Fiscal Cliff

The twitter feed from the Rs went nuts during Obama's speech. They are very displeased.

By Robert J. Samuelson, Monday, December 31, 5:29 PM

The “fiscal cliff” is a massive failure of presidential leadership. The tedious and technical negotiations are but a subplot in a larger drama. Government can no longer fulfill all the promises it has made to various constituencies. Some promises will be reduced or disavowed. Which ones? Why? Only the president can pose these questions in a way that starts a national conversation over the choices to be made, but doing so requires the president to tell people things they don’t want to hear. That’s his job: to help Americans face unavoidable, if unpleasant, realities. Barack Obama has refused to play this role.

Instead, he has cast the long-term budget problem as a question of whether the richest 1 percent or 2 percent of the population should pay more in taxes. Not only that, but he has insisted that the higher taxes be paid by raising rates, as opposed to reducing various tax breaks (deductions, exemptions, preferential rates) enjoyed heavily by upscale Americans. The obsession with rates is bad policy (higher rates may threaten risk-taking, work effort and hiring) but qualifies as good politics: It signals Obama is macho; he’s tough on the rich, who are implicitly blamed for the nation’s budget and economic woes.

Whatever one thinks about raising taxes at the top (and I have no objection to it as part of comprehensive budget package), it’s not the crux of the problem. The crux of our problem — the problem being the bipartisan and untenable promises made to most Americans of both high government benefits and low taxes — arises from an aging population and high health costs, which cause rapid increases in spending on Social Security, Medicare and Medicaid. Let me repeat some statistics I’ve often cited. In 2012, Social Security, Medicare and Medicaid accounted for 44 percent of non-interest federal spending. As for taxes, the richest 5 percent paid almost 40 percent of federal taxes in 2009 (and within that, the richest 1 percent paid 22 percent of taxes).

The nonpartisan Congressional Budget Office puts it this way:

“With the population aging and health care costs per person likely to keep growing faster than the economy [gross domestic product], the United States cannot sustain the federal spending programs that are now in place with the federal taxes (as a share of GDP) that it has been accustomed to paying.”

Until Obama conspicuously and consistently acknowledges these realities in straightforward and unmistakable language — something he hasn’t done and shows no signs of doing — he cannot be said to be dealing honestly with the budget or with the American people. The main reason that we keep having these destructive and inconclusive budget confrontations is not simply that many Republicans have been intransigent on taxes. The larger cause is that Obama refuses to concede that Social Security, Medicare and Medicaid are driving future spending and deficits. So when Republicans make concessions on taxes (as they have), they get little in return. Naturally, this poisons the negotiating climate.

Of course, Obama would offend many Democrats if he entertained benefit cuts in Social Security and Medicare: higher eligibility ages, higher premiums for affluent elderly, structural changes in the health-care system to reduce costs. Just as many Republicans don’t want taxes raised a penny, many Democrats don’t want benefits cut a penny. Consider the highly technical proposal to shift from the standard consumer price index (CPI) to a “chained” CPI to adjust Social Security benefits. From 2013 to 2022, this change is estimated to reduce Social Security spending by $100 billion. Over that decade, total Social Security benefits are estimated at $10.588 trillion; the cut would be less than 1 percent. Yet, many Democrats reacted in horror, as if hordes of elderly would be impoverished.

Unfortunately, much of the media have accepted the Obama narrative that it’s only Republican rigidity that frustrates negotiations and leads to deadlock. This means, of course, that there’s even less incentive for Obama and congressional Democrats to engage in genuine bargaining.

The result is that we’re not getting the debate we deserve and that budget choices are being made mainly by default. Just as important, the periodic, ugly confrontations over budget policy — the paralysis and bitterness they involve — corrode confidence and weaken the economy. A weak economy creates few new jobs, and the lack of jobs is the nation’s No. 1 social problem. Obama’s abdication of responsibility may be in his political self-interest, but it is profoundly hostile to the national interest.

Whom should we blame for this? Again, we should not blame Obama and Boehner. In their different ways, they and a number of other people in the Congress are trying to find a politically palatable way to deal with these hard issues. They got what conditions allowed.

