As reported in Huffington Post 12/08/11 by Andrew Taylor

WASHINGTON — Conservative flashpoint issues from abortion and abstinence education to President Barack Obama’s health care law are the biggest obstacles to Congress completing a massive year-end spending bill next week that would keep the government running through next September.

Going into end-game negotiations this weekend on the $900-plus billion bill, Republicans expect to lose on most of the policy provisions, or “riders,” they added to House versions of the must-do spending measures. But the White House and Democrats are poised to make concessions on some environmental rules, wetlands regulations and, in all likelihood, on continuing a ban on government-funded abortions in the nation’s capital city.

“We’re meeting heavy resistance from the White House and Democrats in the Senate,” said House Appropriations Committee Chairman Harold Rogers, R-Ky., who is pressing for provisions to help the coal industry. “So, we’ll get as many as we possibly can.”

Among most popular targets for Republicans are environmental regulations they say hamper the economy, such as proposed Environmental Protection Agency rules on coal ash, large-scale discharges of hot water and greenhouse gases from electric power plants, and emissions from cement plants and oil refineries.

If past is prologue, most of the issues will end up on the chopping block. That’s what happened last spring during negotiations on a spending bill for the budget year that ended in September.

“There’s a lot of opposition to these and they know they need Democratic votes in the House to pass it,” said Rep. Norm Dicks of Washington, senior Democrat on the Appropriations Committee. “So we have made this very clear to the other side. … If you expect our votes you’ve got to get rid of the controversial riders.”

But some riders will be needed to win GOP support for the measure in votes next week. And many of the provisions are important to powerful members of the appropriations panel in both parties.

“We don’t want to be wholly inflexible,” said Rep. James Moran of Virginia, top Democrat on the spending panel responsible for the EPA’s budget. That measure is studded with riders.

“Virtually every rule the EPA has come up with, they’re trying to come up with a rider to stop it,” said Scott Slesinger, legislative director of the Natural Resources Defense Council.

// // The roster of environmental riders is indeed lengthy.

For coal interests, there is a rider to block clean water rules opposed by mining companies that blast the tops off mountains as well as a rider to block proposed labor rules to limit miners’ exposure to coal dust, which causes black-lung disease. Electric utilities would benefit from delays of rules on traditional air pollution and emissions of carbon dioxide. Painting contractors would benefit from a delay in a 2008 rule that requires them to be certified by the EPA in order to remove lead paint.

“We’re pretty clear that we find these riders as unacceptable,” said Sen. Jack Reed, D-R.I. “We’re being very emphatic.”

On social issues, there are proposals to ban needle exchange programs that help stem the spread of HIV among drug users; cut off federal funding to Planned Parenthood, the nation’s leading provider of abortions; and adopt an abstinence-only approach for grants to reduce teen pregnancy.

Those riders, in addition to GOP efforts to block implementation of the new health care law – a nonstarter with Democrats and the White House – are among the reasons the labor, health and education chapter of the omnibus spending measure is at risk of being left out of the final bill.

“It’s from soup to nuts,” said Rep. Rosa DeLauro, D-Conn. “They just designed an ideological agenda.”

In addition to proposing to eliminate federal family planning funding, Republicans would block the District of Columbia government from providing abortions to poor women, which is a top priority of anti-abortion activists.

The D.C. abortion rider was in place when Republicans controlled the White House but was lifted after Obama took office. He reluctantly agreed to reinstate the funding ban this year, prompting Washington’s mayor and city council members to march on Capitol Hill. Democrats continue to fight the rider, but GOP leaders are likely to insist on it.

At the same time, Republicans are trying to reverse a loss earlier this year when they tried to block taxpayer money from going to Washington’s needle exchange program.

Some of the riders aren’t contentious. For instance, even though the EPA has no interest in regulating methane emissions from cow burps and flatulence, there’s a rider to block the agency from doing so. That’s fine with Democrats.

Then there are riders that have no practical effect but set a precedent that agencies would prefer to avoid. One would block the EPA from officially delineating any new wetlands in counties affected by flooding this year. It turns out that the agency has no plans to do so, so this might be a rider Democrats and the White House would accept.

Another battle involves an attempt to block the Obama administration’s 2009 policy lifting restrictions on travel and money transfers by Cuban-Americans to families remaining in Cuba. That provision drew an explicit Obama veto threat earlier this year and will probably be dropped in end-stage negotiations.

