James Pethokoukis

Politics and policy from inside Washington

No big budget deal? Blame Obama, not Boehner

Jul 10, 2011 20:29 UTC

President Barack Obama could have done two things that might have saved his Mother of All Budget Deals.

First, he could have embraced market-centered, consumer -focused reforms to Medicare. That was about as likely as him accepting an Obamacare rollback.  Second, he could have agreed — as House Speaker John Boehner and Republicans suggested —  to sharply reduce tax rates in return for fewer special tax deductions/breaks/loopholes/subsidies. Recall that is what his own debt commission recommended.

Instead, he apparently offered to keep top individual rates where they are, at 35 percent, in exchange for tax reform. Now that’s a big tax hike. But it’s also revealing. As a GOP source on the Hill put it:

Their fierce insistence on higher taxes is beyond bizarre.  …  The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

Obama agrees with the left-of-center consensus that America is dramatically undertaxed. Those tax rates from his fiscal commission would have resulted in revenue higher than the historical 18-19 percent of GDP, as seen in this chart:

But 21 percent of GDP — the highest in U.S. history — isn’t nearly enough for the Obamacrats. Even if Obamacare is successful in bringing down health costs, top liberal policy wonks think far more revenue will be needed to deal with an aging America. First, this budget from the Economic Policy Institute. It sees revenue at 24.1 percent of GDP, which still leaves a huge budget gap:

Then there is this plan from the George Soros-backed Center for American Progress, which operates as the White House’s outside think tank. It sees revenue at 23.8 percent of GDP, even adding a carbon tax and transaction tax into the mix.

 

In short, Obama sees a need for a permanently bigger government and a lot more tax revenue to fund it.  Had Obama agreed with his own debt commission and Republicans, a big agreement was possible. Or he could have proposed real reforms to entitlements. But he declined and there wasn’t a mega-deal. Don’t blame Boehner for that.

COMMENT

Blame the party of NO

Posted by kc10man | Report as abusive

Like Reagan at Reykjavik, Boehner passes on a bad deal

Jul 10, 2011 04:56 UTC

So in the end, it was bit of a Ronald Reagan moment for John Boehner on Saturday. Just as the U.S. president walked away from a bad arms control agreement with Soviet leader Mikhail Gorbachev at Reykjavik, Iceland in 1986, the House speaker passed on President Barack Obama’s mega-debt reduction deal in Washington.

In both case, the asking price was just too high. For Reagan, it was lethal limitations on his Strategic Defense Initiative. For Boehner, it was a trillion-dollar tax distraction from America’s true fiscal threat: spending run amok: “Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes.”

A GOP congressional source was a bit less diplomatic, telling me Saturday afternoon via email:

Their fierce insistence on higher taxes is beyond bizarre. After months of demanding ‘clean’ increase to avert economic calamity (default), WH threatens economic calamity (default) unless they get economic calamity (trillions in tax hikes). No wonder these guys are governing over an economic calamity (9.2% & growth malaise), w/ an economic calamity on the horizon (debt explosion as mapped out in president’s budget). The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

Indeed, as negotiations wore on, Obama got tougher on taxes (pushed hard by the hard left), and the deal he was cooking up almost certainly wouldn’t have been revenue neutral as he tweaked rates and reduced tax deductions. Not even close. Nor did it help that Obama reportedly balked at a spending-cut trigger if certainly tax reforms were not completed.

Or maybe Boehner also realized he was becoming a role player in an Obama-directed drama whose dramatic focus was securing a second-term for Obama. Either Obama got his big tax-hike deal and a) created a tea party revolt in the GOP, b) looked like a statesmen and c) partially deprived Republicans of a valuable line of attack in 2012 … or there was no deal, and Obama could hammer the GOP until Election Day for caring more about tax cuts for the rich than fiscal responsibility.

Boehner apparently will take his chances with door #2 and push for a roughly $2.4 trillion deal (with a debt ceiling hike, too) based on spending cuts already agreed to and some non-tax revenue raisers. Deeper spending cuts and structural entitlement reform would be better, but that is going to have to be a 2013 thing. Indeed, what entitlement reforms Obama was agreeing to were insufficient to Republicans.

Indeed, there were arms control agreements after Reykjavik, just as there will assuredly be more debt deals in the future. There must be or, as the Congressional Budget Office forecasts, debt as a share of GDP will explode from 70 percent today to as high as 250 percent by 2035 — assuming no economic implosion first. And no amount of tax increases will stop that. Some will push for just such options, of course. Liberal think tanks are devising plans to increase the total U.S. tax burden by at least 30 percent or more over the next two decades.

The other course is to reform entitlements and boost revenue by growing the economy faster. Boehner and the GOP, hopefully, took a step in that direction on Saturday and will take another one when they meet with Obama Sunday night.

