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No ‘Fiscal Cliff’ Middle Ground

Posted By Arnold Ahlert On December 7, 2012 @ 12:59 am In Daily Mailer,FrontPage | 31 Comments

The latest machinations surrounding the so-called fiscal cliff, a combination of tax increases and spending cuts many economists insist would put the nation back into recession, continue. Ironically, the current impasse has far less to do with economic realities than ideological intransigence. The lion’s share of that intransigence belongs to the president, who has made it increasingly clear that any deal, even one that includes increased revenue, is DOA unless it includes higher taxes on the “rich.” Treasury Secretary Tim Geithner illuminated the administration’s position on Sunday. “There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up on the wealthiest Americans,” he said on NBC’s “Meet the Press.”

Yet on Monday, Republicans made an offer described as a “savvy tactical move,” or an effort to regain the high ground in the debate. House Speaker John Boehner (R-OH) sent a letter to the president that embraced many of the ideas put forward by Democrat Eskine Bowles, who was part of the Simpson-Bowles Commission put together in 2010 by Obama himself. It was an ostensible effort to rein in the nation’s burgeoning debt, currently standing at more than $16.2 trillion. The commission came up with a series of recommendations, including a cap on discretionary spending, some tax increases, and overall tax reform. It was subsequently rejected by the president, likely due to the reality that it recommended cutting individual tax rates to as low as 23 percent, and capping federal spending and revenue at 21 percent of GDP. It is the latter proposal that likely irked a president determined to maintain government spending and revenue at the current 24 percent of GDP, matched only by FDR during WWll.

The proposal offered by Boehner endorsed a 10-year plan, including $800 billion in new tax revenues, $600 billion in health savings, another $600 billion in a combination of “mandatory” and “discretionary” savings, and a revision of the Consumer Price Index (CPI) used to calculate future Social Security benefits that would save another $200 billion. Such savings total $2.2 trillion. It was a genuine compromise, as evidenced by the reality that it irritated many Republicans.

In his letter, Boehner explained the rationale for such a plan. After noting that the election essentially maintained the status quo of a Republican House, along with a Democratic Senate and presidency, Boehner contended that “the American people rightly expect both parties to come together on a fair middle ground and address the nation’s most pressing challenges.” He further emphasized that the plan Obama submitted to Congress last week was a re-hash of the president’s ”Plan for Economic Growth and Deficit Reduction,” submitted in September 2011. ”We cannot in good conscience agree to this approach, which is neither balanced nor realistic. If we were to take your Administration’s proposal at face value, then we would counter with the House-passed Budget Resolution [Paul Ryan's budget plan].”

Boehner then put the proverbial ball in the administration’s court. “This is by no means an adequate long-term solution, as resolving our fiscal crisis will require fundamental entitlement reform. Indeed the Bowles plan is the kind of imperfect but fair middle ground that allows us to avert the fiscal cliff without hurting our economy and destroying jobs. We believe it warrants immediate consideration.”

The administration did consider it — sort of. Senior administration officials contended the plan wasn’t serious enough to merit a counter-proposal. White House Communications Director Dan Pfeiffer claimed it “does not meet the test of balance. In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill.” He then reiterated the administration’s immutable demand. ”Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit,” he added. CNN then laid out the administration’s real aims: “Senior administration officials said they are confident the public will blame Republicans and not the president if the United States reaches the end of the year without a deal to avert the fiscal cliff.”

With ample assistance from the mainstream media, that is virtually certain. But such thinking reveals an almost unprecedented level of cynicism. In effect, administration officials have admitted that what benefits Democrats politically trumps what benefits the nation. So much so, they are willing to let the country slide back into recession, as long as Republicans get blamed for it.

In an interview with MSNBC’s Andrea Mitchell, Rep. Tom Price (R-GA) revealed the disingenuousness of the administration’s insistence that taxing the rich is a panacea. “The president’s plan to increase taxes on the upper two percent covers the spending by this federal government not for eight years, not for eight months, not for eight weeks but for eight days. Eight days only,” said Price. “It’s not a real solution. So, again, I’m puzzled by an administration that seems to be more interested in raising tax rates than in gaining economic vitality.”

