a long-term budget reduction plan earlier in the year, come to an end and taxes automatically increase.
Of the approximately $600 billion closure of the deficit that will occur automatically on January 1, 2013, the lion share is going to be made up of tax increases—almost $500 billion according to the Congressional Budget Office. You can almost be assured that Congress will not arrive at any compromise to extend the tax cuts prior to their expiration—with both sides drawing lines in the sand over taxes on high income households. If Obama wins in November, his best play is obvious: Allow all the tax cuts to expire, then after taxes go up, immediately put forth a plan for a new set of cuts slanted towards the middle class—as he has repeatedly said he wants to do.
This of course will put the Republicans in a bind, particularly those who have made the Grover Norquist pledge to reduce taxes wherever and whenever. To reject tax reductions for the middle class simply on the basis that they don’t include high-income households will force them to break their pledge to reduce any and all taxes— and expose them to blame, along with the President, for pushing the U.S. economy into another recession. For the President in his second and final term, this hardly matters. For the Republican Party it will almost certainly mean a substantial loss of seats in the mid-term election. Remember the backlash following the Newt Gingrich led shutdown in the 1990’s? The Republicans will be forced to go along with the President’s plan. And the wealthiest among us will see a large increase in taxes.
On the other hand if the wealthy families who are supporting Romney’s Super-Pac manage to swing the election the other way, it is just as certain that any new tax plan will look very similar to what we have right now.
This election is not about left vs. right, conservatism vs. liberalism, gays in the military, national security leaks, or even business regulation. Yes, the electorate will hear those arguments and more. But campaigns run on cash, not rhetoric. This election is based on a simple financial cost-benefit analysis among some of the richest among us.