Spending Daily | December 5, 2012

Fiscal Cliff Fight “about politics, not policy” Right Now
Politico reports, “The fiscal cliff negotiations are at such a standstill that not even aides to President Barack Obama and House Speaker John Boehner (R-Ohio) talked Tuesday. And the way the White House sees it, there won’t be further face-to-face talks between the two leaders until Boehner says he’s willing to raise income tax rates. If you believe Boehner’s leadership team, it’ll be a long December because he’s nowhere close to caving on raising rates. In this high-stakes battle over trillions of dollars in budget cuts and tax increases, the lack of any visible movement shows the fight right now is all about politics, not policy. Obama and Boehner are locked in a struggle for public opinion, the weapon that provides the upper hand in the negotiations. The advantage, at this point, clearly belongs to Obama. Senior administration aides say the president doesn’t want to go over the fiscal cliff — but he’s willing to if Republicans don’t yield on tax rates.”

White House Signals Obama Willing to Go Off Cliff
The Associated Press reports, “It may be just a bluff or a bargaining ploy, but the White House is signaling that President Barack Obama is willing to let the country go over the ‘fiscal cliff,’ a hard-line negotiating strategy aimed at winning concessions from Republicans on taxes. If Washington really does fail to avert the looming series of tax hikes and spending cuts, the White House will portray Republicans as the culprits for insisting on protecting tax cuts for the wealthy, an effort the administration is laying the groundwork for now. ‘This is a choice of the Republican Party,’ said Dan Pfeiffer, White House communications director. ‘If they are willing to do higher rates on the wealthy, there’s a lot we can talk about. And if they are not, then they’llpush us over the cliff.’ … Of course, the White House warning could be a bluff, offered in the belief that Republicans are unlikely to back down on taxes unless they believe Obama is willing to go over the cliff.”

Obama Standing Firm on Tax Rates
Bloomberg reports, “President Barack Obama is hardening his stance in his first post-election confrontation with Republicans, declaring he will make no deal on the country’s fiscal future unless congressional leaders first accept tax-rate increases on top earners. During an appearance yesterday on Bloomberg Television, Obama’s first media interview since his re-election, the president paired his ultimatum on taxes with signals he is ready to make concessions to Republican House Speaker John Boehner’s calls for cuts to entitlement programs such as Medicare health insurance for the elderly. His demands on taxes and a public relations offensive to engage voters are a shift from Obama’s approach to the budget battles of the last two years, reflecting greater political leverage after his re-election and lessons the administration has drawn from past negotiations.”

Baseline Budgeting: It’s a Trap!
The Wall Street Journal editorializes, “If the fiscal cliff talks make Lindsay Lohan look like a productive member of society, perhaps it’s because President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of ‘baseline budgeting.’ Both the White House and House Republicans are pretending that their goal is ‘reducing the deficit,’ which they suggest means making real spending choices. They are talking about a ‘$4 trillion plan,’ or something, regardless of how that number is reached. Here’s the reality: Those numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill’s ‘baseline’ has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms.”

Obama to Call for Increase in Debt Ceiling
Reuters reports, “President Barack Obama will renew his case for tax hikes on wealthy Americans to avert a year-end fiscal crunch and call for a smooth increase in the nation’s borrowing limit in a speech to a business group on Wednesday, a White House official said. … He will argue to corporate executives that it would hurt the nation’s economy to have another protracted political fight over raising the debt limit, the official said. … The statutory ceiling on U.S. Treasury borrowing is $16.4 trillion. The nation is expected to hit the legal limit near the year’s end, although it can tap emergency measures to stave off a default and keep the government running into early 2013. If Congress fails to raise the borrowing cap, analysts expect the Treasury would run out of options to avoid a default some time in the latter half of February.”

