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The Budget Battles Ahead (Is the debt ceiling the hill for the GOP to die on?)
National Review ^ | 01/07/2013 | JAMES C. CAPRETTA

Posted on 01/07/2013 7:20:18 AM PST by SeekAndFind

Two months after the president handily won a second term and the Democrats increased their numbers in both the House and Senate, GOP congressional leaders were in no position to negotiate a good “fiscal cliff” resolution. So it’s not at all surprising that what emerged from the Biden–McConnell negotiations has satisfied almost no one, and certainly not many conservatives.

That being said, the January 1 tax deal needs to be put into proper perspective. The media are fixated on what is being called an Obama victory: He forced the GOP into retreat on the top income-tax rate. Yes, that was certainly a win for the president, something that was all but inevitable after November 6. But, despite what the president (and his apologists in the media) say, the top individual income-tax rate is not the sum and substance of the Bush-era tax policy. The benefits of the tax cuts enacted in 2001 and 2003 went overwhelmingly to the American middle class, not high-income households, as the tables summarizing the deal from the Joint Tax Committee and the Congressional Budget Office have made clear. Compared with what would have happened if the Bush-era tax schedule had been allowed to expire entirely, the deal is a net $3.6 trillion ten-year tax cut.

This is no small matter. For a dozen years, most Democrats resisted these tax cuts. Indeed, most Democrats voted against them (see here and here). They wanted more revenue to pay for the expansive government they have been building for half a century. But now, with this agreement, Democrats have signed onto a permanent lowering of the tax burden for the vast majority of American households. And it’s hard to imagine a realistic scenario emerging any time soon that would allow Democrats to reverse course and impose higher income taxes on these households.

Part of the problem for Democrats is that the Bush-era tax cuts are far more meaningful for most moderate-income families than anything ever done by the Obama administration. According to the Tax Policy Center, the Bush-era rates reduced the tax burden on households with incomes between $50,000 and $75,000 per year by $1,400 annually. For households with incomes between $75,000 and $100,000, the tax cut is worth about $2,250 each year. The president and his party fancy themselves the great protectors of the American middle class; certainly their campaign rhetoric in 2012 reflected this grandiose self-image. The irony is that, to put money where their mouths are, they were forced to become champions of George W. Bush’s tax policy. Rich, indeed.

The main criticism, and an accurate one, of the fiscal-cliff agreement is that it secured a tax hike for the president that was not paired with any spending restraint whatsoever. The bill includes spending increases (an extension of unemployment compensation and another one-year undoing of the scheduled cut in Medicare physician fees), but not nearly enough cuts to offset them. Nothing has been done to address the real problem in the nation’s finances: the ballooning costs of entitlement programs.

Some conservatives have taken heart in the fact that the agreement did not raise the debt limit, setting the stage for a more successful budgetary confrontation in another 60 days or so, when federal borrowing is expected to bump up against the current statutory ceiling. The argument is that raising the debt limit is so unpopular with the public that Republicans will have substantial leverage to extract meaningful spending cuts from the president. Unfortunately, this is more wishful thinking than a sound assessment of the political landscape.

The problem begins with the threat itself. It is perfectly appropriate to use the occasion of a debt-limit debate to force as much serious action as possible on deficit reduction. But that’s not the same thing as being willing to resist a debt-limit increase to the point of risking substantial economic turmoil. There’s no sense of proportion in such tactics, and voters would rightly blame the GOP for the chaos that would result if the U.S. Treasury ran short of the funds necessary to service existing debt and pay for the federal spending that has already been approved. The truth is that the federal government will be borrowing trillions of dollars for the foreseeable future under any budget plan, including the budget passed by House Republicans in 2012. The debt limit is going up, one way or another. The only question is how the debt limit is raised and whether it is coupled with any meaningful narrowing of future deficits. The GOP needs to position itself as the party of responsible governance and fiscal discipline. That can be done, but not with absolutist declarations that are bound to fail.