The White House warned last week it’ll play a strong hand in trying to keep the final measure as free of riders as possible. “There should be no miscalculation about the intensity of (Obama’s) feelings,” White House budget director Jacob Lew told reporters.

 

As reported In Huffington Post

WASHINGTON (Associated Press)– It’s a microcosm of the budget battling that has consumed Congress all year: The Obama administration wants federal agencies to save money while Republicans push for additional savings to take a substantial bite out of the government’s towering pile of IOUs.

White House budget chief Jacob Lew has ordered agency heads to submit spending plans for the upcoming budget at least 5 percent below this year’s levels. He also wants them to propose ways to trim a total of at least 10 percent of their spending.

Michael Steel, a spokesman for House Speaker John Boehner, R-Ohio, said Thursday that Lew’s directive was a good way to start finding spending cuts that are required under the recent debt-ceiling agreement between the two sides.

“But the White House must get serious about real structural reform of our entitlement programs if we’re going to get our debt under control to help our economy grow and create jobs,” Steel said, referring to huge and fast-growing benefit programs like Social Security and Medicare that help drive annual deficits skyward.

Lew’s letter did not rule out, or even address, the possibility of finding savings from benefit programs. But Steel’s remark pointed directly at the major fault line that has blocked a sweeping debt-cutting deal between the two parties: Democrats have resisted paring benefits from Social Security, Medicare and Medicaid, while Republicans have refused to consider tax increases.

The Obama administration has asked agencies in years past to propose similar savings. But Lew’s order comes just two weeks after Obama and congressional Republicans ended an epic debt ceiling battle that has left both sides eager to demonstrate a willingness to trim red ink ahead of a fierce autumn battle over the economy and the debt and just as the 2012 presidential and congressional elections approach.

By requesting two sets of potential savings from agencies, Lew is moving toward fulfilling the debt-ceiling deal, which created a series of annual spending targets and would save tens of billions of dollars a year.

“By providing budgets pegged to these two scenarios, you will provide the president with the information to make the tough choices necessary to meet the hard spending targets in place and the needs of the nation,” Lew wrote to agency heads.

The American Federation of Government Employees, which represents more than 625,000 federal workers and employees of the District of Columbia, also jumped into the fray.

In a written statement, national president John Gage said the cuts “mean just one thing: more job destruction in the midst of a jobs crisis.” He said that with millions of Americans already unemployed or too discouraged to seek work, “why on earth would the administration be trying to dig an even deeper hole?”

The spending that Lew ordered federal agencies to trim will consume more than $1 trillion of this year’s $3.8 trillion federal budget. The rest of the budget covers benefit programs and interest payments on the government’s $14.3 trillion debt.

Lew’s letter suggests that savings can be found by eliminating unneeded programs and making agencies more efficient. It also invites agency heads to propose initiatives that would spark economic growth.

“Finding the savings to support these investments will be difficult, but it is possible,” Lew wrote.

In a White House blog on Thursday, Lew said his request for savings was designed to help the administration make decisions about living within overall spending limits. He said it did not mean every agency will necessarily see budget cuts.

Republicans say tax and spending cuts are needed to blow life back into the flagging economy and create jobs. Obama plans to unveil a jobs proposal next month mixing tax reductions, construction initiatives and deficit reduction.

When Congress returns from its summer recess in September, also generating political heat will be the special bipartisan panel of 12 lawmakers that the debt-ceiling agreement created to try to craft a compromise $1.5 trillion, 10-year debt reduction package.

As another part of the debt-cutting deal, the two sides agreed to a separate $900 billion in 10-year savings from agency budgets. The details of those cuts will have to be worked out every year, but they will be evenly divided between national security and domestic programs.

Earlier this year, Obama and Congress also battled down to the wire over spending cuts and came within hours of forcing a partial government shutdown. In the end, they agreed to pare agency spending by $38 billion.

Lew asked agency chiefs for the two spending scenarios as the administration plans for the 2013 budget year, which begins in October 2012. That budget will be released early next year.

Deficitation

July 27, 2011

I thought I would only write 1 newsletter this week.

 

You know….

