Entries Tagged as 'Gang of Six'

Jim DeMint’s Nation-Wrecking Fantasy

David Frum July 21st, 2011 at 2:35 pm 38 Comments

NRO has a report on the Republican members of Congress willing to force default in order to get a Senate vote on the Balanced Budget Amendment.

In the Senate, DeMint is also counting noses, hoping to stir an eleventh-hour movement. Conservative voters, he says, will lose faith in the party if it backs the “Gang” plan and does not fight for a balanced-budget amendment. “Frankly, I believe if we had 41 Republicans who were willing to go past August 2, these things would happen in a hurry,” he says. “I don’t know that we do, but that is the kind of approach we need, and the approach we should have had all along.”

DeMint, who is working closely with Sen. Rand Paul (R., Ky.) and Sen. Mike Lee (R., Utah), sees hope for a last-minute standoff, even as many of his GOP colleagues flock to the “Gang,” which is led by Sen. Tom Coburn (R., Okla.), a respected fiscal hawk. So far, he can count two established Senate dealmakers, Lindsey Graham (R., S.C.) and Orrin Hatch (R., Utah), as allies.

Graham, for instance, attended a closed-door confab with DeMint and conservative activists on Tuesday, urging the various groups to push Republicans to hold. He told the audience that if Republicans did not battle for a balanced-budget amendment in the summer heat, the chances for its passage would quickly wilt. Waiting until August 3, he argued, would give the GOP sufficient leverage.

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Just Lift the Debt Ceiling!

David Frum July 21st, 2011 at 10:44 am 27 Comments

Larry Kudlow and The New Republic like the Gang of Six plan. Keith Hennessey does not

Obviously some people here are kidding themselves. And isn’t that just inevitable when plans are being cobbled together by weary legislators working long hours in a summer heatwave? It’s only asking for trouble to make long-term fiscal policy in this slapdash way, with the threat of fiscal armageddon overhanging us all.

We have budget processes for a reason. We don’t threaten defaults also for a reason. Can’t we all have a cold glass of water, recover perspective, and retrace our steps so as to avoid either triggering a catastrophe or else committing ourselves to long-term frameworks full of details few understand or appreciate.

I know this won’t happen, but how about this alternative:

Lift the damn debt ceiling now. Period.

Then resume the budget process in the full light of public scrutiny, with an aim to restraining future government spending, holding the line on taxes, and reducing budget deficits as the economy returns to health. The House has passed a budget. Let Senate do the same. Go to reconciliation. Do normal politics. No more of the fiscal equivalent of live-fire exercises with nuclear weapons.

Coburn Pulls the Plug on Senate Deficit Deal

May 18th, 2011 at 11:35 pm 19 Comments

As he looked down the dugout at his inept Mets, Manager Casey Stengel famously asked, “Can’t anybody around here play baseball?”  The American people have a right to look at Congress, especially the Senate, and ask, “Hey can’t anybody around here legislate?”

Sen. Tom Coburn’s decision to formally remove himself from the Gang of Six bi-partisan talks in the Senate reveals a growing crack in the attempts to reach agreement on the Fiscal Year 2012 budget, and on the extension of the federal debt ceiling,.  Coburn was part of the last remaining barrier to fiscal breakdown.

Coburn is a serious person who rarely does things to make a point or publicly postures.  His departure, based as he said on a fundamental gridlock over entitlement reforms, strengthens those who believe that no significant fiscal deal can be reached this year.  If the pessimists/realists are right, then we can almost play out in advance what the year will look like:

  • some sort of deal on minor spending cuts in discretionary (appropriated) accounts will be reached;
  • a process reform measure will help pass an increase for a short period of time in the debt ceiling;
  • for the second year in a row no Congressional Budget Resolution will exist;
  • most, if not all, of the FY12 appropriations bills will once again be wrapped into a Continuing Resolution;
  • and, the two sides will be able to fight on the FY12 levels of that CR, just as they did on the FY11 CR.

Coburn’s decision is subject of course to re-consideration if the other members of the Gang of Six move toward real entitlement reform.  But, those who said the Gang of Six initiative was doomed from the start may be right.  The open opposition of the Senate Majority Leader Harry Reid and Democratic Senatorial Campaign Committee Chairman Chuck Schumer made success for the Gang of Six problematic.  Reid opposes revealing any budget plan right now, saying that negotiations conducted under the leadership of Vice President Joe Biden should be the arena in which a plan is devised.

On the House side, House Budget Committee Chairman Paul Ryan has drawn criticism for his budget plan for FY12, which passed the House earlier this year.  Some in his own caucus now say that he tried to do too much and that the Medicare reform provisions in his budget may defeat many Republicans who voted for it.

