- - Tuesday, December 18, 2012

ANALYSIS/OPINION:

Kicking the can may be the least-repugnant remaining resolution to the “fiscal cliff.” The only alternatives appear to be simply going over the cliff, or a Republican cave-in on income tax rates in exchange for mostly cosmetic spending reductions.

The story is now a familiar one. The House of Representatives tried to avoid much of this by passing a budget and legislation to prevent “taxmageddon” earlier in the year. But President Obama’s unwavering recalcitrance in favor of doing nothing left little choice but to delay every conceivable difficulty until after the election. Election past, the man-made crisis unfolds on schedule.

The essential lines in the sand in this conflict haven’t changed for years. The president’s position is simple — a “my way or the highway” approach, under which Republicans must capitulate on income tax rate hikes, and all other serious issues are off the table.

Never mind that:

Mr. Obama already raises taxes on upper-income taxpayers through the 3.8 percent Medicare surtax imposed under Obamacare.

Tax rate hikes would weaken an economy stumbling so badly that the Federal Reserve doubled its risky efforts to keep the economy from recession.

Mr. Obama’s approach would likely put the kibosh on any hopes for tax reform.

The resulting revenues would be a small drop in a very big bucket compared with projected budget deficits.

The only justification for higher taxes is spite and envy to be exercised through the extortive power of the federal government.

Nor does Mr. Obama show any interest in dealing with the real budget issues facing the nation, namely our unsustainable entitlement programs. There is no real dispute except by the radical left that these programs demand serious, substantive, cost-reducing reforms. But Mr. Obama is having none of it.

In his view, he ran for re-election on a pledge to raise income tax rates, and now has a mandate to do it. In fact, his mandate is solely to continue to press his case. Ours is not a parliamentary system, and Mr. Obama is not the prime minister. And so he faces the pesky reality that House Republicans ran on opposing higher tax rates and they, too, were returned to Washington in the majority to press their case. Their mandate is no greater, but certainly no less than Mr. Obama’s.

Congress should prevent the tax hikes. Congress should prevent the sequestration. Congress should reform entitlements. But it won’t, and the president wouldn’t sign such a bill. Instead, we have an electoral outcome necessitating the two sides pursue a “deal.” The very premise of a “deal” implies substantial compromise, which may be difficult to judge.

So now, at this late hour, we face three bleak alternatives: 1) Mr. Obama’s solution of raising income tax rates, leaving excessive spending in place, and leaving entitlement programs unreformed; 2) go over the fiscal cliff; or 3) kick the can until early in 2013 in the hope of finding a more sensible solution.

What exactly does kick the can mean in this context? First, it means delaying the fiscal cliff, in its entirety, but not for long. Legislation keeping the government running signed by Mr. Obama before the election expires March 31. Some legislation is sure to pass to prevent an indefinite government shutdown. That marks a good decision point for the fiscal cliff, as well.

Kicking the can means raising the debt ceiling, but only enough to allow the government to continue to operate until just after March 31. Mr. Obama’s demand to set aside the debt ceiling is pure fantasy on his part.

It means allowing an Alternative Minimum Tax patch for 2012, thus avoiding an unexpected tax hike this spring averaging $2,250 for some 28 million taxpayers who otherwise would not owe AMT, and an average $5,500 tax hike for the 4 million who are stuck on the AMT even with a patch.

And kicking the can means delaying the deep cuts to payment rates for doctors participating in Medicare. Despite the president’s see-no-evil posture, Medicare is in real trouble. But destroying the program by driving doctors out is no way to fix it.

This strategy means we avoid the cliff and live to fight another day, as soldiers are wont to say. But it keeps the pressure on to negotiate in good faith and to come up with a resolution because some legislation will have to pass by the end of March to keep the government in operation.

Policymakers have put us in this terrible position through the nasty habit of kicking the can — avoiding difficult policy decisions. What is proposed here — another short-term kicking of ye olde can — is akin to the “hair of the dog” prescription for hangovers. It’s not a good solution. But sadly it is better than a bad deal, and better than going over the cliff.

JD Foster is the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at the Heritage Foundation.

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