 

Keep it light…

 

Talk about the summer fun

 

 

As much as I am trying to enjoy this summer

 

I am finding that I once again have to speak up

 

 

 

I wrote several newsletters in the past

 

Discussing the deficit and government spending

 

 

It just amazes me that Washington

 

Is going out of their way

 

Not to bring a serious resolve to the issue

 

 

Short term……Long term

 

 

What steps must be taken?

 

 

Putting party politics aside

 

 

That will send a message to the financial world

 

That we are done drinking the kool aid

 

 

The US will take responsible steps

 

To control our cost

 

And bring our economy in line

 

 

We can no longer continue to borrow $.43 cent of every
dollar

 

To support our economy

 

 

The chart below shows the growth of government

Over the past 40 years

 

 

TotReceipt     Tot Expense  Surplus/Deficit

 

1970      $192B          $195B              $2.8B

 

1980      $517B        $590B               -$73B

 

1990      $1.031T     $1.253T         -$221B

 

2000      $2.025T   $1.788T        +$236B

 

2010      $2.165T   $3.833T     – $1.555T

 

 

They are talking of doing a short term deal

 

 

Cutting spending by $1.2T over the next 10 years

 

 

That’s about $120B a year

 

Although they say most of it is on the back end

 

 

Smoke and Mirrors….

 

 

Every family has to deal with budget issues

 

 

We are all held to responsible spending

 

 

Even when we borrow money

 

 

Banks look at acceptable levels of

 

Debt to Income

 

 

 

We are a great nation…

 

Difficult decisions have been made in the past

 

To bring us to where we are today

 

 

Let Washington send a strong message

 

 

That we are back…

 

 

And ready to do business responsibly.

By  Bruce Bartlett, Published: July 7

 

In recent months, the federal debt ceiling — last increased in February 2010 and now standing at $14.3 trillion — has become a matter of national debate and political hysteria. The ceiling must be raised by Aug. 2, Treasury says, or the government will run out of cash. Congressional Republicans counter that they won’t raise the debt limit unless Democrats agree to large budget cuts with no tax increases. President Obama insists that closing tax loopholes must be part of the package. Whom and what to believe in the great debt-limit debate? Here are some misconceptions that get to the heart of the battle.

1. The debt limit is an effective way to control spending and deficits.

Not at all. In 2003, Brian Roseboro, assistant secretary of the Treasury for financial markets, explained it best: “The plain truth is that the debt limit does not affect the deficits or surpluses. The critical revenue and spending decisions are made during the congressional budget process.”

The debt ceiling is a cap on the amount of securities the Treasury can issue, something it does to raise money to pay for government expenses. These expenses, and the deficit they’ve wrought, are a result of past actions by Congress to create entitlement programs, make appropriations and cut taxes. In that sense, raising the debt limit is about paying for past expenses, not controlling future ones. For Congress to refuse to let Treasury raise the cash to pay the bills that Congress itself has run up simply makes no sense.

Some supporters of the debt limit respond that there is virtue in forcing Congress to debate the national debt from time to time. This may have been true in the past, but the Budget Act of 1974 created a process that requires Congress to vote on aggregate levels of spending, revenue and deficits every year, thus making the debt limit redundant.

 

2. Opposition to raising the debt limit is a partisan issue.

Republicans are doing the squawking now because there is a Democrat in the White House. But back when there was a Republican president, Democrats did the squawking. On March 16, 2006, one Democratic senator in particular denounced George W. Bush’s request to raise the debt limit. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” the senator thundered. “Increasing America’s debt weakens us domestically and internationally. . . . Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.”

That senator was Barack Obama, and he, along with most Democrats, voted against a higher limit that day. It passed only because almost every Republican voted for it, including many who are now among the strongest opponents of a debt-limit increase.

 

3. Financial markets won’t care much if interest payments are just a few days late — a “technical default.”

Some Republicansbelieve that bondholders know they will get their money eventually and will understand that a brief default — just a few days — might be necessary to reduce future deficits. “If a bondholder misses a payment for a day or two or three or four,” Rep. Paul Ryan (R-Wis.) told CNBC in May, “what is more important [is] that you’re putting the government in a materially better position to be able to pay their bonds later on.”

 

This is nothing but wishful thinking. The bond-rating agencies have repeatedly warned that any failure to pay interest or principal on a Treasury security exactly when due could cause the U.S. credit rating to be downgraded, which would push interest rates up as investors demand higher rates to compensate for the increased risk.

