Economy & Budget

Fiscal cliff update: Dec. 5: “Progress is being made”

Fiscal cliff update: Dec. 5: "Progress is being made"

With 26 days remaining in 2012, President Obama and House Republicans remain far apart on a deal to avert massive tax increases and spending sequestration. Yesterday, White House Press Secretary Jay Carney denounced a recent budget proposal from House Speaker John Boehner (R-Ohio), while former Speaker Newt Gingrich chided Republicans for putting too much faith in negotiations. Meanwhile, fiscal conservatives in Boehner’s own party have been sidling away from Boehner’s plan, and moderate Democrats in the Senate are unmoved by Obama’s proposal of real tax hikes and phantom spending cuts.

Two incompatible plans, neither of which has much support even from its own side. What could possibly go wrong?

Wall Street Journal: “Bad news” will “destroy American jobs”
In the Wall Street Journal, Naftali Bendavid and Carol E. Lee report that Boehner’s plan to raise $800 billion revenues (about half of what Obama proposes) is getting thumbs down from his fellow Republicans:

“Rep. Jim Jordan (R., Ohio), who heads the Republican Study Committee, an influential group of conservatives, criticized the $800 billion in new tax revenue included in Mr. Boehner’s proposal to the White House. “The bad news is that it is a tax increase, and I am not going to vote for a tax increase because it hurts economic growth,” Mr. Jordan said.

“Sen. Jim DeMint (R., S.C.), another conservative leader, said the proposal “will destroy American jobs.” Rep. Austin Scott (R., Ga.), president of the 2010 class of House Republicans, added that “I would rather see something that drove [the debt] down further.”

“Mr. Boehner offered his proposal Monday, and President Barack Obama quickly rejected it in part because it does not include tax-rate increases on high-income earners. Tuesday’s conservative protests came as Mr. Obama reiterated his insistence that these rates must go up.”

HuffPost: GOP comes to grips with defense cuts
Donna Cassata of the Huffington Post points out that reductions in baseline defense spending, an area of special concern for Republican hawks, are turning out to be less controversial than expected: “The blueprint offered no specifics on the cuts, although the Pentagon and defense-related departments such as Homeland Security and State make up roughly half of the federal government’s discretionary spending.

“By any credible calculation, the military, which is still coming to grips with the half-trillion-dollar cut in last year’s deficit-cutting law, is looking at an additional $10 billion to $15 billion cut in projected defense spending each year for the next decade. It’s a prospect that Republicans recognize is the new reality, with wars in Iraq and Afghanistan ending and deficits demanding deep cuts.

“‘Not too devastating,’ said Sen. John McCain of Arizona, the top Republican on the Senate Armed Services Committee. That’s especially true compared with the alternative that McCain dreads – the double hit of tax hikes and automatic spending cuts dubbed the fiscal cliff. ”

New York Times: More tax filing pain under either plan
At the New York Times, Jackie Calmes says the GOP plan could in fact reduce the trillion-dollar federal deficit slightly, but at more cost to tax payers (and filers) than advertised: “Nonpartisan analysts say Republicans are correct that it is possible to raise $800 billion or more from limiting deductions for the affluent. But, they add, any such proposal would face big political hurdles given the popularity of the tax breaks at issue — especially for charitable donations, mortgage interest, state and local taxes and employer-provided health insurance. And if Congress did pass such a plan, it could further complicate tax filing for many people.

“‘The trick is targeting that only on high-income folks — that’s not administratively simple,’ said Roberton Williams, senior fellow at the nonpartisan Tax Policy Center. ‘You’ve got to figure out how you protect the people below the threshold and then how you phase it in for the people above the threshold so there’s not a cliff.’”

Bill Gross: Let me take you down
PIMCO founder William H. Gross looks over the election results, the stagnant economy, and the budget impasse and finds an unexpected precedent in the Beatles song “Strawberry Fields Forever” (which, confusingly, was written and recorded in the middle of Prime Minister Harold Wilson’s term): “Whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public. ‘Happy days are here again’ was the refrain of FDR in the Depression, but the theme song from 2012 and beyond may more closely resemble Strawberry Fields Forever, as Lennon laments ‘It’s getting hard to be someone but it all works out.’ Why is it so hard to be someone these days, to pay for college, get a good-paying job and retire comfortably? That really was the economic question of the 2012 election towards which very few specifics were applied from either side. ‘There’s a better life out there for us,’ Governor Romney bellowed to a crowd of thousands in Des Moines, Iowa just days before the election, but in truth he never told us how we were going to achieve it or, importantly, why we weren’t realizing it in the first place. The president’s political mantra of ‘Forward’ was even more vague.”

Politico: The messaging is the message
At Politico, Jake Sherman, Carried Budoff Brown and John Bresnahan say this week’s back and forth over Boehner’s proposal shows that it is a struggle for public opinion, not balanced budgets: “Republicans are desperate to gain political ground — and say Monday’s counteroffer by Boehner at least gives them hope of turning public opinion back in their favor.

“The proposal by Boehner and other top House Republicans — including Budget Committee Chairman Paul Ryan (R-Wis.) — sought to disarm Obama of his talking point that Republicans had no plan to avert the expiration of the Bush tax cuts and sequestration. That’s the technical term for tens of billions of cuts to the Pentagon and domestic programs. Both take effect in January.

“The White House didn’t get any heads up about the GOP plan, a sign that the offer was for public consumption not private negotiating. It was received by email just moments before Boehner and his staff unveiled it to reporters. There was confusion among some House Republicans whether the offer was real, or just a ‘messaging document’ to help them in their slow-motion showdown with Obama. When the media treated it as a serious offer, Republicans were gleeful.”

Los Angeles Times: Progress is being made
In a survey of the fiscal cliff options, L.A. Times columnist Doyle McManus says the two unserious offers now in the air have a silver lining: “Obama didn’t take a significant step toward the middle; it was merely an opening bid.

“Boehner’s counterproposal Monday was equally unserious. The Republicans proposed that federal revenue should rise by $800 billion, half of Obama’s figure, but without raising tax rates. They also proposed spending cuts twice as big as Obama’s. In short, it was another opening bid.

“But it was signed by the leaders of the GOP’s conservative faction, Reps. Eric Cantor (R-Va.) and Paul D. Ryan (R-Wis.). In 2011, when Boehner tried to cut a deal with Obama that would have included $800 billion in new revenue, Cantor and Ryan never clearly signed on.”

Sowell at IBD: It’s fundamental transformation all the way down
In an expanded version of his column in Human Events yesterday, Thomas Sowell searches for the method in the president’s tax-hiking madness: “People change their economic behavior when tax rates are changed, contrary to what the Congressional Budget Office and others seem to assume, and this can stimulate the economy more than a government “stimulus” has done under either Bush or Obama.

“Yet there is no need to assume that Barack Obama is mistaken about the way to get the economy out of the doldrums. His top priority has always been increasing the size and scope of government.

“If that means sacrificing the economy or the truth, that is no deterrent to Obama. That is why he is willing to play chicken with Republicans along the fiscal cliff.”

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