Barack Obama retreated on another key policy yesterday, and this one has repercussions for his entire economic and spending plan.  Obama acknowledged in an interview on ABC that rescinding the Bush tax cuts in a recession — as he has described the economy — would be destructive.  If so, Obama just eliminated a significant amount of the funding for his hundreds of billions in new government spending:

Democrat Barack Obama says he would delay rescinding President Bush’s tax cuts on wealthy Americans if he becomes the next president and the economy is in a recession, suggesting such an increase would further hurt the economy.

Nevertheless, Obama has no plans to extend the Bush tax cuts beyond their expiration date, as Republican John McCain advocates. Instead, Obama wants to push for his promised tax cuts for the middle class, he said in a broadcast interview aired Sunday.

“Even if we’re still in a recession, I’m going to go through with my tax cuts,” Obama said. “That’s my priority.”

Obama has proposed almost $300 billion in new spending in his presidential campaign.  If he can’t raise taxes, at least in his calculation, all of that becomes deficit spending.  He wants to accuse McCain of fiscal irresponsibility for supporting the extension of the Bush tax cuts, but his spending plans now have no revenue.  How exactly does that express responsibility?

Not only that, but Obama has essentially conceded the Republican argument on those extensions.  Obama says he’ll use his middle-class tax cut as a balance, but overall Obama will raise taxes on corporations and employers, all of which will indirectly hit middle-class buying power.  It will also result in lower revenues overall as the dynamic effect of these tax increases will curb economic growth, resulting in lower profits and less tax revenue — a point Obama makes himself in this statement.

Obama has campaigned successfully on economics mostly through populist rhetoric and class warfare.  He has cast the Bush cuts as egregious without explaining the five years of solid growth they produced.  Now that he has to start getting past the slogans and start producing specifics, he seems lost and self-contradictory.  Small wonder that McCain has closed the gap on economic stewardship from 19 points to three in the latest polling.  Voters have begun to realize that Obama is making it up as he goes along.