Ultimately, we should blame the American voters. The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money. Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren. They have decided they like borrowing up to $1 trillion a year for tax credits, disability payments, defense contracts and the rest. They have found that the original Keynesian rationale for these deficits provides a perfect cover for permanent deficit-living. They have made it clear that they will destroy any politician who tries to stop them from cost-shifting in this way.

Most members of Congress are responding efficiently to the popular will. A large number of reactionary Democrats reject any measure to touch Medicare or other entitlement programs. A large number of impotent Republicans talk about reducing the debt, but are incapable of forging a deal that balances tax increases with spending cuts.

The events of the past few weeks demonstrate that these political pressures overwhelm the few realists looking for a more ambitious bargain. The country either doesn’t know or doesn’t care about the burdens we are placing on our children. No coalition of leaders has successfully confronted the voters, and made them heedful of the ruin they are bringing upon the nation.

The Senate passed HR 8, the Tax Relief Extension Act, by a vote of 89 to 8. The so-called "fiscal cliff" agreement had been negotiated earlier in the day between Senate Minority Leader Mitch McConnell (R-KY) and Vice President Joe Biden.

Assuming the deal is approved, it will nevertheless give way to a nearly continuous series of fights that will consume the first part of the year, even as President Obama might hope to shift Congress’s attention to immigration reform and gun control.

“It’s become less like a fiscal cliffhanger and more like a journey over the fiscal mountains,” said Rep. Jeff Fortenberry (R-Neb.).

The next big deadline is likely to come around the end of February, when the Treasury Department will exhaust the measures now in place to extend the nation’s $16.4 trillion debt ceiling. At that point, the government will not be able to pay its bills unless Congress votes to raise the nation’s legal borrowing limit.

Republicans hope to use that moment to force Obama and congressional Democrats to agree to major spending cuts in return for the increase — in what could be a sequel to the contentious face-off over the debt limit in the summer of 2011.

Provided Monday’s deal is approved, in early March would come another deadline: the $110 billion cut in spending, half from the Pentagon, delayed as part of this deal.

A month or so later— on March 27 — a short-term measure that funds government agencies will lapse. Without a renewal, the government will shut down, setting up another possible showdown.

“Round two’s coming,” said Sen. Lindsey O. Graham (R-S.C.). “And we’re going to have one hell of a contest about the direction and the vision of this country.”

Many Republicans believe they’ll have more leverage then than they do now because the debate over tax rates on the wealthy will be settled.

The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money.

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hawkeye10 (Post 5214090)
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The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money.

What "free money"? Are we now supposed to regard the elderly and the disabled as freeloaders? Are we now supposed to weaken or remove a health care safety net that was put into place for good and important reasons--so we can wind up burdening our children with the personal responsibility of paying for their aging parents medical care, as a consequence of slashing Medicare benefits?

The average couple on Medicare has forked over their tax dollars to the government throughout their adult working lives, beside what they continue to pay into Medicare once they are entitled to use it. And they don't get any "free money"--Medicare pays the providers, and basic Medicare, without a private supplemental plan, often fails to cover the high costs of medical care.

There are problems with Medicare that are endemic to our entire health care system--expensive, often medically unnecessary, tests and procedures are routinely performed, and there is payment for services which were not always rendered--but, in the case of Medicare, a good deal of very costly billing fraud, on the part of providers, often goes undetected. Trying to slash payments to Medicare providers, which was one of the cost-saving measures proposed in the fiscal cliff negotiations, does not address that sort of fraud and might only reduce the number of physicians willing to provide services for Medicare reimbursement--which winds up hurting consumers. Beefing up the Medicare fraud detection, and requiring better justification for expensive diagnostic testing, makes a lot more sense, to reduce costs, than trying to accuse recipients of being on a gravy train that's burdening our national debt. And the wealthier elderly should be required to pay more into Medicare as a way of increasing revenue. And Medicare--and Congress-- should pemit drug prices to be negotiated by the government--the way the V.A. does--in order to help contain the costs of drugs. At present, part D Medicare protects the profits of Big Pharma more than it really contains costs for either consumers or the govenment.

And closing some of the tax loopholes the wealthy enjoy--at the expense of everyone else--in order to raise revenue--makes more sense than taking an ax to a health care program that most Americans want to see continue to thrive.