J.P. Morgan recently surveyed its clients and asked how much rates would rise if there was a delay in payments, even a very brief one. Domestic investors thought they would go up by 0.37 percentage points, but foreign buyers — who own close to half the publicly held debt — predicted an increase of more than half a percentage point. Any increase in this range would raise Treasury’s borrowing costs by tens of billions of dollars per year.

Some may think that a rise in rates would be temporary. But there was a case back in 1979 when a combination of a failure to increase the debt limit in time and a breakdown of Treasury’s machines for printing checks caused a two-week default. A 1989 academic study found that it raised interest rates by six-tenths of a percentage point for years afterward.

 

4. It’s worth risking default on the debt to prevent a tax increase, given the weak economy.

While Republicans’ concerns about higher taxes are not unreasonable, most economists believe that any fiscal contraction at this time would be dangerous. They note that a large cut in spending back in 1937 brought on a sharp recession, which undermined the recovery the country was making after the Great Depression.

Republicans respond that tax increases are especially harmful to growth. However, they made the same argument in 1982, when Ronald Reagan requested the largest peacetime tax increase in American history, and again in 1993, when Bill Clinton also asked for a large tax boost for deficit reduction. In both cases, conservative economists’ predictions of economic disaster were completely wrong, and strong economic growth followed.

 

5. Obama must accept GOP budget demands because he needs Republican support to raise the debt limit.

Republicans believe they have the president over a barrel. But their hand may be weaker than they think. A number of legal scholars point to Section 4of the 14th Amendment, which says, “The validity of the public debt of the United States . . . shall not be questioned.”

Some scholars, including Michael Abramowicz of George Washington University Law Schooland Garrett Epps of the University of Baltimore Law School, think this passage may make the debt limit unconstitutional because by definition, the limit calls into question the validity of the public debt. Thus Treasury may be able to just ignore the debt limit.

Other scholars, such as Michael McConnell of Stanford Law School, say the 14th Amendment will force Obama to prioritize debt payments and unilaterally slash spending to pay bondholders. But this would involve the violation of laws requiring government spending.

Either way, a failure to raise the debt limit would force the president to break the law. The only question is which one.

 

Bruce Bartlett, a former adviser to President Ronald Reagan and a Treasury official in the George W. Bush administration, is the author of “The New American Economy: The Failure of Reaganomics and a New Way Forward.” He will be online at 11 a.m. on Monday, July 11, to chat. Submit your questions and comments now.

Want to challenge everything you know? Visit our “Five myths” archive, including “Five myths about interest rates,” “Five myths about the Bush tax cuts,” “Five myths about defense spending,” and “Five myths about the deficit.”

As reported in Huffington Post

WASHINGTON — President Barack Obama is renewing an old fight with the business community by insisting that $400 billion in tax increases be part of a deficit-reduction package. His proposals have languished on Capitol Hill, repeatedly blocked by Republicans, often with help from Democrats.

Some would raise big money. Limiting tax deductions for high-income families and small business owners could raise more than $200 billion over the next decade. Others are more symbolic, such as scaling back a tax break for companies that buy corporate jets.

The corporate jet proposal would raise $3 billion over the next decade, according to GOP congressional aides. That’s a relatively small sum in the big scheme of Washington budgets, but Obama and Democrats call attention to it repeatedly in their effort to portray Republicans as defenders of corporate fat cats.

No matter how Democrats characterize their proposals as revenue raisers or plugging tax loopholes, GOP leaders oppose them all, arguing that raising taxes in a bad economy would only make matters worse.

“If we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and natural gas companies that are making hundreds of billions of dollars,” Obama said this week, “then that means we’ve got to cut some kids off from getting a college scholarship, that means we’ve got to stop funding certain grants for medical research, that means that food safety may be compromised, that means that Medicare has to bear a greater part of the burden.”

The White House has identified about $600 billion in tax increases it wants over the next decade. About $400 billion of them were offered as part of deficit-reduction talks led by Vice President Joe Biden. That would be paired with more than $1 trillion in spending cuts.

Some of the tax proposals are vague and budget experts have yet to calculate just how much they would raise. For example, limiting deductions for high-income families and small businesses could raise anywhere between $210 billion and $290 billion, depending on what threshold is established as high income.