 

COMMENT

Reagan walked away from a deal with the Russians so he could keep on playing with his very expensive silly toy, Star Wars. Whoop-de-do! A fine model of Republican thinking.

What Boehner walked out on was Obama’s attempt to get a Republican Congress to pay for eight years of Republican mis-management, two unbudgeted wars, Bushlet’s mega-payoff to Big Pharma, and eight years of borrowing from the Chinese to finance tax cuts for the rich.

Buncha spoiled brats, whining, puking and mewling.

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Will Boehner pull a ‘Reagan at Reykjavik’ and walk?

Jul 10, 2011 00:00 UTC

Will House Speaker John Boehner commit Republicans to raising $1 trillion in taxes as part of President Obama’s last-minute push for as much as a $4 trillion debt reduction deal? Obama and the GOP meet Sunday evening, but things continue to develop quickly:

1) Various news accounts Saturday morning made it sound as if Boehner was flirting with some convoluted deal where some taxes would be raised – including the high-end Bush tax cuts – but lowered later as part of major tax reform, with maybe some of the savings from fewer deduction going to reduce debt.

2) Then on Larry Kudlow’s radio show this afternoon, the WSJ’s Steve Moore said his paper’s reporting was accurate and the GOP were being “tempted” by this offer.

3) Then I got this from a GOP congressional source later in the afternoon:

WH is demanding major, unambiguous tax hikes. To get spending caps & entitlement tweaks, greater economic pain appears to be the WH’s asking price. It is increasingly likely that we aren’t going to see a ‘big’ deal if the WH doesn’t budge. Speaker looks to be holding strong. …

Their fierce insistence on higher taxes is beyond bizarre.

After months of demanding ‘clean’ increase to avert economic calamity (default), WH threatens economic calamity (default) unless they get economic calamity (trillions in tax hikes). No wonder these guys are governing over an economic calamity (9.2% & growth malaise), w an economic calamity on the horizon (debt explosion as mapped out in president’s budget).

[Update 7:39 PM] Appears that the basic framework for future tax reform could not be resolved.

The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

That Team Obama wants higher higher taxes is not news.  But the growing GOP allergic reaction is. I think these comments gives good insight into how the GOP perceives the evolving deal. And I hope that second part is true. Tax reform should only be done in the context of lowering marginal tax rates, especially if Democrats aren’t offering entitlement reform that would move things toward a more market-based system such as the one outlined in Rep. Paul Ryan’s bold and visionary Path to Prosperity.

I also doubt whether the spending cuts being offered by the Obamacrats are largely legit and not a manipulation of the CBO baseline by a) cutting defense spending that was never going to happen and b) pushing cuts to Medicare providers that Congress will later undercut. My best guess remains a smaller spending cut deal + no tax increases + a hike in the debt ceiling.

This is Obama in his weekly radio address today:

Both sides are going to have to step outside their comfort zones and make some political sacrifices,” Obama said. “And we agree that we simply cannot afford to default on our national obligations for the first time in our history.

Obama says he wants a big deal, maybe because he needs an economic win to counter the faltering economic recovery and deprive the GOP of the “big spender” line of attack in 2012. Maybe he is finally listening to Tim Geithner and Jack Lew.  It all reminds me of President Ronald Reagan and Soviet leader Mikhail Gorbachev at the 1986 arms control summit in Reykjavik, Iceland. Reagan walked away from a deal that would have eliminated nuclear ICBM’s in a decade because it would hobbled research into the Strategic Defense Initiative. Reagan was right to walk away then, and Boehner would be right to do the same now.

 

COMMENT

Wow. Peanuts when we need boulders.

On the issue of taxes … much money goes uncollected each year. IRS estimates at least a third of a trillion dollars go uncollected under current tax law; uncollected taxes on cash-paid services, uncollected taxes on tips, double deductions by small business owners. That alone would cover much of the $4 trillion over 10 yr. target, were the IRS equipped to make it collectable. Further, we have heard of the poster-child cases of GE and Forest Labs paying zero using legal shell-based loopholes. Today, Reuters reported that Fox / News Corp. paid not just zero taxes, but was actually paid back $4 billion in refunds. While I pay north of 40% per year in combined federal taxes, I am sure Mr. Rupert Murdoch pays 18% or less per year on his much more sizable income. Cutting benefits for disabled vets and tossing grandmothers off Social Security is not an answer. Eliminating regulatory inspectors is not an answer; time and again, industry has shown a contempt for consumer safety e.g. Toyota. Enough is enough with revenue cutting … collect taxes fairly on those enjoying the benefits of a United States, as imperfect as it may be.

This is not only about the me’s; it’s about US.

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