Furthermore, a usually reliable media is not marching in lockstep with Democrats. Politico’s Ben White called the GOP’s proposal “significant,” noting that it is “less fanciful than the original administration request, which included phony savings (the war wind-downs), a gratuitous fork-in-the-eye (unlimited debt ceiling authority) and some new stimulus (just to make GOP blood boil and warm liberal hearts).” Bloomberg’s Josh Barro also saw the cynicism expressed by the aforementioned senior officials, contending that “if the White House really is willing to risk an austerity crisis unless it gets its way on an unrelated policy matter — then the Obama Administration is as irresponsible as it often accuses Republicans of being.”

The Washington Post’s Robert Samuels laid it out even better. “Put Social Security on the table — clearly and irrevocably,” he writes. “Protecting retiree benefits is the left’s political equivalent of the right’s ‘no new taxes’ pledge. Congressional Republicans are abandoning their untenable position. Now it is time for President Obama and congressional Democrats to do the same. As long as they don’t, they aren’t bargaining in good faith, or in the national interest.”

Even Erskin Bowles, who insisted that the GOP plan was not representative of his efforts, or those of the Simpson-Bowles plan, called for compromise. ”Every offer put forward brings us closer to a deal, but to reach an agreement, it will be necessary for both sides to move beyond their opening positions and reach agreement on a comprehensive plan which avoids the fiscal cliff and puts the debt on a clear downward path relative to the economy,” he said in a statement.

The Congressional Budget Office (CBO) offers a sobering look as to why such an agreement is necessary. In 2012, non-interest federal spending totaled $3.25 trillion. $762 billion was for Social Security, $469 billion for Medicare, $251 billion for Medicaid, and $651 billion for defense. These expenditures account for 66 percent of the federal budget. Since the federal government borrows forty cents of every dollar it spends, America is already in the red financing just these four programs – and that’s before the bulk of the Baby Boomer generation retires, driving at least three of these costs far higher.

Interest payments on America’s outstanding debt are also part of the mix. In 2012 that payment was $359 billion, financed at record low interest rates of approximately 2.8 percent. The Federal Reserve claims it will keep interest rates at near-zero until 2014. Based on current rates of spending, the national debt will likely approach $20 trillion by then. If interest rates return to a historical average of 4 percent, a staggering $800 billion will be needed just to pay the interest on that debt. There is also the “unfunded obligations” problem. Unfunded obligations are promises the government has made to such entities as seniors, veterans and retired employees. By 2011, America’s unfunded obligations totaled $61.6 trillion.

In short, the idea that “taxing the rich” is a make or break part of any deal — even as entitlement reform remains off the table — borders on insanity.

Yet two realities are readily apparent. First, that insanity is ideologically driven. This was made clear during the 2008 Democratic primary debates, when ABC’s Charlie Gibson asked the president why he supported an increase in the capital gains tax rate, given a historical record that repeatedly shows the government losing revenue as a result. ”Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness,” he answered. This goes a long way towards explaining why the president would rather kill a deal than accept tax reform as a viable alternative for raising revenue.

If such “fairness” precipitates a recession–or worse–in 2013, due to an inability to reach a compromise? As long as Republicans get blamed, all is well. That Democrats as a party, or the president as an individual, see themselves as the ultimate arbiters of fairness–for the entire nation–demonstrates a breathtaking level of arrogance.

Second, whether they realize it or not, it is this combination of arrogance and fiscal irresponsibility that Americans re-empowered on November 6. Despite an election that reinforced the status quo, Obama and Democrats believe they were given a mandate, and that Republicans are nothing more than an inconvenient impediment in their efforts to transform the nation into a Euro-style welfare state, even if another recession is necessary to do so.

Finally, Americans need to realize that President Obama’s campaign pledge to raise taxes on “millionaires and billionaires” is really targeting individuals making $200K, and families making $250K — right now. Since that additional revenue would only run the government for eight days, the public might want to consider what other sources of revenue the president and his party will subsequently target. That is worth remembering when the definition of millionaires and billionaires is “revised” once again. Perhaps in the not-too-distant future, anyone earning $150K — or less — will be surprised find themselves on the “wrong” side of the Democrats’ never-ending class warfare campaign. They shouldn’t be. To paraphrase Willie Sutton, the middle class will be the next target because, “that’s where the money is.”

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