Obama is proposing to eliminate $41 billion in tax breaks for oil and natural gas companies, raise taxes on investment fund managers by $21 billion and change the way many businesses value their inventories for tax purposes. The change in inventory accounting would raise an estimated $70 billion over the next decade, hitting manufacturers and energy companies, among others.

Treasury Secretary Timothy Geithner has given Congress an Aug. 2 deadline for raising the current debt ceiling, currently $14.3 trillion, to avoid defaulting on the government’s financial obligations for the first time in the nation’s history. He warns that a default could trigger potentially dire consequences for an already anemic economy, including higher interest rates, tighter credit and new rounds of job layoffs. The government hit the debt ceiling in May and has been juggling accounts since then to make all its payments.

Obama says he is proposing a balanced approach that spreads the pain among people who rely on government services and those most able to finance them.

While Republican leaders argue that raising taxes is bad policy, bad politics and too unpopular to pass the Republican-controlled House, several GOP senators have said they are willing to consider eliminating unspecified tax breaks to reduce the deficit.

Two weeks ago, 33 Republican senators joined a 73-27 majority to repeal a $5 billion annual tax subsidy for ethanol gasoline blends. On Wednesday, Sen. Ron Johnson, R-Wis., said, “I would like to do away with special tax breaks but not legitimate business deductions.”

But GOP leaders insist there is no support among Republicans to impose the kind of tax increases Obama is proposing.

“The president is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House,” Speaker John Boehner, R-Ohio, said. “The votes simply aren’t there, and they aren’t going to be there because the American people know tax hikes destroy jobs.”

Among the tax increases proposed by the White House and the amount they’d raise over the next decade:

_ Limit itemized deductions, including those for charitable contributions and mortgage interest, for families and small business owners making more than $500,000. Under current law, if a taxpayer’s top income tax rate is 35 percent – the highest rate – a $100 deduction is worth $35 in tax savings. For several years, Obama has proposed limiting itemized deductions for people making above $250,000 to 28 percent, meaning a $100 deduction would be worth only $28 in tax savings at most. That would raise $293 billion. Increasing the income threshold to $500,000 would raise “in the ballpark of $210 billion,” said Maryland Rep. Chris Van Hollen, one of the House Democratic negotiators in the Biden talks.

_ Change the way businesses value their inventory, raising an estimated $70 billion. Current law allows businesses to lower their taxable profits – and their tax bills – by using an accounting method that can inflate the cost of goods sold. Obama proposes to phase out the practice, known as last-in, first out, or LIFO.

_ Increase taxes on investment fund managers, mainly hedge funds and private equity firms, raising about $21 billion. Investment managers typically pay capital gains taxes on their fees, with a top rate of 15 percent. Obama wants to tax the fees as regular income, with a top tax rate of 35 percent.

_ Eliminate about $41 billion in tax breaks for oil and natural gas companies. Obama has called for eliminating tax breaks for all oil and gas companies every year since he took office in 2009. The biggest is a deduction for production expenses that is available to all manufacturers. In May, the Senate rejected a smaller proposal that targeted the five biggest companies: Shell Oil Co., ExxonMobil, ConocoPhillips, BP America and Chevron Corp.

___

Associated Press writers Jim Kuhnhenn, Andrew Taylor and Laurie Kellman contributed to this report.

As reported in Huffington Post
WASHINGTON (AP/The Huffington Post) — Efforts to find a bipartisan agreement blending huge budget cuts with a must-pass measure to increase how much the government can borrow have entered a new phase after Republican negotiators pulled out of talks led by Vice President Joe Biden.

The exit of House Majority Leader Eric Cantor from the talks on Thursday means the most difficult decisions have been kicked upstairs to GOP House Speaker John Boehner of Ohio and President Barack Obama. The Biden-led group had made solid progress in weeks of negotiations but was at an impasse over taxes.

Cantor, R-Va., said that the Republican-dominated House simply won’t support tax increases and that it’s time for Obama to weigh in directly because Biden and Democrats were insisting on tax increases. Democrats said it’s only fair to blend in additional revenues from closing tax breaks to balance trillions of dollars in spending cuts.

