Chadwick: The GOP's Biggest Challenge

Caveat Victor

With their newly won power, Republicans in Congress have the opportunity to exert pressure and hopefully exact cooperation from Democrats. But they must keep in mind that the voting public is watching with a distrusting eye, and can withdraw that power in two years if it is not exercised to the advantage of their own wellbeing. Mostly that means to them more jobs, more prosperity and lower unemployment, all of which are very definable.

The factious Congress can and must pull together and reach bipartisan resolutions regarding critical issues facing the economy.

The Democrats are not in the driver’s seat any more and they will be best advantaged by finding common ground with Republicans over these last few weeks of the year before they lose their majority in the House.

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Newly elected Republicans seem, in many cases, to be persuaded by their victory that they have a moral obligation to carry out every detail of the ideology they believe put them in power.

They are wrong.

Approval ratings for Republican legislators are no higher than their Democrat colleagues, and if they assume power with an air of hubris, they do so at their own peril. There will be another accounting in just two years’ time.

President Obama made a smart political move by jumping the gun and proposing a Federal wage freeze for two years. Good politics; good economics. Republicans in Congress should reciprocate and agree to extend (yes, once again) unemployment benefits, without requiring the Government to ‘find the funding’ for it. We are still in a serious employment drought, and the vast majority of people who are unemployed do not wish to be so. Cutting off their weekly pay check is both unethical and unhelpful for the economic growth. Republicans, when they are bashing the ‘unsuccessful stimulus plan’, are hasty to point out that the ‘real’ unemployment rate is somewhere above 15%, but they seem to forget or minimize that fact when they are dealing with extending unemployment benefits.

The benefits to society and the economy far outweigh the costs associated with those relatively few malingerers who want to subsist on the dole.

It somehow seems misguided to rail on about the economic evil of a tax hike for people actually employed but to ignore the economic fallout of depriving those without a wage the essential minimum level of income until they can find employment.

Which brings me to the tax hike/freeze issue.

Republicans would be wise to work with the President and the Democrats in Congress to find a solution, even if that involves compromise. The other side has as much as indicated it is willing to delay any tax increases on incomes below $250,000.

Republicans want more, and they are right in that regard because raising taxes will undoubtedly impede economic growth. But Republicans could well end up doing more harm than good if they are not willing to engage in some compromise on this issue. They can make the politically astute move by negotiating a higher floor than $250,000 – more like $500,000, which would incorporate the vast majority of income earners in the country.

The optics matter here. It is difficult to argue that those making more than half a million dollars are not somehow in the middle class. If that is too unpalatable for Republicans, they could go one step further and raise the level to $1,000,000 before applying an incremental tax. That would benefit all but the tiniest percentage of earners.

Republicans have the opportunity to display true leadership, to engage in genuine compromise for the greater good. More than that, they have the obligation to achieve the economic results they decried their Democrat counterparts for failing to achieve. The burden is on their shoulders. They won the victory they sought and now I repeat, “Caveat victor”.

Patricia W. Chadwick has had more than 35 years of investment experience. She is the founder and president of Ravengate Partners LLC, a consulting firm that provides advice on financial markets and global economics.