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Both Sides Must Give Ground To Avoid Fiscal Cliff

Comment

In his first formal press conference in months, Barack Obama showed that getting re-elected can increase a president's confidence and combativeness. He staked out tough stands on several issues, especially on the looming budget negotiations.

Looking ahead to the "fiscal cliff" on Dec. 31, when the 2001 and 2003 tax cuts expire and sequestration cuts government spending sharply, Obama demanded $1.6 trillion of increased revenues as part of any budget bargain.

That's twice the number he and Speaker John Boehner agreed on in the grand bargain talks in the summer of 2011.

Those talks fell apart when Obama telephoned Boehner and raised his demand to $1.2 trillion. Boehner refused, and as Bob Woodward describes in "The Price of Politics," congressional leaders of both parties worked out their own approach. Sequestration, first suggested by Obama's budget director, became part of the deal.

There's a solid argument that limiting high earners' deductions could raise $800 billion or more. A $25,000 cap on deductions, according to The Wall Street Journal, would yield almost $1.3 trillion of additional revenue. The Simpson-Bowles commission showed that broadening the tax base could net $1.1 trillion.

And there's a solid argument that raising tax rates on high earners, in conjunction with the increase that's part of Obamacare, would slow down economic growth. That's because many small businesses are taxed at the individual income tax rate.

Obama once accepted that argument, albeit reluctantly, when he temporarily abandoned his quest for higher rates in December 2010. Raising them, he conceded, would hurt while economic growth was still sluggish.

It's actually more sluggish today than it was then, although as Obama pointed out in the press conference, we are further away from the sharp economic decline of 2008-09.

In effect, Obama is giving House Republicans a choice between a growth slowdown due to higher tax rates now and the much sharper slowdown that some economists predict — 5 percent is a number bandied about — if we go over the fiscal cliff.

The political leverage seems to be on Obama's side, or so he seems to believe. Most of the media inevitably blame Republicans when Republicans and Democrats are not able to reach agreement.

Politico reports that a number of House Republicans, including some staunch conservatives, think they'll have to give in on higher rates.

Many members don't want to defend them back home.

But there is also a force working against Obama: the gravity of the government's fiscal condition. The president himself has recognized that entitlement programs are on an unsustainable trajectory.

Federal spending under Obama has been 24 percent to 25 percent of gross domestic product. Even in World War II, revenues never reached that level. Since that war, the highest level was 20.6 percent of GDP in 2000, when the government was flush with tax revenues from the capital gains of dot-com founders.

Growth does increase revenue in a progressive tax system like ours.

Several participants in the grand bargain negotiations, Woodward recounts, described them as trying to solve a Rubik's Cube. Republicans wanted lower tax rates with base-broadening tax reform to provide added revenues, and they wanted changes in the trajectory of entitlements.

Democrats wanted higher rates on high earners but were not averse to broadening the tax base and were at least talking about entitlements.

The problem is not just reaching agreement, but reaching agreement on something that can get majorities in both houses of Congress.

Some members of both parties won't vote for any bargain in which the other side gets something. So leaders of both parties have to persuade colleagues that they have made sufficient policy gains to warrant the policy concessions.

History shows that can happen. In Bill Clinton's second term, he and Newt Gingrich reached agreement, with the aid of then-Chief of Staff Erskine Bowles, because there was something for both sides. Republicans got a capital gains tax cut, Democrats got S-CHIP (State Children's Health Insurance Program), and they both got a balanced budget.

Clinton and Gingrich were even making progress on Medicare reform and negotiating about Social Security until the Lewinsky scandal erupted.

House Republicans have a majority and some leverage but cannot hope to prevail on all fronts. They may decide that higher tax rates are tolerable if they can make significant progress toward spending discipline and changing the trajectory of entitlements.

In summer 2001, Obama wasn't able to produce such a package. Will the second-term Obama succeed?

Michael Barone, senior political analyst for The Washington Examiner (www.washingtonexaminer.com), is a resident fellow at the American Enterprise Institute, a Fox News Channel contributor and a co-author of The Almanac of American Politics. To find out more about Michael Barone, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2012 THE WASHINGTON EXAMINER