It had long been assumed that the Biden group would set the stage for more decisive talks involving Obama and Boehner. As a result, Cantor’s move was interpreted as trying to jump-start the talks rather than blow them up – a view shared by Cantor himself.

“The purpose here is to alter the dynamic,” Cantor said.

In fact, Cantor’s withdrawal came after Boehner had already made a trek to the White House – in a secret meeting Wednesday night that followed up on a golf outing over the weekend.

According to The Hill newspaper, Cantor’s walkout had been planned for weeks:

The timing of Cantor’s exit from the talks has been discussed for weeks, and senior House Republicans cast it as a natural progression for the negotiations.

For his part, Cantor didn’t inform Boehner of his decision to leave the talks until Thursday, shortly before the news broke, said a GOP official familiar with the situation. The official required anonymity because of the sensitivity of the information.

The White House sought to put a positive spin on developments.

“As all of us at the table said at the outset, the goal of these talks was to report our findings back to our respective leaders,” Biden said in a statement. “The next phase is in the hands of those leaders, who need to determine the scope of an agreement that can tackle the problem and attract bipartisan support. For now the talks are in abeyance as we await that guidance.”

The Senate’s Republican negotiator, Jon Kyl of Arizona, also exited the talks.

For his part, Cantor said the secretive Biden-led talks had “established a blueprint” for agreement on significant cuts in spending.

One of the byproducts of Cantor’s departure was to provide an opportunity for partisans on all sides to make statements at odds with the positions they may have to take to achieve a deal. Democrats insist that at least some new revenues are needed – both to soften spending cuts and to line up the Democratic votes needed to pass the measure.

“It will take Democratic votes to pass any debt-ceiling agreement,” said Sen. Chuck Schumer, D-N.Y. “As a result, certain things are going to have to be true. We cannot make cuts to Medicare benefits. We have to allow for revenues like wasteful subsidies for ethanol and oil companies. And we have to do something on jobs.”

“President Obama needs to decide between his goal of higher taxes or a bipartisan plan to address our deficit,” said Senate Republican leader Mitch McConnell, R-Ky. “He can’t have both.”

As for Democratic demands for new deficit-financed “jobs” initiatives, McConnell scoffed: “What planet are they on?”

Cantor said that plenty of progress has been made in identifying trillions of dollars in potential spending cuts to accompany legislation to raise the $14.3 trillion cap on the government’s ability to borrow money. Passage of the legislation this summer is necessary to meet the government’s obligations to holders of U.S. Treasurys. The alternative is a market-shaking, first-ever default on U.S. obligations.

Wall Street Journal June 17,2011

By JAMES
A. BAKER III

If the United States does not address its looming debt crisis, the cost of
servicing the national debt will spiral out of control. The annual interest
bill, according to a recent Congressional Budget Office report, will increase
four-fold to $916 billion by 2020. This year, we will spend 70% less on debt
payments than we do on defense. In nine short years, we are expected to spend 8%
more.

Washington so far has been unable or unwilling to make the tough choices
required to put us on the road toward fiscal sanity. And it is unlikely that a
grand bargain will emerge prior to the 2012 election. Nonetheless, our country
can still take three short-term steps to bolster confidence in the bond markets
and prevent a rise in interest rates that will damage our fragile recovery.

Step No. 1 is to raise the debt limit in a way that generates confidence in
the markets. That means including a restraint on spending.

To accomplish this, the debt limit should be increased by an amount
sufficient to service the U.S. debt for six months, provided that the proceeds
from the increase are used to service debt obligations. Doing this would
eliminate the argument that a U.S. default will end Western civilization as we
know it. And we should also increase the debt limit by an additional amount
sufficient to cover the federal government’s anticipated borrowing needs for the
next six months. But we must do so only if the administration and Congress agree
to a cap on total spending that will be enforced by sequestering spending from
specific programs or by cuts across the board—and only if, in addition,
agreed-upon amounts and types of projected spending are eliminated. Special care
here should be taken not to agree to waivers, exceptions or exemptions that
could be used to defeat the purpose of the cap, sequester or across-the-board
cuts.

We’ll have to repeat the process twice a year until a comprehensive budget
fix is reached. The caps should aim at achieving a historical ratio of spending
to GDP of 20.6%. The debt-limit increase should not exceed the six-month period,
because it is only when the debt limit has to be increased that Congress will be
forced to muster the political will to enact enforceable spending restraint.