Such critics are wrong.  Ryan has had a plan similar to that which he used as his budget resolution for more than two years.  No one can claim they didn’t know what was in it.  No one can say that Ryan “hid the ball.”  Almost above all other Members of the House, Ryan has been completely transparent about his views on the budget.

If House Republicans are smart, they will do exactly as Speaker John Boehner has done—stick with the Ryan Plan, go back to individual districts, sell it, and not back down.  The “terrible” vote has been taken.  If Republicans who voted for Ryan try to back off now, they not only will be unsuccessful in doing so, but they will be regarded as weak by many of their conservative supporters back home.

The polls on Medicare reform are mixed.  In some districts and states, Medicare reform will never get a majority.  But in many other districts and states, Medicare reform can garner a majority, if the proponents of reform don’t back down. President Obama himself has called for entitlement reform, including Medicare.  In short, he agrees with Ryan and the Republicans that Medicare as it now exists is unsustainable.  A deal on Medicare with the President seems achievable.  What Republicans need to do is take a deep breath, talk continuously to their constituents, and do what leaders are supposed to do—educate and legislate.


Debt Talks Stall Before They Even Start

May 4th, 2011 at 3:26 pm 10 Comments

The death of Osama bin Laden dominates media, as it should.

Yet, in the shadow of that dramatic story lies the continuing federal fiscal tar pit.

Events this week already call into question assumptions held since the beginning of the year:

  • Will the Gang of Six in the Senate produce a comprehensive, unified debt reduction plan?
  • Will the Senate Budget Committee be able to produce a budget resolution for FY 2012?
  • If both the committee and the Gang of Six fail, where does that leave the debt ceiling increase?
  • Will the voices of those outside and inside Congress calling for rejecting the debt ceiling increase lose strength and votes as Members learn more about the risks of rejection?

Most analysts confidently predicted that the Gang of Six would succeed in producing a bipartisan plan; that the Budget Committee would produce a budget for FY 12 based in large part on that Gang of Six plan; that failure was not an option; and that as members learned more about the dangers of playing politics with the debt ceiling increase, they would become more responsible in their statements and more flexible in their stances.

Events seem to reveal a slow deterioration in the debate.

Tuesday, Chairman Kent Conrad revealed to his Democratic colleagues in the Senate his own plan for an FY12 budget.  While the Chairman insisted that the Gang of Six could still produce its own initiative, he wanted to have a separate plan if the Gang of Six failed.  Conrad’s plan varies dramatically from the budget passed by the House earlier this year, but nevertheless Senate Majority Leader Harry Reid advised the caucus not to endorse the Conrad budget because a great deal of negotiations lie ahead.

With a Gang of Six proposal, and without the active endorsement of the Majority Leader, it is hard to envision Chairman Conrad getting an FY12 budget passed through his committee anytime soon.

At the same time, The Weekly Standard‘s editor, Bill Kristol, relates a conversation he had with former Treasury Secretary James Baker.  Kristol writes that Baker urged Congress not to pass a debt ceiling increase without a specific, multi-year deficit reduction plan in place.

Separately, a former Treasury official, Emil Henry, has written in The Wall Street Journal claiming that a debt ceiling increase really isn’t necessary and that markets will react benignly if the government merely pays the interest and principal on debt as it matures, even if it means that other government operations would close down as a result.

Meanwhile, tomorrow discussions on the debt ceiling and fiscal policy will begin at Blair House, under the leadership of Vice-President Joe Biden.  No one knows how much impact the Biden initiative will have, but the meeting will begin with several members absent–not an auspicious start.

Far from clarifying the fiscal debate, the two-week Easter Recess seems to have had almost no impact.  Republicans returned to the House, saying that pro-Medicare and pro-Social Security protesters at town hall meetings were simply union members organized for the purpose of disruption.

Gas at $4 a gallon, unemployment, still dropping housing prices and increasing foreclosures, and painful unemployment remained the focus of the folks back home.

In essence, then, the decision has been made.

May 16 will come and go, Treasury Secretary Tim Geithner will resort to various tricks to keep the nation’s finances in order until sometime in August, and Congress will continue to bicker.  America won’t default on its debt through some series of tactics.

Meanwhile, world markets will wonder at the combination of silliness and recklessness that characterizes Washington, D.C.,’s debate on a fundamental aspect of governance.

As a political matter, one constant remains:  the House of Representatives has to pass a debt ceiling increase.  President Obama doesn’t have to pass the bill.  Failure will be laid not at the President’s door, but at the door of the ideologues in both parties who dominate the behavior of Congress.

It’s sad that of the few tasks the Constitution reserves to the Legislative Branch, Congress finds itself unable to do one of the most basic ones: establishing a rational level of spending and taxing.


