Saving the American Dream: The Fiscal Cliff and Beyond

Abstract: Unless Congress and the President act promptly and wisely, sequestration under the Budget Control Act (BCA) will undermine military readiness, and the nearly $500 billion tax increase starting on January 1, 2013, will greatly harm an already weak economy. However, this fiscal cliff can be avoided. The key to avoiding this and future fiscal calamities is reform of the mandatory spending programs, from welfare to Social Security, that currently drive federal deficits. The Heritage Foundation’s Saving the American Dream plan would rein in spending immediately, restructure the major entitlement programs to bring entitlement spending under control over the long term, and strengthen the core foundations of these programs.

Since the Heritage Foundation’s Saving the American Dream plan[1] was first published in April 2011, there has been almost no substantive progress on spending control. The only plausible exception was the flawed Budget Control Act (BCA), a product of a contentious debt limit debate. The complete failure of the resultant bipartisan “supercommittee” to reach agreement was a sad reflection on a Congress that is divided and unwilling to pass the legislation necessary to rein in spending.

As a result, the nation is facing the looming sequester, which will further undermine the defense budget, jeopardizing one of the federal government’s core constitutional responsibilities. Yet it would leave entitlement programs virtually untouched, even though they are the largest driver of spending today and in the future. Meanwhile, the prospect of a huge tax increase in January has had a deleterious effect on the economy for many months, although the effect is only a small portion of the harm the economy will incur if the tax increase ultimately takes effect. America seriously needs a true way forward.

The Heritage plan reflects the need to rein in spending immediately and to rethink major programs. Spending on the open-ended Social Security, Medicare, and Medicaid entitlements must be brought under control, and the core foundations of these programs should be strengthened.

The following principles guide the policy solutions in Saving the American Dream:

Total spending must be brought under control to balance the budget without raising taxes, ultimately holding revenues at their historical share of gross domestic product (GDP). Entitlement programs should, unlike today, actually guarantee seniors economic security in retirement and be recast as real and sustainable insurance programs focused on those who truly need them. Other spending must be curbed, and the federal government must be restricted to its proper functions. Defense, as a core constitutional function of the federal government, should be fully funded and efficiently delivered. The tax system should be structurally reformed to foster growth by eliminating tax distortions of private economic decisions, especially decisions on savings and investment, and to make the system simpler and more transparent.

Fiscal year (FY) 2012 closed on September 30 with the Congressional Budget Office (CBO) estimating spending of $3.5 trillion and a deficit of $1.1 trillion.[2] Debt held by the public was $11.3 trillion (73 percent of GDP). According to the CBO, debt will explode to 199 percent of GDP by 2037, driven by growth in spending that will reach 36 percent of GDP.[3]

The main drivers of spending and debt increases are incontrovertibly the major entitlement programs: Social Security, Medicare, and Medicaid. However, the slow economy with its high unemployment rate, which remains stuck at around 8 percent, also adds to deficits and debt through two channels: mandatory spending for those workers who are most affected by the slow economy (e.g., unemployment compensation) and below-average tax revenues.

It is clear that the top priorities for Congress and the President should be controlling spending, especially entitlement reform, and setting an economic growth agenda through tax reform. After averting the fiscal cliff, Congress and the President should immediately turn their attention to these pressing issues.

As noted, entitlements are the fastest-growing programs. Even if all other spending was eliminated, these programs would still cause large and unsustainable deficits in the future. Their growth is automatic, with autopilot spending increases built in and no serious budgetary constraints. The top priority must be to restructure entitlements and put a brake on their spending levels while strengthening and preserving them for future generations.

A number of robust proposals for health care reforms already exist, both in Congress and in the policy community.[4] Congress and the President should take advantage of this policy momentum and focus on reforming Medicaid and especially Medicare. However, changes in Social Security should follow quickly, and the rules that govern these programs in general should be more consistent. For example, increases in the normal eligibility age should proceed simultaneously for both Social Security and Medicare.

