–President, GOP Rival Stick To Broad Fiscal Themes in Campaign
–Fiscal Cliff Challenge Hasn’t Come Up In Presidential or VP Debates
–Bipartisan Talks Continue But Complex Plan May Get Skeptical Response
By John Shaw
WASHINGTON (MNI) – As President Barack Obama and his Republican
rival Mitt Romney travel around the country in the final three weeks of
the presidential campaign, blasting each other and searching for the
votes needed to win on election day, neither has initiated serious
discussion of the looming fiscal cliff.
Both candidates have developed “solutions” that are designed to
appeal to their political bases, not signal how they think the fiscal
cliff should be resolved.
Obama continues to insist he is eager to renew Bush era tax cuts
for those families making $250,000 or less and to replace the
across-the-board spending cuts with a balanced package of spending cuts
and revenue increases.
Romney says that if elected he will renew all Bush era tax cuts,
suspend the across-the-board spending cuts, and then work on an entirely
new fiscal framework premised on tough spending controls and sweeping
tax reform based on loophole closures and reduced rates for all.
Bill Frenzel, a former Republican congressman and now a guest
scholar at the Brookings Institution, says the reticence by Obama and
Romney to discuss the fiscal cliff is neither surprising nor likely to
change before election day.
“The two presidential candidates have no desire to show their hole
cards when it comes to the fiscal cliff,” Frenzel says.
“They are determined to stay as general as possible and to cling
tenaciously to their budget talking points. They are trying to survive
until Nov. 6 and win the election — not resolve this problem on the
campaign trail,” he says.
Neither Obama nor Romney were asked about the fiscal cliff during
their first debate two weeks ago. Nor were Vice President Biden and his
GOP rival, Rep. Paul Ryan, during their debate last week.
Stan Collender, a budget expert at Qorvis Communications,
highlighted the omission: “Neither Obama nor Romney gave us any
guidance about how they want to resolve the fiscal cliff in their first
debate.
“They clearly don’t like some of the fiscal cliff policies but they
didn’t discuss any alternatives or options,” he adds.
The fiscal cliff refers to the convergence of several significant
events: the expiration of the Bush era tax cuts and dozens of other tax
provisions at the end of this year; the first round of across-the-board
spending cuts that are scheduled to begin in January; and the need to
increase the statutory debt ceiling in the coming months.
Regarding the debt ceiling, Sen. Jeff Sessions, the ranking
Republican on the Senate Budget Committee, and Sen. Orrin Hatch, the
ranking Republican on the Senate Finance Committee, sent a letter Monday
to Treasury Secretary Tim Geithner asking for details on when the U.S.
will reach the $16.4 trillion statutory debt ceiling.
In their letter, Sessions and Hatch ask Geithner to send them
information on when Treasury will need to use “extraordinary measures”
to avoid bumping up against the debt limit and plans for “asset sales as
the government approaches the statutory debt limit.”
The senators ask Geithner to provide debt ceiling reports to
Congress on Nov. 1, Dec. 3, Jan. 2, Feb. 1 and March 1.
The presidential and congressional elections are Nov. 6.
Congress returns to Washington the week of Nov. 12 and it seems
almost certain that Obama, House Speaker John Boehner, Senate Majority
Leader Harry Reid, Senate Minority Leader Mitch McConnell and House
Minority Leader Nancy Pelosi will discuss the fiscal cliff impasse.
But budget experts agree negotiation will hinge in large measure on
who wins the presidency and who controls the House and Senate.
Several groups of lawmakers are involved in informal budget talks
to craft a deficit reduction package that the leadership could review.
Congressional staffers also are working on a menu of options that could
be pursued during the Lame Duck session and into 2013.
Last week, a bipartisan group of eight senators concluded three
days of meetings on a possible fiscal compromise, but it is unclear if
they can develop a plan that commands either the interest or sufficient
votes in Congress during the post-election session.