Of course, the best way to permanently reduce spending would be to enact a
balanced-budget amendment to the Constitution requiring a supermajority in both
houses of Congress to run an annual deficit, raise tax rates, or increase the
debt ceiling. Unfortunately, the chances of enacting such a constitutional
amendment are slim.

Step No. 2 is to take a page from Ronald Reagan’s playbook in 1986 and
restructure our convoluted tax code by reducing loopholes and lowering marginal
rates. Business responded when the Reagan administration and a Democratic House
overhauled the tax system this way. It would respond again today if given the
chance. But, as in 1986, any changes in 2011 must be revenue-neutral so as to
avoid turning the discussions on tax reform into a heated debate over aggregate
levels of taxes and expenditures. Otherwise, with a divided government, the
effort will fail.

Step No. 3 is for Congress and the White House to fully embrace free trade.
With the dollar at low levels, consumers in other countries have an appetite for
products with a “Made in the USA” label. To encourage them, we should give more
than lip service to the currently pending free trade agreements with Colombia,
South Korea and Panama. The White House should stop stalling after two and a
half years of inaction and send them up to Congress for a vote.

In the long run, much more will be needed to correct America’s fiscal woes.
We must solve long-term funding shortfalls in entitlements such as Medicare,
Medicaid and Social Security. And at some point we will have to start thinking
about ways to raise revenue. But as President Reagan taught us, the very best
way to do that is by increasing economic activity with pro-growth economic
policies—lower tax rates, less regulation and more free trade.

With the Federal Reserve ending its purchase of bonds later this month, the
Treasury must rely even more on China, Saudi Arabia, Japan and other countries
to invest in our securities. The cost of these borrowings will ultimately
increase if the U.S. is not seen to be dealing with its fiscal problems. We must
demonstrate to the American people as well as the world that our leaders are
doing so.

Mr. Baker was President Ronald Reagan’s secretary of the Treasury from
1985-88.

As reported in Huffington Post

By Andy Sullivan

WASHINGTON — Negotiators trying to tame the United States’ spiraling debt said on Thursday that they had tentatively agreed on a number of cuts and are now gearing up for tough trade-offs that could lead to trillions of dollars in savings.

“We’ve gone through a first, serious scrub of each of the categories that make up the total federal budget,” Vice President Joe Biden told reporters. “Now we’re getting down to the real hard stuff: I’ll trade you my bicycle for your golf clubs.”

Biden and top Democratic and Republican lawmakers aim to reduce the country’s stubborn budget deficits by $4 trillion over the next 10 years in order to give lawmakers the political cover to raise the $14.3 trillion U.S. debt ceiling to prevent a default.

The agreed-upon cuts will serve as bargaining chips in the coming weeks as the two sides tackle a stark divide over taxes and health benefits, participants said.

“Even stuff we agreed to that we may have refined today is all subject to be reopened if we don’t get agreement on some of the big issues. We’ve got a long way to go here,” said Democratic Representative Chris Van Hollen.

Farm subsidies, federal employee pensions, student loans and the trillion-plus dollars that Congress spends each year on everything from defense to river dredging could come under the knife.

But Republicans have refused to consider increased taxes, while Democrats have resisted wholesale changes to health benefits for the poor and the elderly.

COMPROMISE ON TAXES, HEALTHCARE?

Compromise is not impossible in these areas. Democrats hope to boost tax revenues primarily by ending breaks and closing loopholes, rather than raising rates. Two recent Senate votes have given them heart as Republicans backed closing tax breaks for ethanol providers.

On healthcare, Democrats have blasted a Republican plan that would scale back the Medicare health program for future retirees. But they have proposed less dramatic changes that could still save hundreds of billions of dollars.

Both President Barack Obama and Republicans have proposed significant changes to the Medicaid health program for the poor. Obama has also said he would support limiting medical malpractice lawsuits — a longtime Republican priority.

“I think we really are covering every type of spending program there is,” Representative Eric Cantor, the No. 2 House Republican, told reporters. “We are doing all that we have set out to do.”

The group is stepping up negotiations as it faces a self-imposed deadline of July 1, with longer and more frequent talks set for next week.

The Obama administration has warned that it will run out of money to pay the nation’s bills if Congress does not raise the debt ceiling by August 2 — a prospect that could push the country back into recession and upend financial markets across the globe.

