Obama and the Blazing Saddles Strategy

Do you remember that scene in Blazing Saddles where the new black sheriff (Cleavon Little) is surrounded by the angry white townspeople? He puts his gun to his own head and says, “Nobody move or the n----r gets it!” The idiot townspeople drop their guns and the sheriff leads himself away at gunpoint to safety. (Clip below for benighted souls who have never seen the movie)

Well, it worked in the movies. President Obama is doing essentially the same thing in the debt limit debate, except that the Republicans are ok with him pulling the trigger.

Politically speaking, the sitting president owns the economy. The president gets reelected (or not) on the state of the economy. If Congress doesn’t raise the debt limit and the government defaults, a cascade of economic failure will follow. Our ability to borrow will be damaged for the foreseeable future and interest rates will rise. Rising interest rates will raise the cost of everything, dragging our economy down and raising unemployment. Government workers will get laid off or furloughed, raising unemployment even more. It goes on, but I’ll stop there. The end result in political terms is a tougher reelection fight for Obama and Democrats in general.

You’d think that this level of cruelty and cynicism would be beyond even the most callous and ideologically driven Republicans. You’d be wrong. There is a sizable group in the GOP that would rather see our economy fail than Obama succeed. The President is throwing the Republicans every bargaining chip he has, and with each one they say “more.” They are giving him nothing because they don’t have to. So what can he do?

With a Republican majority in the House and a filibuster-vulnerable majority in the Senate he can’t do much legislatively. That leaves the executive and judicial options.

He can pursue the 14^th Amendment option. Section 4 states, in part, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” Defaulting on our debt is unconstitutional. Hence, the debt limit that congress is debating so vigorously can’t actually be enforced without violating the 14^th Amendment. Legal scholars can debate this, and they will, but it gives the President the option of calling the game on the debt limit. That leaves the Republicans with no hostage to kill.

He could also try a peripheral move that would partially solve the problem and distract the GOP from their present focus. I’ve written about the $70 billion or so that we lose in tax revenue each year to millionaire tax cheats offshoring their income. Obama could call a press conference with Attorney General Holder and some IRS officials at his side and announce the formation of a special task force to track down these wealthy cheats, extract the money they owe, and pitch them in jail. That would lower the deficit while striking at the heart of the GOP funding base. He could even offer a kind of amnesty. If the cheaters in question offer themselves up for audit voluntarily before the end of the year and pay what they owe (plus penalties and interest), then they won’t get prosecuted and imprisoned.

Likewise, he could propose a law to change the way certain intellectual property assets are valued when a corporation licenses them to a subsidiary. That sounds wonkish and abstract, but what it means is that a company such as Google rents its special search software to its subsidiary in Ireland for a fraction of the realistic price. Google pays U.S. taxes on the tiny amount it gets and shunts the foreign profits through the Netherlands to Bermuda, and thence to the shareholders’ pockets. Making companies charge their foreign subsidiaries market-rate licensing fees would add another $90 billion a year to tax revenues. The Republicans can, and will, come up with some bizarre rationalization as to why this is a bad idea, but it will at least shift blame to them.

No new taxes so far, just enforcing the law and closing a stupid loophole, and we’re up $160 billion annually.

How about those multi-million dollar executive salaries? Remember, every million dollars in salary and bonus that a company pays an executive is 20 median wage jobs going in one man’s pocket. Did you know that these mega-salaries are deductible for the company? Here’s a one-two punch: Make any salary/bonus/perk combination over five times median wage non-deductible. Anything over $250k stays on the company’s taxable side. That bumps up tax revenue and discourages that giant sucking sound of executive compensation bloat. Bill Clinton tentatively floated this and got screamed at by the CEO crowd.

Meanwhile, add a buck to the federal minimum wage. Most major corporations are sitting on cash, cash they won’t spend on expansion or hiring because they see no demand. 72 million Americans make hourly wage. Only about 3.6 million actually make the minimum, but an increase in the minimum tends to raise the bar for everyone. An extra buck an hour would mean they would gross $2,000 more each year, most of which they would take home and spend. It would end up as an annual $125 billion (roughly, after taxes) demand for goods and services. Demand and spending raises both employment and tax revenue. Again, CEOs will scream and the GOP will wail, but ordinary Americans will say, “Yeah, I could use $2,000.” Conservatives will say that increased wages will cause increased unemployment. Peer reviewed studies (as opposed to Wall Street Journal editorials) show a slight boost in employment for states that raise the minimum. Even if we call the employment question a wash, the net effect in terms of consumer spending and quality of life is positive.

I’m just fantasizing here. Barack Obama needs the approval of millionaires to raise the money for his reelection campaign. They would never allow this kind of thing. This is the hair tearing part of it: Obama doesn’t really care that he has no leverage with the Republicans. He’s cool with giving away everything. He’s looking at the GOP lineup for 2012 and seeing halfway rational people like Mitt Romney who have no chance with Republican primary voters and head cases like Michelle Bachmann who have no chance in the general election. Anyone to the left of Newt Gingrich will hold their noses, vote for him, and then go get drunk.

In terms of the Blazing Saddles metaphor, Obama is telling the mob “Ok, you got me.” He’s handing his badge and gun to the mayor and going to work for the banker. Don’t expect better.

Here’s the Blazing Saddles clip.