published Wednesday, December 5th, 2012

Makings of a fiscal deal behind the hot rhetoric

National Governors Association Executive Committee member Arkansas Gov. Mike Beebe, center, listens to NGA Vice Chairwoman Oklahoma Gov. Mary Fallin, left, and NGA Chairman, Delaware Gov. Jack Markell, right, talk to reporters  outside the West Wing of the White House in Washington on Tuesday following their meeting with President Barack Obama regarding the "fiscal cliff."
National Governors Association Executive Committee member Arkansas Gov. Mike Beebe, center, listens to NGA Vice Chairwoman Oklahoma Gov. Mary Fallin, left, and NGA Chairman, Delaware Gov. Jack Markell, right, talk to reporters outside the West Wing of the White House in Washington on Tuesday following their meeting with President Barack Obama regarding the "fiscal cliff."
Photo by Associated Press /Chattanooga Times Free Press.
Highlights of White House, GOP budget plans

The Obama administration and House Republicans have unveiled their opening offers in talks to avoid the so-called fiscal cliff. Details are scant but the White House estimates its plan would carve $4.4 trillion from the deficit over the coming decade, including previously enacted cuts ($1 trillion) and savings from reduced costs for overseas military operations ($800 billion), as well as interest payments on the national debt ($600 billion).

House Republicans say their plan would cut deficits by $2.2 trillion over 10 years, but they don’t claim previous cuts, war savings or interest costs toward that total. Both plans would block automatic spending cuts set to hit the economy in January and renew Bush-era tax cuts set to expire at the end of the month.

The two plans both draw upon ideas from 2011 talks between President Obama and House Speaker John Boehner, including a secret plan by top Obama aide Rob Nabors that was made public by author and Washington Post writer Bob Woodward.

Here are the highlights of all three approaches:

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TAXES

Obama: Increase taxes by $1.6 trillion over 10 years, raised by permitting tax rates on individual income exceeding $200,000 and family income over $250,000 to return to Clinton-era levels of 36 and 39.6 percent, up from 33 and 35 percent now. Increase taxes on dividend income and reduce the value of deductions and exemptions for those earning above $200,000 and 250,000. Renew the 2 percentage point payroll tax holiday or a similar tax cut for workers. Return taxes on large estates to 2009 levels. Permits tax reform to replace the existing code so long as it maintains the $1.6 trillion tax hike.

House GOP: Increase taxes by $800 billion over 10 years, raised through a comprehensive overhaul of the tax code that would curb various unspecified tax breaks while lowering tax rates overall. Extend all expiring Bush-era tax cuts on income, investments, married couples and families with children. Maintains the estate tax at current, more generous levels exempting estates up to $5.1 million from tax and sets a top rate of 35 percent. Permits payroll tax cut to expire.

Obama 2011: Raise taxes by $1.2 trillion over 10 years through overhauling the tax code along similar lines advocated by House Republicans, including lowering each tax rate by reducing tax breaks and deductions.

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HEALTH CARE

Obama: Cut $350 billion over 10 years from federal health care programs Medicare and Medicaid, including lower Medicare drug costs and other cost curbs on health care providers.

House GOP: Cut $600 billion over 10 years. Includes unspecified cuts to health care providers and assumes an increase in the eligibility age for Medicare and increased Medicare costs for higher-income beneficiaries.

Obama 2011: Cut $360 billion over 10 years, including at least $250 billion from Medicare, in part through savings from raising the eligibility age and increased premiums for doctors’ visits and the Part D prescription drug program.

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OTHER SPENDING CUTS

Obama: Cut the deficit by $250 billion through other spending cuts and new fees. Options include requiring federal workers to contribute more to their retirement, cut farm subsidies, increase airline security fees, overhaul Postal Service operations, and increasing fees on some enrollees in the military’s Tricare health care plan. Leaves in place existing “caps” on agency budgets passed by Congress each year.

House GOP: Deficit cuts of $300 billion through such cuts and fees from miscellaneous programs. Cut another $300 billion over the decade from agency operating budgets.

Obama 2011: Cut $200 billion from such programs. Several items on the list have been subsequently used to pay for other legislation.

———

GOVERNMENT INFLATION MEASURE:

Obama: No proposal.

House GOP: Reduce deficits by $200 billion over 10 years by replacing the current inflation adjustment for Social Security and income tax brackets with a less generous “chained CPI” that, on average, is 0.3 percentage points less than the current measure. Doing so would reduce Social Security cost-of-living increases and cause a greater portion of taxpayer income to be taxed at higher rates.

Obama 2011: Apply less generous inflation measures to both Social Security and tax brackets, but boost benefits for the oldest Social Security beneficiaries with low incomes.

———

NEW SPENDING

Obama: $200 billion in new economic “stimulus” initiatives, including payroll tax cuts, continued write-offs of business equipment purchases, extended unemployment benefits, help for borrowers “under water” on their mortgages, and new spending on infrastructure.

House GOP: No proposal.

Obama 2011: $43 billion to extend unemployment benefits to the long-term jobless.