The second problem has to do with the kind of spending restraint that’s really needed at this point. To get the nation’s fiscal house in order, Congress and the president must agree to far-reaching reform of the major entitlement programs — namely, Social Security, Medicare, and Medicaid. That means, among other things, moving toward a premium-support model in Medicare, block grants for Medicaid, and reductions in Social Security benefits for future retirees with high incomes and substantial private assets. Does anyone believe the GOP can force the president and Senate Democrats to accept these kinds of reforms in a debt-limit showdown two months from now? It’s not possible, and therefore shouldn’t be tried. If it is tried, it will result in another retreat by the GOP that will further weaken the party’s position.

Moreover, if the GOP makes the debt-limit fight a showdown over fundamental entitlement reform, the president will successfully put on the agenda another round of tax hikes in “grand bargain” fashion.

The media will of course play along and echo the argument that, if entitlement cuts are on the table, it’s only “fair” that the rich pay more too — again. The danger is that the GOP, by escalating the stakes, could find itself in another retreat on taxes, which would be truly disastrous for the party.

A better course for the year ahead begins with the realization that the party’s top priority is to resist at all costs any further tax increases. That’s far more important than, during the debt-limit debate, drawing lines in the sand that will quite predictably be crossed. The president got his tax hike on the rich in the fiscal-cliff deal. The GOP must make it absolutely clear that that’s it. No more tax hikes. Period.

Regarding the debt limit, Republicans must take a practical approach. That starts by declaring in clear terms that the party will support debt-limit increases to ensure that bills are paid and outstanding debt is serviced. If that means passing a series of small increases in the debt limit, so be it. That’s far better than staging a showdown Republicans will lose.

At the same time, the GOP needs to articulate real entitlement reforms, advance them in the legislative process, and stand behind them for the next two years. That should mean, for one, advancing reforms to Medicare that fall short of premium support but nonetheless represent real progress toward advancing consumer incentives in the program. On Medicaid, the GOP could work with the nation’s 30 Republican governors to push for reforms that give the federal government more budgetary predictability and the states far more control over the program.

Will these be readily accepted by the administration? No. But they are sound and defensible reforms that would address the undeniable problem of growing entitlement spending. And they would demonstrate that the GOP is capable of practical and serious governance.

It is possible that the deal that was struck last week will be the last major piece of budgetary legislation passed during the Obama era. It’s hard to see serious tax reform advancing at this point, and certainly the kind of entitlement reforms that are commensurate with the size of the problem won’t be enacted. If that is indeed the case, then history will not look kindly on the Obama presidency. Future generations of Americans will live less prosperously because of the massive debt and deficits of these years. And President Obama will rightly shoulder most of the blame for this collasal failure of leadership.

— James C. Capretta is a fellow at the Ethics and Public Policy Center and a visiting scholar at the American Enterprise Institute.

TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: budget; debt; debtceiling

1 posted on 01/07/2013 7:20:26 AM PST by SeekAndFind
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To: SeekAndFind

The best defense is an offense. The GOP is only skilled in retrograde operations and crafting surrender flags.

2 posted on 01/07/2013 7:26:30 AM PST by TADSLOS (I took extra credit at the School of Hard Knocks)
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To: SeekAndFind

Many believe the GOP died before they ever reached the front lines.

3 posted on 01/07/2013 7:26:57 AM PST by Ingtar (Everyone complains about the weather, but only Liberals try to legislate it.)
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To: SeekAndFind

Right now I don’t really care about which hill. Just pick one already.

4 posted on 01/07/2013 7:30:25 AM PST by skeeter
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To: SeekAndFind
The answer to this is the Paul Mac Penney Plan. And add continuous process improvement to it. Use ridicule upon objecting dims. Who could not survive a one percent reduction in income? Can the government do less? And the cuts, real cuts per the plan, are across the board so they are fair. It is so reasonable a concept. Don't raise the debt limit until the dims agree to it. The sooner we fight for this the better the chance we will survive as a nation.
5 posted on 01/07/2013 7:31:56 AM PST by Nuc 1.1 (Nuc 1 Liberals aren't Patriots. Remember 1789!)
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To: SeekAndFind

In other words:
Complete surrender to the Democrats in practice, endlessly


Make some fancy showing that we had no choice in the matter, that we really know what must be done for the good of the country, and that by golly we would do it if it weren’t for those mean ole dems and their media enablers.

