Kokomo Tribune; Kokomo, Indiana

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March 1, 2013

Odds against him, Obama still betting on big deal

WASHINGTON (AP) — A fiscal deadline all but blown, President Barack Obama says he once again wants to seek a big fiscal deal that would raise taxes and trim billions from expensive and ever growing entitlement programs. But with automatic federal spending cuts ready to start taking their toll, the path toward that grand bargain Obama campaigned on last year has significantly narrowed.

The president has summoned the top bipartisan congressional leadership to the White House, a meeting designed to give all sides a chance to stake out their fiscal positions with a new threat of a government shutdown less than four weeks away. There were no expectations of a breakthrough.

"I'm happy to discuss other ideas to keep our commitment to reducing Washington spending at today's meeting," Senate Minority Leader Mitch McConnell, R-Ky., said in a statement Friday morning. "But there will be no last-minute, back-room deal and absolutely no agreement to increase taxes."

For Obama, Friday's session would be his first opportunity to spell out his 10-year, $1.5 trillion deficit reduction plan in a face-to-face meeting with congressional allies and adversaries.

His chances are squeezed by anti-tax conservatives, by liberals unwilling to cut into Medicare and Social Security, and by a Republican leadership that has dug in against any new revenue after ceding to Obama's demands two months ago for a higher tax rate for top income earners.

On Thursday, two ill-fated proposals aimed at blunting the blame over the cuts — one Democratic and the other Republican — failed to overcome procedural hurdles in the Senate. Obama placed the responsibility on Republicans.

"They voted to let the entire burden of deficit reduction fall squarely on the middle class," he said.

The White House is still betting that once the public begins to experience the effects of the $85 billion in across-the-board cuts the pain will be unbearable enough to force lawmakers to reconsider and negotiate. But the consequences of the cuts —the so called sequester — will likely be a slow boil. Obama this week said the effect "is not a cliff, but it is a tumble downward."

Indeed, much of the impact won't be felt for weeks or more than a month; others, like possible teacher layoffs, wouldn't take place until the new school year in the fall.

And yet, the next likely showdown — the expiration of a six-month spending bill on March 27, with its built-in threat of a government shutdown — will loom before that, meaning that the leverage the White House would hope to have won't materialize until late.

Polls also show that the public is not as engaged in this showdown as it has been in past fiscal confrontations and an NBC-Wall Street Journal Post survey indicates that Obama has lost some ground with the public in his handling of the economy.

Still, White House officials also say they believe Republicans will once again give way to additional tax revenue in part to avoid drastic cuts and in part to win reductions in Medicare and Social Security spending from Obama that they have been unable to get from Democrats before.

"I am prepared to make some tough decisions, some of which will garner some significant frustration on the part of members of my party, but I think it's the right thing to do," Obama told top business executives this week.

Given Washington's entrenched partisanship, Obama's effort could be dismissed as either another failed attempt at negotiations or as simply an effort to lay blame on Republicans for blocking compromise.

The odds aren't with the president.

Many conservatives are willing to accept the automatic cuts as the only way to reduce government spending, even though the budget knife cuts into cherished defense programs. Likewise, many liberals are beginning to embrace the cuts as a way to protect revered big benefit programs that have long been identified with the Democratic Party.

Moreover, many programs for low-income Americans are protected from the immediate cuts while the Pentagon — whose budget has long been a target of the left — faces across the board cuts of 8 percent and up to 13 percent in some of its accounts.

More than 20 Democrats in Congress, including veteran Rep. Ed Markey, a candidates for the Senate from Massachusetts, have signed a letter pledging not to cut Medicare, Medicaid or Social Security benefits in efforts to reduce the deficit.

Obama's plan calls for $580 billion in new revenue over 10 years by limiting the value of itemized deductions and certain tax exclusions to no more than 28 percent. That means taxpayers with a tax rate greater than 28 percent would face a tax increase.

While Obama also regularly talks about closing loopholes to gain more revenue, his tax plan would close many corporate loopholes to lower corporate tax rates, not to generate more revenue. He aims to drop corporate tax rates from 35 percent to 28 percent for most corporations and down to 25 percent for manufacturers.

In exchange for new tax revenue and a tax overhaul, Obama has offered to reduce spending in health care programs such as Medicare by $400 billion over 10 years, change an inflation formula for government benefits that would result in lower cost-of-living adjustments for Social Security and other programs, and reduce other spending for total reductions of $900 billion over 10 years.

Those cuts, together with about $2.5 trillion in deficit reduction already achieved over the last two years through spending cuts and a year-end tax increase on taxpayers making more than $400,000 would achieve a $4 trillion deficit reduction target.

 

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