———

DEBT LIMIT

Obama: Permit the president to obtain increases in the government’s borrowing cap, currently set at $16.4 trillion, without approval by Congress.

House GOP: Retain longstanding requirement that debt limit increases be enacted by Congress.

Obama 2011: Immediate unspecified increase in the debt limit and additional increase not subject to congressional approval.

WASHINGTON — Bluster and hot rhetoric aside, the White House and House Republicans have identified areas of significant overlap that could form the basis for a final agreement after “fiscal cliff” posturing gives way to hard bargaining.

Both sides now concede that tax revenue and reductions in entitlement spending are essential elements of any deal. If the talks succeed, it probably will be because House Speaker John Boehner yields on raising tax rates for top earners and the White House bends on how to reduce spending on Medicare and accepts some changes in Social Security.

The White House and Boehner kept up the ridicule of each other’s negotiating stances on Tuesday. But beneath the tough words were the possible makings of a deal that could borrow heavily from a near-bargain last year during debt-limit negotiations.

Then, Obama was willing to reduce cost-of-living increases for Social Security beneficiaries and increase the eligibility age for Medicare, as Boehner and other top Republicans have demanded. On Tuesday, Obama did not shut the door on Republican ideas on such entitlement programs.

“I’m prepared to make some tough decisions on some of these issues,” Obama said, “but I can’t ask folks who are, you know, middle class seniors who are on Medicare, young people who are trying to get student loans to go to college, I can’t ask them to sacrifice and not ask anything of higher income folks.”

“I’m happy to entertain other ideas that the Republicans may present,” he added in an interview with Bloomberg Television.

At the core, the negotiations center on three key points: whether tax rates for upper income taxpayers should go up, how deeply to cut spending on entitlements such as Medicare and how to deal with raising the government’s borrowing limit early next year.

White House spokesman Jay Carney dismissed Boehner’s proposals as “magic beans and fairy dust.”

Boehner countered: “If the president really wants to avoid sending the economy over the fiscal cliff, he has done nothing to demonstrate it.”

Tax rates have emerged as one of the most intractable issues, with Obama insisting the rates on the top 2 percent of earners must go up and Boehner standing steadfast that they must not.

Boehner, instead, has proposed raising $800 billion through unspecified loophole closings and limits on tax deductions.

On Tuesday, the president said he would consider lowering rates for the top 2 percent of earners — next year, not now — as part of a broader tax overhaul effort that would close loopholes, limit deductions and find other sources of government revenue. “It’s possible that we may be able to lower rates by broadening the base at that point,” Obama said.

On Medicare and Social Security, the Republican proposals would do relatively little to curb the deficit over the next decade, but the impact would grow over the longer term.

Raising the Medicare retirement age from 65 to 67, for instance, would wring $148 billion from the program over 10 years, according to a Congressional Budget Office estimate last year, about one-fourth of the savings House Republicans hope to claim from federal health programs.

Another idea that gained currency during the Obama-Boehner talks last year would change the annual inflation measure used for Social Security cost-of-living increases and the indexation of tax brackets for inflation.

Many economists and government budget specialists believe the system is a more accurate measure of inflation because it takes into account changes in purchasing behavior

This “chained consumer price index” idea makes modest cuts to Social Security benefits at first — curbing program costs by $112 billion over a decade according to the 2011 CBO report. But those reductions build up more over time in a fashion comparable to the way compound interest builds personal savings.

The White House has not foreclosed the idea of addressing Social Security cost-of living changes in a new deal, but it has not embraced it because Obama’s aides argue Social Security is not contributing to the federal deficit.

The stingier inflation measure also could raise tax revenue by $87 billion over the coming decade. Taxes would slowly increase because annual adjustments to income tax brackets would be smaller, pushing more people into higher brackets.

But the alternative inflation measure, while a favorite of budget hawks, has run into fierce opposition from defenders of Social Security.

“I’ve never been a part of that,” said Senate Majority Leader Harry Reid, D-Nev., a top Obama ally.

The two sides are also close, at least in theory, on curbing spending on a host of miscellaneous programs, as well as new fees. These could lead to higher airline ticket prices, for example, an end to Saturday mail delivery, fewer food stamps and lower farm subsidies.

Republicans claim they could glean $300 billion from such cuts and fees over 10 years; the White House promises $250 billion.

So far, the public seems ready to hold Republicans responsible if negotiations fail. A new Washington Post-Pew Research Center poll shows that 53 percent say the Republicans would deserve blame if the nation tips over the fiscal cliff, and only 27 percent of those surveyed say Obama would be to blame.

Forty-nine percent don’t believe Obama and Congress will reach a deal by Jan. 1, whereas 40 percent are more optimistic.

Republicans were quick to say on Tuesday that Boehner’s plan was attracting criticism from the right, particularly from Republican Sen. Jim DeMint of South Carolina, a leader of tea party conservatives, and as such represented more of a compromise than Obama’s stance. DeMint said Boehner’s plan “will destroy American jobs and allow politicians in Washington to spend even more.”

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