The Fiscal Cliff

Curious what everyone's predictions are. It looks like the Democrats are ready to use the election to keep things off the table.

Democrats stiffen spine against trimming benefits
http://news.yahoo.com/democrats-stiffen-spine-against-trimming-benefits-135744343--finance.html

WASHINGTON (AP) — President Barack Obama's re-election has stiffened Democrats' spine against cutting popular benefit programs such as Medicare and Social Security. Their new resolve could become as big a hurdle to a deal that would skirt crippling tax increases and spending cuts in January as Republicans' resistance to raising tax rates on the wealthy.

Just last year, Obama and top Democrats were willing during budget negotiations with Republicans to take politically risky steps such as reducing the annual inflation adjustment to Social Security and raising the eligibility age for Medicare.

Now, with new leverage from Obama's big election victory and a playing field for negotiations that is more favorable in other ways, too, Senate Majority Leader Harry Reid and other Democrats are taking a harder line.

"I've made it very clear. I've told anyone that will listen, including everyone in the White House, including the president, that I am not going to be part of having Social Security as part of these talks relating to this deficit," Reid, D-Nev., told reporters.

Reid's edict would appear to take a key proposal off the table as an ingredient for a deal on avoiding the "fiscal cliff," the year-end combination of expiring President George W. Bush-era tax cuts and harsh across-the-board spending cuts.

At issue is the inflation adjustment used by the government to calculate cost-of-living adjustments for Social Security and other federal programs. A less generous inflation measure that takes into account consumers finding alternatives when prices go up could reduce deficits by more than $200 billion over the next decade.

It's a no-brainer for many budget wonks because it means gradual, less noticeable curbs to the growth of benefits. It also means about $70 billion more tax revenues over 10 years because automatic rises in tax brackets to account for inflation would be smaller.

That new inflation index, known as chained Consumer Price Index, is a magic elixir for budget writers. But it's anathema to many liberals, who say that moving to the new cost-of-living measure could cut average retiree benefits by about $600 a year a decade after taking effect and mean a cut of about $1,000 a year after 20 years.

"Think about it this way. You're standing on the deck of a boat and you're in very deep water and they want you to swim, but they're going to put a log chain around your ankle," Sen. Tom Harkin, D-Iowa, told a group of liberal activists assembled for a rally Thursday in a Senate hearing room. "That's chained CPI."

Sixteen months ago, Obama's White House took a different view during talks with House Speaker John Boehner, R-Ohio, on a possible budget deal. A White House draft offer by top Obama aide Rob Nabors, made public by Washington Post author Bob Woodward, proposed several controversial changes to benefit programs, including the lower inflation adjustment, raising the eligibility age for Medicare and higher Medicare premiums.

Those negotiations, however, were conducted on a playing field that favored Republicans. It was less than a year after Obama's self-described "shellacking" in the 2010 elections and the president was desperate to win an increase in the government's borrowing cap and avoid a government default on its debt that should shatter financial markets. Also, Obama still faced re-election in 2012.

Now conditions favor Obama.

He decisively won re-election and Republicans seem fearful of being tagged with the blame if an impasse results in the government going over the fiscal cliff. Obama and Democrats already are portraying Republicans as hostage-takers willing let tax rates rise on everyone if the lower Bush-era tax rates are not also extended for the top 2 percent to 3 percent of earners — those with incomes above $200,000 for individuals and $250,000 for joint filers.

The new balance of power means that Democrats who once would have acquiesced reluctantly to GOP demands for stiff benefit cuts are now balking at ideas such as chained CPI or an increase in the Medicare retirement age, as well as demanding GOP concessions to higher taxes.

"The price for that kind of thing has gone up," said a senior House Democrat who required anonymity to speak frankly on party strategy. "Negotiations depend on the situation. No one should expect to get the same kind of deal."

Republicans have gotten the message, but insist that higher tax revenues be paired with cuts to rapidly growing programs such as Medicare and the Medicaid health care program for the poor and disabled. These programs are called "entitlements" because eligibility is based on meeting criteria such as age or income.

"Washington's problem isn't that it taxes too little, but that it spends too much," said Senate Minority Leader Mitch McConnell, R-Ky. "But in a good-faith effort to make progress on boosting the economy and government's long-term solvency, Republicans like me have said for more than a year now that we're open to new revenue in exchange for meaningful reforms to the entitlement programs that are the primary drivers of our debt."

New Hampshire Sen. Kelly Ayotte said in the GOP's weekly radio address Saturday that "any effort to address our fiscal crisis without including entitlement reform can't be taken seriously."

No way, say many liberals.

"We're going to send a loud message to the leadership in the House, in the Senate, and President Obama: 'Do not cut Social Security, do not cut Medicare, do not cut Medicaid,'" said Vermont Sen. Bernie Sanders, a self-declared socialist who aligns with Democrats. "Every now and then elections have consequences. We won."

Republicans and even some Obama allies worry that liberal demands will make it harder for the president to seal a bargain with the GOP.

Rep. Mike Quigley, D-Ill., said Obama has the same problem with his party's liberal base that Boehner has with some conservative Republicans. "Boehner has a disproportionate group of his folks skewing things too far out and the president has equally the same sort of problems with people who are horribly unreasonable," Quigley said.

 

So it sounds like Republicans will allow the tax cuts for everyone to expire and probably give us a recession so they can say they're not raising taxes and then they'll come back and agree to tax cuts again. That's what happens when you sign ridiculous pledges, you govern like a fool.