Washington needs to show investors that it can rise above its dysfunctional reputation, Biden said.

“The single most important thing to do for the markets is convince them no, that’s not true, we can handle difficult decisions,” he said.

Republicans want at least $2 trillion in cuts, measured over 10 years, to go along with a similar increase in the debt ceiling to ensure Congress doesn’t have to revisit the politically toxic issue before the November 2012 elections.

The Biden group could claim another $2 billion in savings by mandating automatic cuts or tax increases if Congress doesn’t meet specified deficit targets in coming years.

Budget deficits in recent years have hovered at their highest level relative to the economy since World War Two. The deficit is projected to hit $1.4 trillion in the fiscal year that ends September 30.

(Additional reporting by Richard Cowan; Editing by Eric Walsh)

Written by Tyler Kingkade from Huffington Post

WASHINGTON — House Majority Leader Eric Cantor praised Vice President Joe Biden Monday for his handling of the debt limit talks, a positive sign for those who hope the government will raise its debt limit before financial markets react negatively to the growing potential of a U.S. default.

“I’ve been very impressed with the way he conducts his meetings — he does like to talk,” Rep. Cantor (R-Va.) said in a meeting with reporters. “I guess we all do, otherwise we wouldn’t be here.”

Discussions between Biden, Cantor and other congressional leaders about legislation to increase in the debt ceiling are expected to intensify this week as both the U.S. Treasury’s Aug. 2 default deadline and Congress’ summer recess grow nearer. Three debt talks are planned for this week.

“He has conducted these meetings in a way that has kept the ball rolling, and we are — I believe — beginning to see the essence of convergence on savings beginning to happen,” Cantor said. “Now, a lot of this will be up to where the speaker and the president end up.”

“The role that I play in these discussions,” the minority leader added, is to “define the playing field and to push as far as we can to come together to maximize savings and increase the amount of reform.”

Both sides have already agreed to over a trillion dollars in cuts, Cantor said. For the GOP’s cooperation in the debt ceiling vote, his Party is pushing for spending cuts in excess the $2 trillion it would be raised by.

Cantor said everything is on the table, but not tax increases.

This place does not have a revenue problem, it has a spending problem,” he said, insisting even considering them would be a disincentive to small businesses. “I don’t know whether it’s good, bad, indifferent — it just is what it is.”

Cantor reiterated his caucus’ belief that corporate tax rates ought to be lowered to make the U.S. more competitive, even though the current tax rate is at a historic low as a percentage of the country’s GDP.

Cantor predicted, if Congress simply “checked the box” and raised the debt ceiling without significant cuts accompanying the vote, interest rates would skyrocket and the federal government would be forced to raise taxes.

“No one wants that,” he said. “We’re not going to going along with that outcome.”

No clues were given about where the cuts were going to come from in legislation to raise the debt limit, but Cantor said the focus is on the initial 10-year budget window.

The majority leader declined to provide a target date to have the debt ceiling increase bill written, other than saying he did not want it to get the point where a negative reaction from the stock market forces Congress to raise it.

Treasury Secretary Timothy Geithner wrote to Congress in May, warning that the country is projected to begin defaulting on debts come Aug. 2, 2011. However, Geithner said that is no reason to wait to vote to increase the debt limit.

“While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action,” Geithner wrote. “The economy is still in the early stages of recovery, and financial markets here and around the world are watching the United States closely. Delaying action risks a loss of confidence and accompanying negative economic effects.”

The bipartisan Simpson-Bowles fiscal commission previously recommending various tax increases and reforms that Republicans are now opposing. Senior economic advisers to Ronald Reagan have also said tax increases will be needed in some sort to reduce the national debt.

Bruce Bartlett, who was a policy adviser in the Bush Treasury, told The Huffington Post recently that a trillion dollars has been “left on the table” due to the historically low tax levels. Another senior Republican economic adviser, Joel Slemrod, also said a return to Clinton-era tax rates would not necessarily harm the economy, although under current conditions it could be risky.

The original request to raise the debt limit by $2.4 trillion would be projected to last until the end of 2012, past the next elections. An ABC News/Washington Post poll found last week that a slim majority of Americans favor an increase, so long as it’s accompanied by spending cuts.