Fiscal cliff: Compromise or hope for the best

By MARCELLA S. KREITER, United Press International  |  Nov. 11, 2012 at 4:31 AM
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CHICAGO, Nov. 11 (UPI) -- Suddenly, the word "compromise" is back in vogue.

Newly re-elected President Barack Obama talked about it Election Night. So did House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev.

But we didn't hear it from Senate Minority Leader Mitch McConnell, R-Ky., and therein lies the rub as the end of the year approaches and the so-called "fiscal cliff" looms.

"The American people did two things: They gave President Obama a second chance to fix the problems that even he admits he failed to solve during his first four years in office, and they preserved Republican control of the House of Representatives," McConnell said in a statement, ignoring the Senate Republican filibusters that prevented many of the administration's initiatives from going forward.

"The voters have not endorsed the failures or excesses of the president's first term, they have simply given him more time to finish the job they asked him to do together with a Congress. ...

"Now it's time for the president to propose solutions that actually have a chance of passing the Republican-controlled House of Representatives and a closely divided Senate, step up to the plate on the challenges of the moment, and deliver in a way that he did not in his first four years in office.

"To the extent he wants to move to the political center, which is where the work gets done in a divided government, we'll be there to meet him halfway."

If recent history is any guide, that halfway point to which McConnell alludes is the Republican point of view.

Economic analysts have been warning for months that allowing the Bush-era tax cuts to expire coupled with the draconian spending cuts adopted as an incentive to get Congress to do something about tax reform would spell economic disaster for the United States.

The Congressional Budget Office added its voice last week. The non-partisan CBO noted the current national debt exceeds 70 percent of the gross domestic product, "a percentage not seen since 1950."

The good news is that debt could shrink to about $200 billion by 2022. The bad news is to accomplish that it would take "significant increases in taxes and decreases in spending that are scheduled to take effect at the beginning of January," the CBO said.

"If, instead, lawmakers maintained current policies by preventing most of those changes from occurring ... annual deficits would average nearly 5 percent of GDP over the next decade, and debt held by the public would increase to 90 percent of GDP 10 years from now and keep rising rapidly thereafter."

There's another dichotomy in the picture.

"[The CBO] projects that the significant tax increases and spending cuts that are due to occur in January will probably cause the economy to fall back into a recession next year, but they will make the economy stronger later in the decade and beyond," it said.

"In contrast, continuing current policies would lead to faster economic growth in the near term but a weaker economy in later years. Potential policy changes would have different effects on federal borrowing, people's incentives to work and save, and government investment, all of which would affect the nation's output and income during the next few years and over the longer term."

So there is a choice to be made and it rests largely in Republican hands: Dig in and watch the economy falter, hoping it will come out stronger on the other end or compromise now, allow the economy to continue its slow slog uphill and allow Obama to notch his first post-election victory.

Without action come Jan. 1, the higher tax rates go into effect and the first to go over the fiscal cliff will be federal employees, more than a quarter-million of whom could lose their jobs once the $1.2 billion in spending cuts kick in.

The president attempted to wrest control of the conversation Friday.

In an appearance in the East Room of the White House, Obama said Washington's top priority has to be jobs and growth.

"I intend to work with both parties," Obama pledged, but said, "We can't just cut our way to prosperity" -- setting the stage for discussions on raising revenue from the nation's wealthiest.

"I'm not wedded to every detail of my plan," Obama said of proposals he has made in the last 18 months. "I am open to new ideas ... but I refuse to accept any approach that isn't balanced."

The job now, he said, is to get a majority in Congress to cooperate.

"If Congress fails to come to agreement on overall deficit reduction package by the end of the year, everyone's taxes will go up. ... That makes no sense. It would be bad for the economy," he said in urging tax cuts be extended for the 98 percent of taxpayers who make less than $250,000 a year while negotiations on the rest of the plan get under way. He noted such a bill already has been passed by the Senate and awaits action in the House.

Obama warned the electorate won't tolerate the government's continued "dysfunction."

Boehner sounded almost conciliatory election night, saying voters were clear about what they wanted: cooperation among the parties involved. By late in the week, however, he was more confrontational.

"Well, clearly the deficit is a drag on our economy. And we can't continue to spend money that we don't have," Boehner told reporters Friday, calling on the president "to lead."

"It's clear that there are a lot of special-interest loopholes in the tax code, both corporate and personal," Boehner said. "It's also clear that ... there are all kinds of deductions, some of which make sense, others don't.

"And by lowering rates and cleaning up the tax code, we know that we're going to get more economic growth. It'll bring jobs back to America. It'll bring more revenue."

Boehner said he's not ready to raise taxes on the top 1 or 2 percent of taxpayers.

"Listen, the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners. We know from Ernst & Young, 700,000 jobs would be destroyed. We also know that it would slow down our economy," he said.

In an earlier interview with ABC, Boehner said he knows something needs to be done and he's ready to get to work but he doesn't expect -- or even want -- the lame duck Congress to resolve the problem.

"We don't want to rush through this the next two to three weeks," he said, adding, "You can't rewrite the tax code the next two or three weeks."

A Band-Aid now is about all one can hope for, he indicated.

The sides have staked out their territory pretty clearly: Obama has said he wants to keep the tax cuts for families earning less than $250,000 a year; Republicans want to keep tax cuts for everyone and instead close a few loopholes and cut spending; congressional Democrats have indicated they might be willing to go along with raising Obama's $250,000 ceiling to $1 million.

Republicans argue allowing Clinton-era tax rates to kick in for wealthy Americans would tank the economy at a time it is already struggling. Democrats ask: If that's so, why did the economy do so well under President Clinton?

Times change. Fundamentals change. And currently dependence on entitlement programs is growing with the aging of the baby boom generation -- something that will continue for more than two decades.

"Without significant changes in the laws governing Social Security, Medicare and Medicaid, those factors will boost federal outlays as a percentage of GDP well above the average of the past four decades -- a conclusion that applies under any plausible assumptions about future trends in demographics, economic conditions and healthcare costs," the CBO said.

"In the end, the president and Congress will not be able to raise taxes -- be those on the wealthiest of the wealthy or anyone else -- and cut spending without risking a second recession, deeper and more painful than the Great Recession," University of Maryland economist Peter Morici said last week.

He blames the weak economy on mistakes made during Obama's first term.

"Too many stimulus and consumer dollars went abroad to purchase more oil and other imports, principally from China, and too many stimulus dollars were squandered on dead-end projects like failed solar panel manufacturer Solyndra or electric vehicle technologies that failed," he said. "Those kept the initial recovery from accelerating hiring and boosting ages, and in turn, from becoming self sustaining."

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