Believe it or not, there was progress in the fiscal cliff
negotiations between the White House and congressional Republicans
this week. Progress was made, at least in flushing out what both
sides really want.
Obama’s “offer,” taken to the Hill by Treasury Secretary Tim
Geithner, was a back-of-the-hand slap at Republicans. Having won
the election, Obama chose to make an offer he knew Republicans had
to refuse. Starting with $1.6 trillion in increased taxes over the
next ten years, Obama asked for more spending — not spending cuts
— and a potpourri of increased White House power and government
growth. Not only did he want unilateral permanent power to raise
the debt ceiling, he wanted another “if-then”
deal on Social Security, promising an eleven-month study that
would supposedly produce an agreement on entitlement reform.
Real progress was made in the reactions to Obama’s Christmas
wish list. As Senate Minority Leader Mitch McConnell (R-Ky.)
told the Wall Street Journal about his meeting with
Geithner, “He noticed that I laughed. That pretty well summed up my
view of what he was saying.” House Speaker John Boehner (R-Oh)
called the offer “unserious” and said that there was no way the
House would give the White House unilateral authority over the debt
ceiling. And that was only the beginning.
In a radio interview last week, McConnell told me that the
Republicans weren’t going to fall for another “if-then” deal, a
point he reiterated to the WSJ. If McConnell and Boehner
stick to that resolution, and they must, whatever deal may be made
will have to be on legislation that takes effect now, not later,
when it comes to entitlement reform and spending cuts. Boehner, on
Fox News Sunday, explicitly rejected the idea of another
commission to study Social Security. He said America has a serious
spending problem and “we’re going to fix it.”
So, at this point, where are we? Nowhere. Which is the good news
and the bad news.
It’s good news because it will be far better for our economy for
no deal to be made before the year ends than if there’s another bad
deal, like the Budget Control Act of 2011, which created the mess
we’re in now.
And it’s bad news, because Obama and his team have focused the
media narrative on one narrow issue: whether the upper income
taxpayers will suffer a tax increase. As the narrative goes, that’s
the only big issue dividing the two sides.
In that radio interview, Sen. McConnell told me that if the
upper income rates were raised as Obama wants, the revenue would be
so small that it would only pay for six days of the government’s
operations. The most important issues are twofold, and the
Republicans would benefit greatly by undertaking a big media
offensive to clarify them.
First and foremost is economic growth. For the economy to
recover, for unemployment to drop and for the economy to be able to
sustain growth long enough to even begin to make up for what we’ve
lost over the past six years, economic growth has to be
spurred.
Obama’s plans only increase spending and maintain $1 trillion
increases in the federal debt for the foreseeable future. They do
nothing to reduce spending or restore growth. And while Republican
ideas don’t harm growth, they don’t focus on producing it.
Thanks to the Free Congress Foundation and prominent economist
Gary Robbins, we
know what will promote growth. Instead of freezing or
increasing tax rates, their “Growth Code” would reduce business
taxes, end double taxation, allow expensing (same-year deduction)
of the cost of business investment, and provide parity in tax rates
for investment and consumption spending. The five points of the
“Growth Code” are economically proven, simple, and explainable.
They should comprise the simplified agenda Republicans pursue
now.
The second issue is federal spending, including Social Security
and Medicare. Sen. Dick Durbin (D-Ill) is first among the Dems in
insisting that Social Security doesn’t add a penny to the federal
debt. What nonsense. According to yesterday’s Washington
Post, Social Security takes in — at least for now — more
than it spends. But the surplus is borrowed from Social Security’s
trust funds and spent elsewhere. The borrowing adds to the debt. In
2012 alone, Social Security’s income (what’s paid into the funds)
had $110 billion in interest payments out of a total income of $854
billion.
Yes, we owe it to ourselves, but every penny that is “borrowed”
from Social Security trust funds is still part of the debt that has
to be repaid.
The rest of the federal budget is as out of control today as it
was before the election. The federal debt is now equal to our Gross
Domestic Product. The congressional Republicans need to come up
with a specific menu of cuts — massive cuts that take effect now,
not ten years from now — and demand Obama deal with them in
whatever deal is made to avoid the fiscal cliff.
Obama’s team is out pressing their case. Following Susan Rice’s
example, Treasury Secretary Tim Geithner made the rounds of the
Sunday talk shows yesterday, making Obama’s case for higher taxes
that congressional Republicans had literally laughed off. His
talking points were a bit better than hers, but included one
amazing claim.
Geithner’s talking points were designed to backfoot the
Republicans into negotiating with themselves on spending cuts, and
to keep the narrative focused on one question: whether 98% of
Americans would have their taxes increased because Republicans
refused to raise taxes on “the rich.”
Social Security reform, Geithner said, had to be a part of
another effort and couldn’t be done within the fiscal cliff
dealings. He’s proposing — and Durbin is endorsing — another
“if-then” deal. It’s hard to believe that the Republicans would
fall for that again.
Geithner said that there would be no agreement unless the upper
income tax rates are increased. If that’s Obama’s bottom line, it’s
a weakness in his position that Republicans can and should
exploit.
Geithner also said that Democrats would support Obama’s tax hike
agenda. But none have come forward to endorse those hikes. Do the
so-called moderate Dems — Sens. Baucus, McCaskill, Pryor, Tester,
Landrieu, and Nelson —want the tax hikes? If they do, why haven’t
they said so? Because small business owners — including farmers —
reject them. It is those constituencies — and the whole middle
class — at which the Republicans should focus a media
campaign.
There are still four weeks until the fiscal cliff is reached.
That’s an eternity in politics. As Boehner said, there’s a
stalemate now. The longer it lasts, the more leverage Republicans
will have. Obama is weaker than he appears. Let’s take this one to
the brink, and not do another “if-then” deal.