Specific steps for Congress and the President include the following:

The President should submit a budget by the 2013 tax deadline deadline that outlines strong, sweeping changes in entitlement programs that will reduce spending over the 10-year budget window and significantly improve the long-term trajectory of these programs. The President’s budget should lay out specific goals for a pro-growth, revenue-neutral tax reform plan. Congress and the President should include reforms in entitlement programs and further reductions in other spending areas, including the Patient Protection and Affordable Care Act (Obamacare), in exchange for any increases in the debt limit. These should reflect lessons learned from the 2011 Budget Control Act, such as avoiding high-stakes mechanisms like sequestration that are designed to fail. Congress should pass a joint budget resolution by the April 15, 2013, deadline that includes reconciliation instructions for entitlement and tax reform. The budget resolution should also require reforms of other spending programs to bring spending below the BCA levels for 2014 and beyond.

If only one issue is thoroughly addressed in 2013, it should be the federal role in health care, the biggest driver of spending. The flawed Obamacare law only adds to the problem. Instead of expanding the government’s role, health care should follow a true patient-centered, market-based model, including reforms in Medicare, Medicaid, and the tax treatment of health insurance.

Medicare. Medicare’s finances must be brought under control. As a first step, the age of eligibility should be raised gradually from 65 to 68 and then indexed to life expectancy. Premiums for Parts B and D should also gradually increase, thus expanding the current policy for Medicare of adjusting the level of taxpayer subsidies to income, with the most affluent seniors receiving much smaller (or in some cases no) taxpayer subsidies for their health coverage. These steps, among others,[5] should occur immediately because they are easily achieved and less controversial and should be part of new debt-limit legislation.

Within five years of these initial changes, patients should also be transitioned to a defined-contribution or premium-support model that would be adjusted for income. Expanding competition in Medicare would restrain federal spending, slow health care costs, and promote greater innovation in the delivery of care.[6]

Medicaid. Federal spending on Medicaid should be put on a budget subject to regular congressional review to bring greater fiscal certainty and stability to the process. Federal Medicaid spending would follow antipoverty spending caps by reverting to the 2007 spending levels when the economy approaches full employment (e.g., the unemployment rate dips below 6 percent) and be adjusted for medical inflation thereafter.

In lieu of traditional Medicaid, able-bodied individuals and families should receive direct federal assistance in the form of tax credits or direct assistance to enable them to buy private insurance coverage of their choice. For the disabled and frail elderly, Medicaid would remain a joint federal–state safety net program, but states would have additional flexibility to adopt more patient-centered models.

Reform of the Tax Treatment of Health Insurance. As a part of tax reform (see below), the employee tax break for employer-sponsored coverage would be converted to a non-refundable tax credit that individuals and families could use to purchase the health plan of their choice.

These larger reforms are best achieved through normal legislative order. This could include the legitimate use of reconciliation as part of a comprehensive budget plan. In any case, Congress should pass a concurrent budget resolution for FY 2014.

Social Security needs to be reformed. It is running permanent cash-flow deficits and has severe programmatic flaws.[7]

First, Social Security’s eligibility age should gradually be increased in tandem with Medicare’s eligibility age. For both, this change is straightforward and could be included in an initial, small reform package. Next, Social Security should return to its original purpose of guaranteeing that all Americans are protected from poverty in retirement. As part of this insurance protection, benefits would evolve to an understandable, predictable flat benefit that is well above the poverty level. With Social Security functioning as an insurance program, moderate-income retirees would receive a smaller check, while affluent seniors would receive no check unless their financial circumstances change.

To encourage people to stay in the workforce longer, those who work beyond full retirement age would receive a higher level of after-tax income until they do retire.

Tax reform would support Social Security reforms by significantly increasing personal savings that seniors can take into retirement, and there would be no limit on the amount of these tax-deferred savings. Thus, more retirement income would be possible than under the current system. Social Security would become a safety valve against economic reversals and a floor for income after the statutory retirement age.

Defense cuts are already reducing military readiness, thus endangering the security of the United States. The defense portion of the BCA cuts is dangerously flawed and must be reversed. In Saving the American Dream, the sequester for defense spending (including the 2013 cuts) is eliminated, and the higher spending is more than offset with reforms in other spending and entitlements. Defense spending is brought slowly up to and held at 4 percent of GDP. Non-defense discretionary spending is set for 2013 at the BCA sequester level and then reduced to 2 percent of GDP, after which it is indexed to inflation.

Spending in 2014 and beyond should include reforms in long-standing but growing and expensive programs such as farm subsidies and transportation. A program of privatization, including federal asset sales, could begin as early as 2015. Anti-poverty spending should be rolled back and capped when the economy approaches full employment and then consolidated into fewer programs that reflect strong incentives for work and marriage.

Tax Reform. The economy remains plagued by the uncertainty of expiring tax policy and an unwieldy and inefficient tax code. Beyond preventing Taxmageddon by extending all current tax policy and delaying the Obamacare tax increases before January 1, 2013, Congress should pass broad substantive tax reform consistent with the New Flat Tax in Saving the American Dream. Tax reform should focus on promoting economic growth by reducing both tax rates and tax distortions while maintaining revenue and distributional neutrality. It should also simplify the tax system and improve its transparency so that taxpayers can better understand the influence of tax policy as well as the true cost of government.[8]

The broad direction for tax reform already in play, especially the bipartisan push for lower corporate income tax rates, is fully consistent with the New Flat Tax. Congress will likely find the goal of lower corporate tax rates quickly running up against the consequent need to lower tax rates for non-corporate businesses. This occurs naturally under the New Flat Tax, which taxes all businesses at a single rate on their domestic net cash flow at the entity level. Likewise, the growing support for a territorial tax system—under which U.S. businesses are taxed solely on their domestic income—is also fully consistent with the New Flat Tax, which levies tax solely on domestic income.

Under the New Flat Tax, the individual income tax and the payroll tax are rolled into one system with the same tax rate that is imposed on business income. Nearly all other federal levies are repealed, leaving a simple system for both individuals and businesses. Under the New Flat Tax as it applies to individuals, only income used for consumption is taxed, thus eliminating the existing tax bias against saving. In addition, all distorting credits, exemptions, and deductions are eliminated, leaving only two credits and three deductions.

The first credit is the above-mentioned tax credit for health insurance. This tax credit is less distortive of economic decisions than current law is, but it remains a clear subsidy for the purchase of health insurance. It is necessary because the current-law tax bias favoring health insurance is so powerful and so entrenched that simply eliminating the tax advantage is impracticable.

The second credit carried over from current law is the earned income credit (EIC). The EIC needs reform in its own right, but it is also the largest income-support component of the overall federal anti-poverty program and one of its most effective elements. Changes in the EIC should then be considered part of the proposed budget for anti-poverty programs.

The three deductions are as follows:

The deduction for charitable expense, which is retained because this tax system taxes the individual on what he or she spends. Charitable contributions benefit the receiving organization and thus should be deductible for the recipient. A deduction for higher education, which recognizes that education expenses are a form of saving and investing simultaneously, which in every other instance is excluded from tax under the New Flat Tax. An optional home mortgage deduction with the proviso that if the homeowner chooses a mortgage with deductible interest, then the lender must, as under current law, continue to pay tax on interest income earned. Alternatively, the home owner may choose to forgo the deduction, in which case the lender earns tax-free interest income and can thus charge a lower mortgage interest rate.

The New Flat Tax, the tax reform plan, is implemented effective January 1, 2014.

Addressing the Fiscal Cliff

Table 1 addresses each element of the fiscal cliff and the proposed steps that Congress should take on each of them.

—Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies, William W. Beach is Director of the Center for Data Analysis and Lazof Family Fellow in Economics, and Stuart M. Butler, PhD, is Director of the Center for Policy Innovation at The Heritage Foundation.

The editors are grateful to the team leaders who worked with policy experts throughout The Heritage Foundation to develop this report: J. D. Foster, Ph.D., Norman B. Ture Senior Fellow in the Economics of Fiscal Policy; Rea S. Hederman, Jr., Assistant Director and Research Fellow in the Center for Data Analysis; David C. John, Senior Research Fellow in Retirement Security and Financial Institutions; Robert E. Moffit, Ph.D., Senior Fellow in the Center for Policy Innovation; Nina Owcharenko, Director of the Center for Health Policy Studies; and Drew Gonshorowski, Policy Analyst in the Center for Data Analysis.

This plan was developed as part of the Solutions Initiative and funded by the Peter G. Peterson Foundation. The Peterson Foundation convened organizations with a variety of perspectives to develop plans addressing our nation’s fiscal challenges. The American Action Forum, Bipartisan Policy Center, Center for American Progress, Economic Policy Institute, and The Heritage Foundation, each received grants. All organizations had discretion and independence to develop their own goals and propose comprehensive solutions. The Peterson Foundation’s involvement with this project does not represent endorsement of any plan.

View the original article here

Saving the American Dream: The Fiscal Cliff and Beyond

Abstract: Unless Congress and the President act promptly and wisely, sequestration under the Budget Control Act (BCA) will undermine military readiness, and the nearly $500 billion tax increase starting on January 1, 2013, will greatly harm an already weak economy. However, this fiscal cliff can be avoided. The key to avoiding this and future fiscal calamities is reform of the mandatory spending programs, from welfare to Social Security, that currently drive federal deficits. The Heritage Foundation’s Saving the American Dream plan would rein in spending immediately, restructure the major entitlement programs to bring entitlement spending under control over the long term, and strengthen the core foundations of these programs.

Since the Heritage Foundation’s Saving the American Dream plan[1] was first published in April 2011, there has been almost no substantive progress on spending control. The only plausible exception was the flawed Budget Control Act (BCA), a product of a contentious debt limit debate. The complete failure of the resultant bipartisan “supercommittee” to reach agreement was a sad reflection on a Congress that is divided and unwilling to pass the legislation necessary to rein in spending.

As a result, the nation is facing the looming sequester, which will further undermine the defense budget, jeopardizing one of the federal government’s core constitutional responsibilities. Yet it would leave entitlement programs virtually untouched, even though they are the largest driver of spending today and in the future. Meanwhile, the prospect of a huge tax increase in January has had a deleterious effect on the economy for many months, although the effect is only a small portion of the harm the economy will incur if the tax increase ultimately takes effect. America seriously needs a true way forward.

The Heritage plan reflects the need to rein in spending immediately and to rethink major programs. Spending on the open-ended Social Security, Medicare, and Medicaid entitlements must be brought under control, and the core foundations of these programs should be strengthened.

The following principles guide the policy solutions in Saving the American Dream:

Total spending must be brought under control to balance the budget without raising taxes, ultimately holding revenues at their historical share of gross domestic product (GDP). Entitlement programs should, unlike today, actually guarantee seniors economic security in retirement and be recast as real and sustainable insurance programs focused on those who truly need them. Other spending must be curbed, and the federal government must be restricted to its proper functions. Defense, as a core constitutional function of the federal government, should be fully funded and efficiently delivered. The tax system should be structurally reformed to foster growth by eliminating tax distortions of private economic decisions, especially decisions on savings and investment, and to make the system simpler and more transparent.

Fiscal year (FY) 2012 closed on September 30 with the Congressional Budget Office (CBO) estimating spending of $3.5 trillion and a deficit of $1.1 trillion.[2] Debt held by the public was $11.3 trillion (73 percent of GDP). According to the CBO, debt will explode to 199 percent of GDP by 2037, driven by growth in spending that will reach 36 percent of GDP.[3]

The main drivers of spending and debt increases are incontrovertibly the major entitlement programs: Social Security, Medicare, and Medicaid. However, the slow economy with its high unemployment rate, which remains stuck at around 8 percent, also adds to deficits and debt through two channels: mandatory spending for those workers who are most affected by the slow economy (e.g., unemployment compensation) and below-average tax revenues.