Excellent gameplan.

6 posted on 01/07/2013 7:39:31 AM PST by KyCats
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To: SeekAndFind

Its easy to see Rs losing this fight.
WSJ pointed out :
“Taking a hostage only works if you can convince the opposition that you will really shoot the Hostage”

It didnt take a rocket scientist to figure out that Bohner would not block partial tax cut extensions from being passed into law to keep most voters from getting a income tax increase.

I was posting here in November he would not take the blame for all those taxes going up.

Will the GOP really hold out on the debt limit when pressure mounts?

7 posted on 01/07/2013 7:44:16 AM PST by sickoflibs (Fight like Dems, fight to win !)
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To: SeekAndFind

I suppose we will find out in 2 months. They will do nothing until the final hours.

8 posted on 01/07/2013 8:04:44 AM PST by Venturer
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To: SeekAndFind

The GOP needs to turn it on the Kenyan. The reason we need to raise the debt ceiling is because the rats keep putting us deeper in debt. So if obama won’t accept any cuts or attempts to balance the budget - it’s his fault.

9 posted on 01/07/2013 8:07:00 AM PST by jersey117
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To: SeekAndFind

Budget battle bump for later..........

10 posted on 01/07/2013 8:21:41 AM PST by indthkr
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To: SeekAndFind
Do what Romey promised: Review every spending item and determine if it's worth borrowing from the CHICOMS.

Take the budget, divide it up amongst the committees. Have each committee understand and document all spending. For each spending item:

Keep it simple. Do it in 6 weeks. Focus on helping the country understand where the money is being spent. Let Ryan Lead the effort.
11 posted on 01/07/2013 8:34:04 AM PST by Moss
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To: All

Completely absurd and pointless article and American Enterprise Institute should show this guy the door.

This is not a politics problem.

It is a math problem. Cold, hard numbers. No politics involved.

Cut spending. Across the board. “Balance” is achieved by cutting DoD along with entitlements. Means testing entitlements is nothing less than another tax increase so again, stop trying to make a math problem a politics problem.

Cut spending across the board. Put A Dent In The Numbers. The tax increase that has just taken place was a lousy $80 Billion per year — out of 1.2 Trillion of deficit. Insignificant.

Cut spending across the board.

(And frankly, it doesn’t matter. A spending cut or a tax increase both are destimulative. There is no hand waving touchy feely stuff about what goes through the minds of business owners. It’s destimulative mathematically in the GDP equation. Meaning — it doesn’t matter. The numbers are gargantuan and there is no cure. Cut spending and watch GDP fall (and tax revs with it). Raise tax rates and watch GDP fall (and tax revs with it).

We’re too far gone. There is no solution other than mass death.)

12 posted on 01/07/2013 8:39:10 AM PST by Owen
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To: SeekAndFind

Debt ceiling vote should come after the POTUS signs the budget. Force the Senate to do their job.

13 posted on 01/07/2013 10:17:57 AM PST by Darth Reardon
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To: Ingtar

These buffoons are not going to die on any hill for any reason. They will sell out every time on every issue. Have they ever failed not to sell out?

They are corrupt cowardly liberals at heart so in reality there is no sell out to them, only “enlightenment and personal growth” and an invite to the next cocktail party...

Those people in Washington, both parties are there for themselves the country be damned.

I have never been a big third party proponent and realized not supporting the GOP automatically meant a democrat victory, but seriously, even when we win what do we get? Same liberal crap except in cheaper and smaller doses, but it’s the same or worse they do nothing with the their victory except tell the conservatives to shut the hell up, send your money, work for us and vote like we tell you too.

Boys and girls the GOP is done, it’s time to move on.

14 posted on 01/07/2013 12:07:48 PM PST by sarge83
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To: sarge83

The only thing that will bring a halt to out of control spending is bouncing checks. That’s a fact. The majority of voters are freeloaders.

15 posted on 01/07/2013 12:44:01 PM PST by Voltage
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