Fiscal Cliff Raises Questions On Reality Of Debt Deal
President Barack Obama and leaders
of the lame-duck Congress may be just weeks away from shaking hands on a deal
to avert the dreaded "fiscal cliff." So it's natural to wonder: If
they announce a bipartisan package promising to curb mushrooming federal
deficits, will it be real?Both sides have struck cooperative tones since
Obama's re-election. Even so, he and House Speaker John Boehner, R-Ohio, the
GOP's pivotal bargainer, have spent most of the past two years in an acrid
political climate in which both sides have fought stubbornly to protect their
constituencies.Obama and top lawmakers could produce an agreement that takes a
serious bite out of the government's growing $16 trillion pile of debt and puts
it on a true downward trajectory.Or they might reach an accord heading off
massive tax increases and spending cuts that begin to bite in January that's
the fiscal cliff while appearing to be getting tough on deficits through
painful savings deferred until years from now, when their successors might
revoke or dilute them.Historically, Congress and presidents have proven
themselves capable of either. So before bargainers concoct a product, and
assuming they can, here's a checklist of how to assess their work:
OVERALL DEFICIT CUTS
The House and Senate have four weeks
until Christmas. Their leaders and the president want a deal before then. Bargainers
are shooting for a framework setting future debt-reduction targets, with
detailed tax and spending changes to be approved next year but possibly some
initial savings enacted immediately.Obama has suggested 10-year savings
totaling around $4.4 trillion.Passing a framework next month that sets
deficit-cutting targets for each of the next 10 years would be seen as a sign
of seriousness. But look for specifics. An agreement will have a greater chance
of actually reducing deficits if it details how the savings would be divided
between revenue increases and cuts in federal programs, averting future fights
among lawmakers over that question.Better yet would be including a fast-track
process for passing next year's tax and spending bills if they meet the savings
targets so they can whisk through Congress without the possibility of a Senate
filibuster, in which 41 of the 100 senators could kill a measure they
dislike.Another sign of sincerity: An enforcement mechanism that imposes
savings automatically if lawmakers gridlock over details. Legislators' efforts
now to avert January's combination of automatic tax boosts and spending cuts
underscores the effectiveness of forcing them to act.Less impressive would be
verbal pledges by the White House and congressional leaders to meet
deficit-cutting goals without passing legislation inscribing the figures into
law.
TAXES
A deal that specifies where revenue
would come from would lay important groundwork for next year's follow-up bill
enacting actual changes in tax laws.The biggest clash has been over whether to
raise income tax rates on earnings over $200,000 annually for individuals,
$250,000 for families. Obama wants to let them rise next year to a top rate of
39.6 percent but has suggested he would compromise. Boehner and other
Republicans oppose any increase above today's top marginal rate of 35 percent.
Instead, they advocate lower rates and eliminating or reducing unspecified
deductions and tax credits. Settling that would resolve the toughest impediment
to a deal.Raising money from higher rates, closing loopholes or a combination
of the two would create real revenue for the government. The problem is many
tax deductions and credits , such as for home mortgages and the value of
employer-provided health insurance, are so popular that enacting them into law
over objections from the public and lobbyists would be extremely difficult.With
the price tags of tax and spending laws typically measured over a decade,
delaying the implementation date can distort the projected impact of a change
on people and the government's debt.Tax cuts written to expire in a certain
year can put future lawmakers under political pressure to extend it. That is
what Obama and Congress face today with the January expiration of tax cuts,
including many enacted a decade ago under President George W. Bush.Even more
questionable are assumptions that overhauling tax laws will boost economic
activity and thus produce large new revenues for the government. Many
Republicans and ideologically conservative economists contend that's the case,
but most economists say there is no sound way to estimate how much revenue can
be generated from strengthening the economy by revamping the tax system. Many
believe the amount is modest.
SPENDNG
A serious agreement should specify
how much savings would come from entitlements, meaning those big, costly
benefit programs such as Social Security and Medicare. It also should say how
much would come from discretionary spending, which covers federal agency
budgets for everything from the military and national parks to food safety
inspections and weather forecasts.Why the need for specificity?Because spending
for entitlements occurs automatically, accounts for nearly two-thirds of
federal spending and is the fastest growing part of the budget. Discretionary
spending has been shackled by past budget deals and, according to the
nonpartisan Congressional Budget Office, is moving toward falling below 6
percent the size of the economy by 2022, the lowest level in at least 50
years.A sincere effort to control expenditures would focus on entitlements, the
true source of the government's spending problem. An agreement that envisions
deep discretionary cuts risks a reliance on savings that future lawmakers could
find unbearable and rescind.Savings that come from weeding out waste, fraud and
abuse, which sounds good but are difficult to find, or rely on one-time sales
of federal assets should be treated with suspicion.Deep cuts that take effect
in the future, say after Obama leaves office in 2017, might be better than
imposing them now and hurting an already weak economy by reducing spending.But
delayed cuts also open the door for Obama's successors and future Congresses to
roll them back. In 1997, Congress voted for cuts in Medicare reimbursements to
doctors; those cuts have grown so large that lawmakers now vote annually to
restore the money.Postponing the implementation of spending increases already
scheduled to take effect, such as federal health insurance subsidies under
Obama's health care overhaul, saves money upfront but makes no permanent
changes that would ease future spending pressures.Another debatable source of
deficit reduction would be the hundreds of billions of dollars the Obama
administration says the government is saving by winding down wars in Iraq and
Afghanistan. While there is no question those expenditures are dropping, the
government has run huge deficits while those wars were waged, so there's no
money being left unspent as those wars end.