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Comments

3 Comments | Post Comment
The republicans are fighting a losing battle. They need to rob the other side of their ammo by giving in to all of their demands. Obama won the election. He is the president people want and we should use his policies. I am 100% confident these policies will make things worse, but others need to be convinced. They need to see these policies fail right before their eyes. As long as republicans put up a fight, they will always be blamed and scapegoated. You need to lose to win.
Comment: #1
Posted by: Chris McCoy
Mon Nov 19, 2012 6:38 AM
Sir the Democrats have given way too much ground and way too much of the commonwealth to the rich... The government has let them export our capital beyond that seas so it cannot be taxed or made to work for this people... The government never taxed the commonwealth as they should have, but only expedited it into private hand so that poverty could multiply and misery could own us...
The democrats, believing essentially as the republicans with only the veil of caring covering their perfidity now must give away our rights to the spirit of compromise... The time for compromise has passed... Have the rich and their republicans anything in their pockets but their vaunted principals that don't amount to more than we screw you??? It is time to put your handle on the table, if you have one, and let's all talk as friends...
These rich people and politicians are not even Americans... Americans are that class of people the rich feed on, and invite all others like minded to feed as well in one great gluntonous feast on the body politics... You know that we Americans are better than Europeans, which explains us expecting so little from our government in the way of respect, and services...And no one in the West bleeds the rich like the rich bleed us here...So if the questions comes down to what shall the democrats take from the poor to avoid taxing the rich out of an inch of commonwealth; I say: Throw the Rich over the fiscal cliff...They have something to lose... We have nothing but the empty promises they gave us a long ago and forgot to fund...
There are always enough people willing to work hard for money...And money will be easier to earn if the rich don't already have all of it...Hang the rich by the nads over the fiscal cliff they have built, and tell them they can take as much gold with them as they can hold...
There is no point in explaining to the rich that entitlements are on an unsustainable trajectory... They have created that situation in the process of seeking high and unsustainable profits.. They built it; but they don't want to own it, or pay for it with taxes; but it is none the less the ultimate result of outlaw capitalism...
There are only two sources of value, and one is labor... But if the object is to save labor, and labor costs so objects become cheap, then labor can only buy a fraction of their production... Still, if profits are not excessive, a people can yet survive on the bounty of nature... But natural goods are becoming so rare and unreliable from exploitation for profit, that people are thrown by the millions into poverty which government action alone can save them from...
Then the rich because of diminished profits demands an end to taxation to inflate profits... Let the poor support the poor, let the dead bury the dead, and let everyone pull themselves up by their boot straps... The rich alone are living in the land of impossibility, but who is there to bring them back to reality???
For the rich, the difficult is done every day and the impossible only takes longer... What they do not grasp is that it is not by their wills that the impossible is done, but by the necessity of their workers who feel the wall of poverty at their backs which captures so many and releases none...Desparation is feeding profit, and when the people run out of that, then what have they but their lives to give for profit???
We need to resettle America... We need to colonize this place and think again as pilgrims...America took this land from King and Natives, and now America is being taken from us in the final portion... Will we stand and fight tyranny as once our forefathers did if we now face the same enemy of privilage and power as once did they???
Will the Democrats deliver us like baby pigs with an apple in our mouths??? It is eve's apple... We are the guilty ones because we elected these thieves and bulls... How it becomes our debt to bear when we saw nothing good from it is a mystery; but we must be guilty...
We got a vote; right???
We gave some one a mandate???
We gave some one the authority to run us into debt without ever giving us a choice in the matter???
We actually had a choice???
We had some control of our government besides some affair held under the banner of no money, no media???
They are putting the responsibility on working people because the rich refuse it as they always have... But we did not vote for it; and if the parties and their rich supporters so mismanaged the government thinking we have got a little more blood to give them; then damn 'em... They belong in the mess they made, and we can start on a brand new mess... Let me start with this: We The People have had enough of compromise... Tell your rich friends it is their turn... If they have enough money to corrupt democracy, they can afford taxes...
Thanks....Sweeney
Comment: #2
Posted by: James A, Sweeney
Mon Nov 19, 2012 9:05 AM
Re: Chris McCoy... You say nothing succeeds like failure and I am saying nothin fails like success... I thought, Mr. Bush the lesser was going to do something so stupid it would have brought down the government, but he only made that fall more likely... Then I thought, if Mr. Romoney gets elected he will have this house of cards economy all over by high noon...
Chris; I have seen more shet in my life held together with binder wire and chewing gum than you can imagine...I have helped a few Quasi Modos build a few Frankensteins... I can see how tippy is this piece of shit society, and I think all that is holding it together is a fabric of immorality like common dirty pair of panties no one wants to wear or can afford to be caught without...
We are all invested in this thing... The very thing that makes possible my resistence would be the first thing taken from me in a crash; so we are all corrupted, and no matter how bad it gets we can only fear for worse... The fact is that life some times it gets worse so fast that people react to save themselves, or they think it cannot get worse, and it does anyway... But this rotten economy is so bad and corrupt that all we need is the right successful president to lean on it at the wrongest time...
The thing is garbage...Its a Frankenstein built of broken pieces... It has a heart of funny money and a brain of fuzz like a rag doll...This society is a tire of patches, and a cup of trembling... I don't care who brings it down and I won't cry, like you my friend... Some stiffs are better off dead, and more fun to be with that way...
Let's begin to form new relatonships out of the agreement that the old forms are dead, and that if we will live that we will live, and relate through new forms of relationship...
Thanks...Sweeney
Comment: #3
Posted by: James A, Sweeney
Mon Nov 19, 2012 9:24 AM
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