newjerseynewsroom.com

BY ALAN J. STEINBERG

NEWJERSEYNEWSROOM.COM

COMMENTARY

The conventional wisdom of national Republican strategists is that ObamaCare, the health care reform package passed by the Democratic Congress and signed into law by President Barack Obama, is the key issue for Republican victory in the races for the U.S. Senate and House of Representatives this November. I disagree.

I strongly oppose ObamaCare due to the deleterious effect I believe it will have on both the quality of healthcare and the economic well-being of American families. Support for ObamaCare may actually increase between now and Election Day 2010, however, as Americans focus on its short term benefits rather than its long term consequences. Opposition to new or increased taxes, rather than ObamaCare, constitutes the key to Republican electoral triumph this year.

As we approach November, there will be much discussion of the Obama administration and the Democratic Congress enacting a national Value Added Tax (VAT) in order to close runaway budget deficits. The passage of VAT could result in double digit percentage increases in the cost of consumer goods, including food and clothing. If Republicans are able to convey to upper and lower middle class voters the negative impact of VAT on the family pocketbook, this may well result in the election of Republican majorities in both the House and Senate.

Polls taken earlier this year reveal the uncertainty of the potential of ObamaCare as a GOP issue. The Monmouth University/Gannett Poll published in April showed New Jerseyans about evenly split over ObamaCare, with opponents showing more intensity on the issue. These findings are almost identical to the results at the national level in the Washington Post poll on ObamaCare published last March. Support for ObamaCare breaks down along party lines, with Democrats backing it and Republicans overwhelmingly opposed.

Independents exhibit mixed sentiments on ObamaCare. In order to persuade Independents that ObamaCare is indeed beneficial in both health care and economic terms, Democratic leaders in the House and Senate are touting the near term benefits of the legislation.

Such an appeal was made by Senator Robert Menendez (D-New Jersey) this week in a column written by him for the website Politico.com. Menendez hailed ObamaCare for providing "many long-overdue benefits, including preventing insurers from denying coverage because of pre-existing conditions, closing the so-called doughnut hole for seniors, allowing young adults to stay on their parents' health insurance until age 26 and increasing coverage to more than 30 million Americans".

This rhetoric could prove to be highly effective for Democratic incumbents defending their seats in districts that traditionally vote for Democrats in federal elections, such as New Jersey's 6th District and 12th District, represented in the House by Frank Pallone and Rush Holt, respectively. As for the 3rd District, which leans more Republican, incumbent Democratic Representative John Adler has effectively eliminated ObamaCare as a GOP issue by voting against it twice.

Thus, I doubt that ObamaCare poses any significant threat to the reelection of John Adler, Frank Pallone, and Rush Holt. If they have to answer to the electorate as to how they might vote on an Obama VAT proposal, however, they could find themselves in an unhappy political quandary. The likelihood that VAT may become a central issue in the 2010 House and Senate races nationwide increases every day, due to the skyrocketing projected federal deficits for the next few years.

In past Presidential and Congressional elections, federal budget deficits have never become an effective issue for either party. Under Obama, the deficit is now a top tier electoral issue, since the historically unprecedented projected deficits for his administration and the resulting increase in the national debt may well result in the downgrading of the credit rating of the United States of America.

If the credit rating of the United States is downgraded, the federal government will be forced to pay higher interest rates on bonds, resulting in increases of all other interest rates paid to and by investors, lending institutions, and corporations. This will have the effect of further increasing the federal budget deficits and retarding economic growth.

The economic chaos in Greece has resulted in increased attention to America's fiscal condition as well. Normally, incumbent presidents, senators, and representatives are able to defer addressing deficit and national debt issues until after the elections. President Obama will not have that luxury, however, given the increasing discussion of downgrading the U.S. credit rating, which has always been rated triple-A by Moody's.

There are two options Obama has to reduce the deficit. The first is to implement draconian cuts in spending, something that Obama will never do, given his liberal ideology and the mammoth spending increases mandated by ObamaCare. That leaves the President only one option: a tax increase. The question for Obama is two-fold:

1) What type of tax increase can be passed by Congress; and 2) what tax increase or new tax would result in the least damaging impact to the President's political fortunes?

Politically, it is impossible to enact a personal income or corporate tax increase large enough to reduce the deficit to an extent sufficient to avoid a federal credit downgrade. So Obama has turned to VAT as the least politically damaging option.

VAT is defined in common parlance as a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. To the consumer, it is a national sales tax. Unfortunately, the tax is regressive, having a disproportionate impact on middle and low income families. The enactment of VAT would also be a violation of Obama's campaign promise not to raise any tax on families earning less than $250,000 per year.

Still, Obama appears inclined towards enacting VAT well before he stands for reelection in 2012, despite denials by his press secretary Robert Gibbs. The VAT idea was floated by White House economic advisor and former Federal Reserve Board chair Paul Volcker in April and by House Speaker Nancy Pelosi last October.

Federal tax increases have always created problems for New Jersey U.S. Senators and Representatives facing reelection. Despite his liberal ideology and political partisanship, Democratic Senator Frank Lautenberg was compelled to vote against the Clinton income tax hikes in 1993, knowing that a vote in favor would have resulted in his losing his seat in 1994 to Republican challenger Assembly Speaker Garabed "Chuck" Haytaian.

It should be core Republican strategy in their three major challenger races in the state, namely, the 3rd, 6th, and 12th Districts, to demand that each Democratic incumbent takes a pledge of no new tax (specifically, the VAT) or increase in any existing tax. This will place the Democratic incumbent in the position between the Scylla of signing such a pledge, thus implicitly repudiating President Obama and the Democratic liberal base, and the Charybdis of opening the door to a VAT.

New or increased state taxes have been the major cause for defeat of New Jersey incumbents throughout the past four decades. The prospect of a new federal VAT poses the same danger to John Adler, Frank Pallone, and Rush Holt — and an opportunity to their Republican challengers. The GOP prospects of scoring upsets over any of these three incumbent Congressmen may well depend on how effectively the challengers capitalize on their anti-VAT opportunity.

Alan J. Steinberg served as Regional Administrator of Region 2 EPA during the administration of former President George W. Bush. Region 2 EPA consists of the states of New York and New Jersey, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and seven federally recognized Indian nations. He currently serves as Public Servant in Residence at Monmouth University.

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