Allies help UK's Cameron prevail in EU showdown
British Prime Minister David Cameron
has gained allies in his fight against EU spending rises to avoid having to
wield a solitary veto that would have further isolated Britain and fuelled
questions about its future in the 27-nation bloc.The collapse of talks in
Brussels to agree a 1 trillion euro ($US1.30 trillion) budget also meant
Cameron for now will avoid having to present a deal to a fractious parliament
that defeated him last month in a vote calling for European Union spending cuts.That
undermined Cameron's authority and raised doubts about how he would appease
anti-EU rebels in his Conservative Party without upsetting partners in Europe,
Britain's biggest trading partner.Last December, Cameron angered many EU
neighbours when he became the first British prime minister to veto an EU
treaty, blocking plans for stricter fiscal rules in the euro zone. He warned he
was prepared to do it again.There was talk of the other 26 countries reaching a
budget deal without Britain, while the opposition Labour Party said Britain
under Cameron risked "sleepwalking" out of the EU."There might
have been (attempts) to say let's just put the British in a box over there and
do a deal without them," Cameron said after the talks ended."That
didn't work because there are other countries that I worked with very
closely."Cameron, who wants a budget freeze, said Germany, Sweden, the
Netherlands, Finland, and Denmark supported tighter spending controls. Attempts to find a 2014-2020
budget will resume early next year.Cameron faced a difficult balancing act.
Trailing in opinion polls, he had to appear tough to the growing chunk of
voters who would vote to leave the EU, seen by critics as a wasteful
super-state that threatens British sovereignty.He also was squeezed by anti-EU
Conservatives, a group that unseated former leader Margaret Thatcher and wants
to use the euro zone crisis to rethink Britain's EU role.However, Britain had
to be careful to avoid upsetting its main trading partner at a time of
austerity. London also wants to retain influence before a critical summit next
month on plans for a European banking union.Cameron's pro-European coalition
partners, the Liberal Democrats, had warned him to tone down the anti-EU
talk.According to one EU diplomat, Cameron "played it well", defying
expectations he would be the "bad guy", and winning the support of
Germany's Chancellor Angela Merkel.The Labour-supporting Guardian newspaper
said the scale of the divisions among the other countries had helped Cameron."With
no one in Europe agreeing on anything, he could strike a moderate tone," it said in
an editorial.
Thai police fire tear gas in clash with hundreds of protesters
Thai police have fired tear gas in
clashes with hundreds of protesters in Bangkok ahead of a rally seeking to
overthrow the government of Prime Minister Yingluck Shinawatra in the largest
demonstration yet against her administration.The protest highlights tensions
which have been simmering since Yingluck's Puea Thai party swept to victory in
July 2011 and could herald another period of unrest in Thailand.Anti-riot
police wielding plastic shields fired gas canisters at protesters who tried to
climb over cement and barbed wire barriers blocking entry to the rally site.
Police said "between 300 and 400 protesters" clashed with police.At
least seven police were wounded and up to 132 protesters arrested in the clash
near the United Nations headquarters in Bangkok, a stone's throw away from the
main rally site.Pitak Siam, a new anti-government group, has attracted the
support of various royalist groups including 'yellow shirt' members of the
People's Alliance for Democracy (PAD) who helped destabilise governments either
led or backed by former premier Thaksin Shinawatra, Yingluck's brother, in 2006
and 2008.Authorities have deployed 17,000 police at the rally site and the
government has invoked the Internal Security Act allowing police to detain
protesters and carry out security checks and set up roadblocks.Police said they
have seized various weapons, including knives and bullets, as protesters
arrived at the protest area."We used tear gas because protesters were
blocking police and did not comply with the security measures we put in
place," police spokesman Piya Uthaya told a local TV station.Thailand has
seen frequent bloody street protests in recent years including a rally that
lasted more than two months by supporters of the present government in
2010.Those protests sparked a military crackdown that left at least 91 people
dead and more than 1700 injured.The royalist Pitak Siam group, led by retired
military general Boonlert Kaewprasit, accused Yingluck's government of
corruption and being a puppet of former premier Thaksin.Thaksin remains a
deeply divisive figure in Thailand. He was ousted in a 2006 military-backed
coup and fled the country in 2008 shortly before being found guilty of abuse of
power."I'm telling Thaksin that if he wants to return to Thailand he needs
to bow before the king and serve his prison sentence," Boonlert told the
thousands of protesters at the rally site.Some held pictures of Thailand's
revered King Bhumibol Adulyadej as Boonlert shouted "Yingluck, get
out" to cheers of his supporters.Thailand has seen a series of political
protests since 2006 with pro-Thaksin and anti-Thaksin groups taking turns to
challenge various administrations' right to rule.
