Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 11/9) 

Editor’s Note: Liz Peek is a financial columnist.

Finally, finally, the Obama administration is proposing using TARP money to bail out a truly needy entity – the federal government. That’s right. Reacting to voter unease over rising deficits, the whiz kids at Treasury have decided to use some of the $210 billion remaining in the $700 billion emergency financial fund to prop up Uncle Sam.

Of course, this move will be just a drop in the $1.4 trillion deficit bucket. It is also not the only idea under consideration by a rattled administration. They will also consider – guess what? – raising taxes. They expect to issue plans to "simplify" the tax code by December 5; for those who have just landed in the U.S., that’s code for higher rates.

The bad news is the government’s ability to raise taxes is being severely compromised by the need to fund Obamacare. The administration and Democrats in Congress have put themselves in a tight box, bound up in strands of costly and unpopular legislation. By undertaking to expand federal health coverage in the midst of a truly harrowing recession, Obama and his pals in Congress have spent great political capital – and have lost important financial flexibility.

The health-care bills proposed in both the House and the Senate raise taxes on high earners and small businesses – thus limiting the potential use of those tax options for other needs – and even so the legislation will boost the budget deficits. Americans are increasingly aware that the pretense of deficit neutrality trumpeted by the bills’ creators comes from the ruse of including outlays for fewer years than receipts and by assuming cuts in doctor reimbursements that will never take place.

Such is the panic over paying for this sweeping overhaul that Senate Majority Leader Harry Reid has apparently secretly plotted to raise the Medicare payroll tax on high earners – which would be in addition to a $460 billion surtax on that group’s income, including a 69% jump in capital gains taxes. More on this later.

The wrangling over health care has not only darkened the country’s mood at a particularly fragile point, it has distracted our leaders from what should have been the No. 1 concern all along – job creation. Now that the unemployment numbers have become front-page news, and polls show Americans souring on the administration’s economic management, Obama is convening a "jobs summit" at which, he says, he will be open to any and all new ideas.

I doubt that. One of the best ideas would be to abandon the push for massive health-care reform, and that is something the administration and the Democrats in Congress can not do. Simply put, President Obama absolutely must pass a health-care bill, or he will be so weakened that he will be out of office in short order. The desperation for success was underlined by this week’s visit to Capitol Hill by Former President Bill Clinton, who pressed Democrats to pass a bill by arguing that "It’s not important to be perfect here." No, but it should not be the ghastly mess that it is. Imagine undermining abortion rights in an effort to ram through health-care reform.

The damage that will be done to our economy from this single piece of legislation is incalculable. As stated, the bills both include sharp hikes in taxes that would fall on high earners and small businesses, which will certainly dampen hiring by that group. But the point is not that the wealthy can’t manage to pay more taxes. More important is that these increases sap potential revenues from other agencies and programs, as well as state and local governments, which are also fiscally strapped. Whatever capacity we have for increased tax revenues should most definitely not be going to fund health-care reform at this juncture.