Can solution be found for both sides to claim victory?
Texas Insider Report: WASHINGTON D.C. Raising tax rates is unacceptable said House Speaker John Boehner yesterday. While Capitol Hill Republicans have vowed to stand united against any effort to fulfill
an Obama campaign promise to raise the top two income tax rates to Clinton-era levels a battle would set the tone for the start of
the presidents 2nd term.
A balanced approach isnt balanced if it means higher tax rates on the small businesses that are key to getting our economy moving again said Boehner. Frankly it couldnt pass the House. Im not sure it could pass the Senate Boehner said.
A lot is at stake. A Thursday Congressional Budget Office (CBO) report forecasts the economy would fall into recession if there is a protracted Fiscal Cliff impasse in Washington and the government falls off the fiscal cliff for the entire year.
House Republicans stand against higher tax rates for upper-income earners leaves re-elected President Barack Obama with a tough core decision: Does he pick a fight and risk falling off a fiscal cliff or does
he rush to compromise and risk alienating liberal Democrats?
Or is there another way that will allow both sides to claim victory?
President Obama has been silent since his victory Tuesday but will weigh in Friday during his now-sidely-anticipated remarks at the White House.
Though most Capitol-watchers think a long deadlock is unlikely analysts say such a scenario would cause a spike in the jobless rate to 9.1 by next fall.
The analysis says that the cliff a combination of automatic tax increases and spending cuts would cut the deficit by $503 billion through next September but that the fiscal austerity also would cause the economy to shrink by 0.5 next year and cost millions of jobs.
The new Congressional Budget Office (CBO) study estimates the nations gross domestic product would grow by 2.2 next year if all Bush-era tax rates were extended or would expand by almost 3 if Obamas 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.
All sides say they want a deal and that now that the election is over it is expected that both sides will show more flexibility than during the heat of the campaign.
Obama will address the issue Friday though hes not expected to immediately offer specifics.
His long-held position repeatedly rejected by Republicans is that tax rates on family income over $250000 should jump back up to Clinton-era levels. Republicans say theyre willing to consider new
tax revenue but only through drafting a new tax code that lowers rates and eliminates some deductionsand wasteful tax breaks. And theyre insisting on cuts to Medicare Medicaid and food stamps known as entitlement programs in Washington-speak.
The White Houses opening position is Were willing to do big entitlement cuts. In return we need you to go up on the rate said Democratic lobbyist Steve Elmendorf. Then theyre going to get into a discussion. Itll be a process.
The current assumption is that any agreement would be a multi-step process that would begin this year with a down payment on the deficit and on action to stave off more than the tax increases and $109 billion in across-the-board cuts to the Pentagon budget and a variety of domestic programs next year.
The initial round is likely to set binding targets on revenue levels and spending cuts but the details would probably be enacted next year.
What we can do is avert the cliff in a manner that serves as a down payment on and a catalyst for major solutions enacted in 2013 that begin to solve the problem Boehner said.
While some of that heavy work would be left for next year a raft of tough decisions would have to be made in the next six weeks. They could include the overall amount of deficit savings and achieving agreement on how much would come from revenue increases and how much would be cut from costly
health care programs the Pentagon and the day-to-day operating budgets of domestic Cabinet agencies.
Another idea is to raise revenue from the wealthy but not through higher income tax rates. Instead policymakers could cap the amount of itemized deductions that the wealthy might be able to claim an idea thats in Obamas budget and was a suggestion of Mitt Romney in the campaign.
There is more than one way to bell the cat. So why are people so fixed on the 39.6 (percent rate)? Its because of the progressivity of the code said Sen. Kent Conrad D-N.D. on CNBC on Thursday.
You can accomplish that same progressivity with lower rates if you broaden the (tax) base in a way thats progressive.