The Senate’s “Gang of Eight” is comprised of Democrats Kent Conrad
of North Dakota, Mark Warner of Virginia, Michael Bennet of Colorado,
and Dick Durbin of Illinois and Republicans Tom Coburn of Oklahoma,
Saxby Chambliss of Georgia, Mike Crapo of Idaho, and Mike Johans of
Nebraska.
This group has said it will work on a deficit reduction plan from
the framework of the Simpson-Bowles commission report.
The Simpson-Bowles plan calls for more than $4 trillion in deficit
reduction over a decade, with a blend of spending cuts and tax
increases. It would reduce spending to about 22% of GDP by 2022 and
bring revenues up to about 21% of GDP in 2022.
The two chairs of that effort, former Senator Alan Simpson and
former White House chief of staff Erskine Bowles, met the with Gang of
Eight last week to encourage them to continue work on a deficit
reduction plan that might be used to replace the fiscal cliff.
Simpson and Bowles are working with this group and others to update
their deficit reduction plan which was first released in December 2010.
They hope that a modified version can be ready after the Nov. 6
election.
“The Senate bipartisan group is the only fiscal cliff game in town
right now,” says Frenzel of Brookings.
“Obama, Romney and the other House and Senate candidates now have a
policy horizon that does not extend beyond Nov. 6. The bipartisan Senate
group is trying to find a solution and the direction they appear to be
heading is sound.
“But it’s also very, very complicated and will likely include some
complex enforcement mechanisms that many in Congress don’t understand.
This could make it very hard for Congress to vote for whatever they come
up with,” Frenzel said.
The Gang of Eight is said to studying a proposal by the Bipartisan
Policy Center, a think tank, that would give policymakers a path to
avoid plunging off the fiscal cliff.
The BPC plan calls for delaying key fiscal cliff deadlines for six
months by passing a law in the post-election session of Congress that
includes a deficit reduction framework with “real cuts in spending and
increases in taxes as a down payment.”
The BPC plan further requires the next Congress to pass a larger
deficit reduction plan in early 2013. If Congress fails to pass that
follow-up plan, a “backstop” would automatically become law that would
secure that deficit cut goals are met.
The BPC proposal does not say if this “backstop” would consist of
automatic spending cuts and tax increases or a specific deficit
reduction plan.
John Engler, president of the Business Roundtable, said Monday in a
speech that Congress should extend all the expiring tax cuts, stop the
across-the-board spending cuts, and increase the debt ceiling.
Several budget groups, including the Committee for a Responsible
Federal Budget, have said extending all tax cuts and eliminating the
across-the-board spending cuts would be worse than going over the fiscal
cliff because it would lead to a more than a $7 trillion increase in the
nation’s debt.
Washington may not be heeding their cries, but the international
community tried to step up the pressure for U.S. authorities to deal
with the fiscal cliff, saying it is a looming threat that already is
impacting market confidence and could hit the real global economy.
At the annual meetings of the International Monetary Fund, the
fund’s members said in a communique that “resolving the fiscal cliff,
raising the debt ceiling, and making progress toward a comprehensive
plan to ensure fiscal sustainability are essential.”
IMF Managing Director Christine Lagarde said the deadline is
“becoming more threatening” as it approaches.
In it’s World Economic Outlook released last week, the IMF warned
that the impact of fiscal contraction in the U.S. economy “would inflict
large spillovers on major U.S. trading partners and also on commodity
exporters.”
The IMF estimates that in the “extreme” case, the fiscal cliff
could result in a fiscal withdrawal of more than 4% of GDP in 2013 —
about 3 percentage points of GDP larger than the fiscal adjustment
assumed under the baseline. Growth would stall in 2013 with the full
materialization of the cliff.”
“In the United States, it is imperative to avoid excessive fiscal
consolidation (the fiscal cliff) in 2013, to raise the debt ceiling
promptly, and to agree on a credible medium-term fiscal consolidation
plan,” the IMF said in the WEO.
** MNI Washington Bureau: (202) 371-2121 **
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