A skilled poker player as they say, never shows his cards. Republicans seemingly haven't heard such advice. With 'fiscal cliff' negotiations taking place in the media of late, they are proving to be poor poker players, poor negotiators, and all-too-willing to fold.Author's note: if no fiscal cliff deal is reached, the recession we face early next year will be deeper, and we'll make no progress in reducing the federal deficit, national debt, or size of the government. If a deal is reached, we'll still go into recession, no meaningful debt reduction plan will be reached, and we'll make little progress in reducing the federal deficit, national debt, and size of the government. Either outcome, we'll face economic contraction and our elected officials will kick the can down the road. Eric and I will analyze the fiscal cliff with financial guru Karl Denninger on the next episode of ECOMINOES Radio (Friday, November 30 at 3 PM ET).
Several Republicans, responding weak-kneed in a kneejerk reaction to their 2012 election beating, have signaled a willingness to compromise on tax hikes, despite little indication that Democrats would make similar concessions with spending cuts. Senators Saxby Chambliss (R-GA), Lindsay Graham (R-SC), and Peter King (R-NY) have gone so far as to walk back a no-tax pledge they placed their signatures upon.
Amelia Chasse, vice-president of Hynes Communications, says that while Americans are looking for both sides to come together after the election, Republicans should not be so quick to give away the farm.
Discussing the matter on Neil Cavuto's show late last week, Chasse opined that, "In terms of raising taxes, I think Republicans will be making a huge mistake with their constituents if they agree to any proposal that raises taxes for the sake of raising taxes".
According to a source with knowledge of the negotiations however, Republicans are set to do just that. Their information indicates:
"We suspect that enough Republicans could support a top tax rate in the 37-38% range along with limits on deductions, which together would raise $600-800 billion over 10 years. Along with a few other revenue provisions, the total deficit reduction from revenue could reach $1 trillion."The 37-38% represents an increase on the current level of 35%. Chasse indicates that such a tax hike plan "would raise rates for some of the most vulnerable taxpayers in this economy – small business owners". Furthermore, limits on deductions would have the same economic effect as raising marginal rates on upper-income taxpayers even further.
Why would Republicans agree to such a plan?
"The key to Republicans going along with this tax increase," the source adds, "is structural reform of entitlement programs". This would presumably involve such programs as Social Security, Medicaid, and Medicare. The wisdom being that meaningful deficit reduction can be accomplished through 'means testing' and raising the eligibility age.
FreedomWorks Vice President of Health Care Policy, Dean Clancy, doesn't believe these methods will be successful.
"These two ideas are unpopular, and, while they are better than across-the-board cuts, they do not alter the underlying structural problems with the big entitlement programs or make them more voluntary for individuals."He adds, "If ObamaCare goes into effect, raising the Medicare retirement age will have the effect of increasing federal outlays for ObamaCare premium subsidies and for Medicaid."
So a cave-in on tax hikes is being negotiated for the benefit of a deficit reduction plan that would likely be unsuccessful. But at least an agreement and compromise on tax rates and entitlement reforms will lead to significant cuts in the deficit, avoiding an economic calamity, right?
The real key for a fiscal cliff breakthrough, according to the source, lies with the President himself.
"If he puts major entitlement reforms on the table, a grand bargain that reduces the deficit by roughly $2-2.5 trillion over ten years is likely."Such a 'grand bargain' would fall significantly short in terms of necessary deficit reduction over the next decade.
Clancy claims, "We would need more like $8 trillion in savings over 10 years to balance the budget within 10 years."
Chasse agrees, stating that the President's proposals "would barely make a dent in the deficit".
With the fiscal cliff looming in the near future, Republicans are foolishly signaling a willingness to concede on tax hikes. Such concessions - with little to no valuable reductions in spending and entitlements - indicate the party has not only lost the election battle of 2012, but they may be willing to surrender in the war on conservative fiscal values.
Thursday, November 29, 2012
"Democrat Lite" GOP To Cave On Taxes?
Rusty Weiss of FreedomWorks's FreedomConnector argues that Republicans may cave on raising taxes in the "fiscal cliff" negotiations. This comes as no surprise to your humble blogger. The Republican establishment, see, incorrectly believes that the GOP was embarrassingly defeated in campaign 2012 because it has earned the reputation of not "caring enough" for people. (The actual reason is because America has a growing aversion to the GOP's social conservatism.) But the circus masters running the elephant show believe that if the Republican Party could only shed its current reputation as the "party of no" and jump on the wealth distribution bandwagon, it could win elections. This is foolish of course; the logical direction for the party is toward liberty and true fiscal conservatism. But Weiss argues that, fiscally, the GOP is instead heading down the "Democrat Lite" path: