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Are parties hurtling toward ‘fiscal cliff’?

Bowles sees little change on taxes, spending

- The Washington Times - Wednesday, November 28, 2012

With little tangible headway being made in Washington on averting the looming federal taxes-and-spending crisis, a key observer said Wednesday that he puts the chances of Congress reaching a deal before the Jan. 1 "fiscal cliff" deadline at less than 1 in 3.

Erskine Bowles, who ran President Obama's 2010 deficit commission that called for tax increases and spending cuts to fix perennial deficits, blamed both sides for his pessimism, saying Republicans will have to budge on their opposition to raising income-tax rates and that the White House hasn't been serious enough about embracing real spending cuts to big programs such as Medicare.

"I believe the probability is we are going over the cliff," said Mr. Bowles, who has become a chief voice for striking a deal, and who met with the White House on Tuesday and with Capitol Hill leaders on Wednesday.

His pessimistic outlook was tempered by new signs of compromise, including from House Minority Leader Nancy Pelosi, who said a tentative agreement Mr. Obama and House Speaker John A. Boehner had struck last year, but which was scuttled by opposition from both parties, should be the start of renewed talks.

"Start with that and go from there to reach an agreement," she told reporters before meeting with CEOs and other Americans who are pressing both sides on Capitol Hill to forgo partisan principles and strike a deal.

Mr. Obama and congressional leaders all say they are optimistic that something can be completed in time, though they haven't agreed on much of anything else.

In an effort to get talks going, Mr. Obama is deploying top aides to Capitol Hill on Thursday to meet with congressional leaders.

It's been two weeks since the president and top leaders sat down, and those pushing for action, including Mr. Bowles and former Sen. Alan K. Simpson, co-chairman of that 2010 deficit panel, said they were surprised at the casual pace, with Congress taking off all of last week for Thanksgiving and having only 10 days of work scheduled before the end of the year.

All sides are trying to figure out how to head off a collision of budget priorities and economic realities.

The Bush-era tax cuts are slated to expire Jan. 1, and $110 billion in automatic spending cuts, split between defense and domestic programs, are due to take effect Jan. 2.

The consensus among economists is that letting both happen would risk plunging the economy into recession. But, the Congressional Budget Office has warned, delaying them would only make the pain worse in the long run.

Congress and the White House are trying to chart a middle course that eases the worst of the pain while bringing deficits under control — a tricky balancing act as they are buffeted by competing pressures from their political bases.

Republicans have said they will consider raising taxes, though only if it comes from eliminating tax breaks rather than raising tax rates. They insist that any new revenue be coupled with limits to entitlement programs such as Medicare, which is projected to crowd out other spending in coming decades.

But Democrats, led by Mr. Obama, had said that tax rates must be allowed to go up for couples making at least $250,000, or individuals who make $200,000 or more. The president has called for rates to revert from 35 percent to 39.6 percent, which was their level under President Clinton.

Mr. Bowles, who met with Mr. Obama and his economic team on Tuesday, said he saw some flexibility from the White House. Mr. Bowles said they signaled they were willing to accept a top rate lower than 39.6 percent, but he said they insisted they must have some increase from current levels.

"Where the White House is, is they want to make sure that revenue actually comes in — that it's real. And their belief is the only way you make it real is to have it in the form of higher rates," Mr. Bowles said at a breakfast hosted by the Christian Science Monitor. "He wants some portion of it, some major portion of it, in the form of higher rates."

Some top congressional Democrats have drawn another line in the sand in recent weeks, saying they do not want Social Security and Medicare changes to be on the table.

But Mr. Bowles said the president and his party must tackle entitlement spending. He said he laid out for the president at least $600 billion in cuts to health care programs that could be part of a final deal.

Some cracks began to show in Republican unity this week on Capitol Hill, where Rep. Tom Cole, Oklahoma Republican, told colleagues they should accept Mr. Obama's demand to extend most tax cuts now, and fight over the top tax bracket later.

Mr. Boehner shot down that suggestion.

"The goal here is to grow the economy and control spending. You're not going to grow the economy if you raise tax rates on the top — on the top two rates," Mr. Boehner said. "It'll hurt small businesses. It'll hurt our economy. It's why it's not the right approach."

Off Capitol Hill, Grover Norquist, head of Americans for Tax Reform and keeper of an influential no-new-taxes pledge, said he doesn't see signs that the Republicans are ready to abandon the pledge in order to strike a deal with Democrats.

Speaking at a Politico forum, Mr. Norquist said Republicans should look to push the fiscal cliff debate into next year, and then use short-term spending resolutions and incremental bumps in the nation's borrowing limit to force Mr. Obama to accept spending cuts that he otherwise wouldn't swallow.

"They can have him on a rather short leash, on a small — you know, 'Here's your allowance, come back next month if you've behaved,'" he said, adding, "Month if he's good, weekly if he's not."

Over the past weeks, several prominent Republican lawmakers have said they don't feel bound to their tax pledges anymore, but Mr. Norquist said he was not concerned.

He said those lawmakers have all said they would accept higher taxes only when coupled with the kinds of spending cuts "that Democrats will never give."

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