Obama May Consider Trading Entitlement Reforms for Tax Increases
According to The Hill, “President Obama rejected Speaker John Boehner’s (R-Ohio) $2.2 trillion deficit-reduction proposal on Tuesday while signaling he could consider entitlement reforms if congressional Republicans agree to higher tax rates for upper-income households.  On entitlements, Obama avoided specific commitments, but said he would be ‘happy’ to look at ways to ‘strengthen’ Social Security and Medicare if Republicans agreed to higher rates on the wealthy.

Leading House Dem Urges His Party To Accept Entitlement Reforms
The Wall Street Journal reports, “A leading House Democrat said that the $2.2 trillion in budgetary savings in a plan released Monday by House Republicans wasn’t sufficient to tackle the country’s burgeoning budget deficits, while urging his fellow Democrats to accept substantial changes to major entitlement programs as part of a bipartisan agreement to avert the so-called fiscal cliff. Speaking at a weekly press conference at the Capitol Tuesday, Rep. Steny Hoyer (D., Md.), the House minority whip, said that the GOP plan wasn’t nearly large enough, contrasting it with the plan put forward by the Obama administration last week.” He added “that major changes to Medicare and Social Security such as increasing the eligibility age for the former and changing how inflation impacts benefits paid out through the latter may have to form part of a broad deficit deal to tackle the country’s fiscal woes. He said both sides needed to be ready to accept some of changes on spending and tax revenues they don’t support as part of a larger deal if one was reached.”

GOP Between a Rock and a Hard Place
According to the New York Times, “With President Obama insisting on higher tax rates for affluent Americans and winning public support for the idea, Congressional Republicans find themselves in an increasingly difficult political spot and are quietly beginning to look for a way out. Senior Republican leadership aides say they are contemplating a fallback position since a standoff over expiring tax rates will be portrayed by Democrats as evidence that the opposition is willing to allow taxes to rise on the middle class to keep taxes from rising on the rich — and their intransigence could mean taxes go up on rich, poor and middle class alike. The leadership officials now say that if no deal can be struck to avert the automatic expiration of all the Bush-era tax cuts and the onset of deep, across-the-board spending cuts, they could foresee taking up and passing legislation this month to extend the tax cuts for the middle class and then resume the bitter fight over spending and taxes as the nation approaches the next hard deadline: its statutory borrowing limit, which could be reached in late January or February. … But any move toward compromise with Democrats on fiscal issues quickly comes under attack from conservatives as a surrender and unsettles the rank and file.”

“Senate Passes $531 Billion Defense Budget”
The Associated Press reports, “The Senate overwhelmingly approved a sweeping, $631 billion defense bill Tuesday that sends a clear signal to President Barack Obama to move quickly to get U.S. combat troops out of Afghanistan, tightens sanctions on Iran and limits the president’s authority in handling terror suspects. Ignoring a veto threat, the Senate voted 98-0 for the legislation that authorizes money for weapons, aircraft and ships and provides a 1.7 percent pay raise for military personnel. After a decade of increasing Pentagon budgets, the vote came against the backdrop of significant reductions in projected military spending and the threat of deeper cuts from the looming ‘fiscal cliff’ of automatic spending cuts and tax increases. … Spending solely on the base defense budget has nearly doubled in the past 10 years, but the latest blueprint reins in the projected growth in military dollars.”

Moderate Dems Held Hostage in Tax Debate 
The Hill reports, “Senate Democratic centrists, whom Grover Norquist describes as the ‘hostages’ in the tax debate, are lying low and keeping quiet about competing proposals from President Obama and House GOP leaders. These centrists have declined to endorse Obama’s opening offer to raise taxes by $1.6 trillion, twice the size of the tax increase most of them voted for in July.  They have also held their fire on House Speaker John Boehner’s (R-Ohio) plan, released Monday, that would raise $800 billion in tax revenues and cut $1.2trillion in spending, which is closer to the ratio of the Bowles-Simpson plan popular with many of them this Congress.  … Democrats running for reelection in swing- and Republican-leaning states know they will be pummeled by millions of dollars’ worth of attack ads from third-party groups for any votes they cast to raise taxes.”