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Examiner
  • Rick Holmes: Let’s make a deal

  • You and I could split the difference and fix the budget; why can’t they?

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  • You and I could split the difference and fix the budget; why can’t they?
    They call it the "fiscal cliff," because politicians crave media attention and the media love metaphors, the more dramatic, the better. It’s really about simple arithmetic and paying the bills.
    In Washington, though, even the simplest things get bogged down by political posturing and nothing seems to happen without a manufactured deadline.
    Behind their faux outrage over whatever the other guy just said, most people in Washington know there’s a deal to be made. The elements are all on the table, and have been for a long time. What’s been missing are the specifics. Before the players can split the difference, they must put stakes in the ground.
    You and I could reach an agreement, unencumbered as we are by the need to fend off primary challengers, please campaign donors and appear heroic to the activists back home. At the risk of falling into budget wonkery, here’s how.
    First, we set a target for deficit reduction over 10 years. To keep it simple, let’s take $4 trillion, which is more-or-less the target identified by the Simpson-Bowles Commission. That money will come from four places:
    1. New revenue. This part should be settled in the next few weeks to avoid scheduled tax hikes.  The debate is over how to do it: cap deductions, raise income tax rates, raise capital gains rates, the Buffett rule, which creates a minimum tax for millionaires, and a few more.
    2. Spending cuts.What’s known in DC as the “sequester” is just the first $1 trillion in spending cuts, and Republicans as well as Democrats are worried about the pain they will inflict. But if you had 10 years to spread $1 trillion in spending cuts across instead of doing it all at once, it should be possible to minimize the damage to the economy and to government services.
    3. Tax reform. Everyone says they are in favor of simplifying the tax system, reducing the corporate tax rate and closing loopholes, but it is difficult work, fraught with unintended consequences. The tax reforms enacted in 1986 are widely hailed, for instance, but its changes in real estate tax shelters helped fuel a brutal recession in Massachusetts a couple of years later. Tax reform can’t be done right in the lame-duck session, but a target could be set and a serious commitment made to doing it in 2013.
    4. Entitlement reform. Again, it can’t be settled this month, but a commitment to an amount to be saved over 10 years could be part of a deal. As with taxes, there are more alternatives than are commonly mentioned. Usually raising the eligibility age for Medicare – a terrible idea, if you care about over all health care spending - is as far as the specifics get. But there are also options for means-testing benefits, raising the cap on Social Security taxes, and controlling health care costs.
    Page 2 of 3 - You and I could make a deal by agreeing first on how much savings will come from each of these four categories, then start negotiating how to hit each of those marks.
    Other elements can be brought into play, as we saw this week when Treasury Secretary Tim Geithner brought the administration’s most specific proposal yet to Capitol Hill. President Barack Obama wants $50 billion in immediate stimulus money, for things like infrastructure investments and mortgage relief. He wants authority to raise the debt ceiling without a vote in Congress, which is the last piece of leverage House Speaker John Boehner has.
    Well, you can’t blame him for asking, though Boehner and his GOP colleagues immediately did. Earlier in the week, they criticized Obama for not offering specifics  beyond his proposal for extending the Bush tax cuts on earnings under $250,000. Thursday, Obama proposed $1.6 trillion in additional revenues and $400 billion in cuts to entitlement programs.
    Boehner and friends acted horrified that Obama had made a proposal that was not Republican enough. If you’re wondering how the party that spent the last presidential campaign promising to restore $800 billion cut from Medicare two years ago can now claim that cutting another $400 billion doesn’t go far enough, join the club.
    I won’t predict how this kabuki dance plays out, but here’s one thing to watch. While there’s been much talk about the crumbling fealty among Republicans to Grover Norquist’s no-new-taxes-ever pledge, a larger hurdle is Boehner’s pledge. 
    The House Speaker has said he’ll bring no legislation to the floor unless it is supported by at least 50 percent of House Republicans. Even in a House gerrymandered by state legislatures to consist of mostly safe seats, there are more than a few Republicans from swing districts who would rather not be seen as intransigent in the face of a fiscal crisis.
    If Obama held all the Democrats and could peel off 27 Republicans, a deal could clear the House - if the thing came to a vote. But if Boehner keeps his pledge, 122 Republicans would have to agree to support it before it could be brought to the floor.
    In practical terms, going off the “cliff” wouldn’t necessarily be a calamity. Changes in tax rates could be made retroactive to Jan. 1; spending cuts could be restored. But businesses, the financial markets and consumers don’t like cliffhangers that affect their finances. Voters are desperate for an indication the leaders they put in office are capable of making decisions. The last thing they want, weeks after the end to an exhausting campaign, is for elected officials to be playing budget games to gain partisan advantage in 2014.
    You and I could put our cards on the table and deal. Why can’t they?
    Page 3 of 3 - Rick Holmes, opinion editor for the Daily News, blogs at Holmes & Co. (http://blogs.wickedlocal.com/holmesandco). He can be reached at rholmes@wickedlocal.com.

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