How Norquist’s Pledge Blocks Real Deficit Cuts

David Frum April 25th, 2011 at 10:39 am 36 Comments

Eli Lehrer has an incisive piece on this page about Tom Coburn’s “Gang of Six” tax proposals. I believe however that the proposals deserve a warmer endorsement than Eli offers.

An important cause of America’s long-term debt problem is the intellectual cul-de-sac into which Republicans have driven themselves. Republicans have accepted a total ban on any kind of tax increase as party orthodoxy. And they have submitted to the authority of Grover Norquist of Americans for Tax Reform to determine what constitutes a “tax increase.”

Norquist takes the view that any action that increases the revenue column of the federal government must be deemed a tax increase – and that such increases are only permissible if they are offset by an equivalent cut to the spending column.

The trouble is that a lot of federal spending – especially the spending done by Republicans – takes the form of tax remission.

The federal government offers a tax credit of up to $9,500 for the purchase of plug-in electric cars. How exactly is that different from writing a check to every plug-in buyer? Yet canceling this program would count as a tax increase under Grover Norquist’s test.

Adopt a child and you can qualify for a tax credit of up to $13,100. You can even get credit for the cost of meals and lodging while traveling in a foreign country to receive the child. You can say a lot of things about this measure. But is it a “tax cut”? Hardly.

Enrolled in college or university? You can deduct up to $4,000 of qualified tuition expenses.

Over 65? Or disabled? Adjusted gross taxable income of less than $17,500? Tax credit for you.

And so on. The point is not that these tax expenditures are all necessarily ill-advised. (It’s genuinely more expensive to be disabled, and public money to help the disabled cope with the costs imposed on them by nature or accident seems a reasonable response by a civilized society.) The point is: they are expenditures, disguised as tax cuts.

This point – so obvious with the smaller tax expenditures – is true also of many of the larger tax expenditures, even if familiarity blinds us to the fact. Mortgage interest deductibility and the tax exclusion of employer-provided fringe benefits: these are subsidies too, no less subsidies for being widely rather than narrowly used.

Yet on the Norquist system and by the Norquist rule, the US cannot address these subsidies contained in the tax code unless and until they are simultaneously matched exactly with other subsidies and benefits that happened to have been framed as outlays. Economically, the rule makes little sense. Politically, it has the job of making deficit reduction twice as difficult as it needs to be. With consequences that …. well let’s leave that for a second post.


Coburn’s Reforms: Brave but Insufficient

April 25th, 2011 at 12:45 am 10 Comments

Tom Coburn, hardly a moderate or a shrinking violet by any measure, has effectively “unsigned” Grover Norquist’s pledge not to raise taxes. Coburn’s both right (some taxes may have to go up) and truly courageous (he’s a living example of why tax hikes don’t work). After all, insisting that eliminating any narrow revenue expenditure amounts to a tax hike could make it impossible to reach any sort of agreement on a balanced budget or true reforms to entitlements. That said, two of the details of the Senate Gang of Six Plan that Coburn and others have hinted at — an avoidance of “middle class tax hikes” and efforts to close “offshore tax loopholes” — aren’t very promising.

Middle class taxes first.  While raising marginal rates on existing middle class taxpayers isn’t a good idea, there’s a good case for at least some of the “base broadening” that was the key of Ronald Reagan’s 1986 tax reform. Right now, about 50 percent of the population pays no federal income tax at all. While tax-free status is appropriate for the bottom 20 percent or so of income distribution — many of whom get the Earned Income Tax Credit — it’s problematic to have removed so many people from the tax rolls altogether. Doing so gives people no stake in the country or responsibility for government services. Even in the context of a revenue neutral tax reform, it might well make sense to hike marginal rates (at least) for some people in the middle.

The idea of closing “offshore tax loopholes” sounds attractive but in fact, isn’t really possible, desirable, or likely to be a sizeable source of revenue. First, the United States’ tax system, alone among the G-8’s, insists on worldwide taxation of income. This results in far fewer “loopholes” than any other big country’s tax system and puts American companies and expatriates at a disadvantage in international business. Some efforts to close so-called “loopholes” (such as the one on offshore reinsurance) would actually amount to tariffs that would likely result in retaliatory trade sanctions. Second, many “loopholes” exist simply because American statutory tax rates are higher than those in other countries. International tax competition keeps U.S. authorities and politicians honest. Finally, like anyone with a lot of money, most big companies–particularly those that sell “weightless” but important products like financial instruments and computer software — will be able to figure out ways to “manage down” any new tax liability imposed on them. The result of tax barriers won’t be to punish the big boys but, much more likely, to stop smaller, nimbler competitors from taking market-share. Either way, revenues from any offshore-related tax hikes are likely to disappoint.

Coburn and his colleagues are showing a good deal of courage by putting taxes on the table. But the handful of specifics they’ve offered so far aren’t very promising.