By ALAN FRAM
Associated Press
WASHINGTON (AP) - President
Barack Obama and leaders of the lame-duck Congress may be just weeks
away from shaking hands on a deal to avert the dreaded "fiscal cliff."
So it's natural to wonder: If they announce a bipartisan package
promising to curb mushrooming federal deficits, will it be real?
Both sides have struck
cooperative tones since Obama's re-election. Even so, he and House
Speaker John Boehner, R-Ohio, the GOP's pivotal bargainer, have spent
most of the past two years in an acrid political climate in which both
sides have fought stubbornly to protect their constituencies.
Obama and top lawmakers
could produce an agreement that takes a serious bite out of the
government's growing $16 trillion pile of debt and puts it on a true
downward trajectory.
Or they might reach an
accord heading off massive tax increases and spending cuts that begin to
bite in January - that's the fiscal cliff - while appearing to be
getting tough on deficits through painful savings deferred until years
from now, when their successors might revoke or dilute them.
Historically, Congress and
presidents have proven themselves capable of either. So before
bargainers concoct a product, and assuming they can, here's a checklist
of how to assess their work:
OVERALL DEFICIT CUTS
The House and Senate have
four weeks until Christmas. Their leaders and the president want a deal
before then. Bargainers are shooting for a framework setting future
debt-reduction targets, with detailed tax and spending changes to be
approved next year but possibly some initial savings enacted
immediately.
Obama has suggested 10-year savings totaling around $4.4 trillion.
Passing a framework next
month that sets deficit-cutting targets for each of the next 10 years
would be seen as a sign of seriousness. But look for specifics. An
agreement will have a greater chance of actually reducing deficits if it
details how the savings would be divided between revenue increases and
cuts in federal programs, averting future fights among lawmakers over
that question.
Better yet would be
including a fast-track process for passing next year's tax and spending
bills if they meet the savings targets so they can whisk through
Congress without the possibility of a Senate filibuster, in which 41 of
the 100 senators could kill a measure they dislike.
Another sign of sincerity:
An enforcement mechanism that imposes savings automatically if lawmakers
gridlock over details. Legislators' efforts now to avert January's
combination of automatic tax boosts and spending cuts underscores the
effectiveness of forcing them to act.
Less impressive would be
verbal pledges by the White House and congressional leaders to meet
deficit-cutting goals without passing legislation inscribing the figures
into law.
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TAXES
A deal that specifies where
revenue would come from would lay important groundwork for next year's
follow-up bill enacting actual changes in tax laws.
The biggest clash has been
over whether to raise income tax rates on earnings over $200,000
annually for individuals, $250,000 for families. Obama wants to let them
rise next year to a top rate of 39.6 percent but has suggested he would
compromise. Boehner and other Republicans oppose any increase above
today's top marginal rate of 35 percent. Instead, they advocate lower
rates and eliminating or reducing unspecified deductions and tax
credits. Settling that would resolve the toughest impediment to a deal.
Raising money from higher
rates, closing loopholes or a combination of the two would create real
revenue for the government. The problem is many tax deductions and
credits , such as for home mortgages and the value of employer-provided
health insurance, are so popular that enacting them into law over
objections from the public and lobbyists would be extremely difficult.
With the price tags of tax
and spending laws typically measured over a decade, delaying the
implementation date can distort the projected impact of a change on
people and the government's debt.
Tax cuts written to expire
in a certain year can put future lawmakers under political pressure to
extend it. That is what Obama and Congress face today with the January
expiration of tax cuts, including many enacted a decade ago under
President George W. Bush.
Even more questionable are
assumptions that overhauling tax laws will boost economic activity and
thus produce large new revenues for the government. Many Republicans and
ideologically conservative economists contend that's the case, but most
economists say there is no sound way to estimate how much revenue can
be generated from strengthening the economy by revamping the tax system.
Many believe the amount is modest.
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SPENDING
A serious agreement should
specify how much savings would come from entitlements, meaning those
big, costly benefit programs such as Social Security and Medicare. It
also should say how much would come from discretionary spending, which
covers federal agency budgets for everything from the military and
national parks to food safety inspections and weather forecasts.
Why the need for specificity?
Because spending for
entitlements occurs automatically, accounts for nearly two-thirds of
federal spending and is the fastest growing part of the budget.
Discretionary spending has been shackled by past budget deals and,
according to the nonpartisan Congressional Budget Office, is moving
toward falling below 6 percent the size of the economy by 2022, the
lowest level in at least 50 years.
A sincere effort to control
expenditures would focus on entitlements, the true source of the
government's spending problem. An agreement that envisions deep
discretionary cuts risks a reliance on savings that future lawmakers
could find unbearable and rescind.
Savings that come from
weeding out waste, fraud and abuse, which sounds good but are difficult
to find, or rely on one-time sales of federal assets should be treated
with suspicion.
Deep cuts that take effect
in the future, say after Obama leaves office in 2017, might be better
than imposing them now and hurting an already weak economy by reducing
spending.
But delayed cuts also open
the door for Obama's successors and future Congresses to roll them back.
In 1997, Congress voted for cuts in Medicare reimbursements to doctors;
those cuts have grown so large that lawmakers now vote annually to
restore the money.
Postponing the
implementation of spending increases already scheduled to take effect,
such as federal health insurance subsidies under Obama's health care
overhaul, saves money upfront but makes no permanent changes that would
ease future spending pressures.
Another debatable source of
deficit reduction would be the hundreds of billions of dollars the
Obama administration says the government is saving by winding down wars
in Iraq and Afghanistan. While there is no question those expenditures
are dropping, the government has run huge deficits while those wars were
waged, so there's no money being left unspent as those wars end.
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2012 The Associated Press. All rights reserved. This material may not
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