It is clear that the top priorities for Congress and the President should be controlling spending, especially entitlement reform, and setting an economic growth agenda through tax reform. After averting the fiscal cliff, Congress and the President should immediately turn their attention to these pressing issues.

As noted, entitlements are the fastest-growing programs. Even if all other spending was eliminated, these programs would still cause large and unsustainable deficits in the future. Their growth is automatic, with autopilot spending increases built in and no serious budgetary constraints. The top priority must be to restructure entitlements and put a brake on their spending levels while strengthening and preserving them for future generations.

A number of robust proposals for health care reforms already exist, both in Congress and in the policy community.[4] Congress and the President should take advantage of this policy momentum and focus on reforming Medicaid and especially Medicare. However, changes in Social Security should follow quickly, and the rules that govern these programs in general should be more consistent. For example, increases in the normal eligibility age should proceed simultaneously for both Social Security and Medicare.

Specific steps for Congress and the President include the following:

The President should submit a budget by the 2013 tax deadline deadline that outlines strong, sweeping changes in entitlement programs that will reduce spending over the 10-year budget window and significantly improve the long-term trajectory of these programs. The President’s budget should lay out specific goals for a pro-growth, revenue-neutral tax reform plan. Congress and the President should include reforms in entitlement programs and further reductions in other spending areas, including the Patient Protection and Affordable Care Act (Obamacare), in exchange for any increases in the debt limit. These should reflect lessons learned from the 2011 Budget Control Act, such as avoiding high-stakes mechanisms like sequestration that are designed to fail. Congress should pass a joint budget resolution by the April 15, 2013, deadline that includes reconciliation instructions for entitlement and tax reform. The budget resolution should also require reforms of other spending programs to bring spending below the BCA levels for 2014 and beyond.

If only one issue is thoroughly addressed in 2013, it should be the federal role in health care, the biggest driver of spending. The flawed Obamacare law only adds to the problem. Instead of expanding the government’s role, health care should follow a true patient-centered, market-based model, including reforms in Medicare, Medicaid, and the tax treatment of health insurance.

Medicare. Medicare’s finances must be brought under control. As a first step, the age of eligibility should be raised gradually from 65 to 68 and then indexed to life expectancy. Premiums for Parts B and D should also gradually increase, thus expanding the current policy for Medicare of adjusting the level of taxpayer subsidies to income, with the most affluent seniors receiving much smaller (or in some cases no) taxpayer subsidies for their health coverage. These steps, among others,[5] should occur immediately because they are easily achieved and less controversial and should be part of new debt-limit legislation.

Within five years of these initial changes, patients should also be transitioned to a defined-contribution or premium-support model that would be adjusted for income. Expanding competition in Medicare would restrain federal spending, slow health care costs, and promote greater innovation in the delivery of care.[6]

Medicaid. Federal spending on Medicaid should be put on a budget subject to regular congressional review to bring greater fiscal certainty and stability to the process. Federal Medicaid spending would follow antipoverty spending caps by reverting to the 2007 spending levels when the economy approaches full employment (e.g., the unemployment rate dips below 6 percent) and be adjusted for medical inflation thereafter.

In lieu of traditional Medicaid, able-bodied individuals and families should receive direct federal assistance in the form of tax credits or direct assistance to enable them to buy private insurance coverage of their choice. For the disabled and frail elderly, Medicaid would remain a joint federal–state safety net program, but states would have additional flexibility to adopt more patient-centered models.

Reform of the Tax Treatment of Health Insurance. As a part of tax reform (see below), the employee tax break for employer-sponsored coverage would be converted to a non-refundable tax credit that individuals and families could use to purchase the health plan of their choice.

These larger reforms are best achieved through normal legislative order. This could include the legitimate use of reconciliation as part of a comprehensive budget plan. In any case, Congress should pass a concurrent budget resolution for FY 2014.

Social Security needs to be reformed. It is running permanent cash-flow deficits and has severe programmatic flaws.[7]

First, Social Security’s eligibility age should gradually be increased in tandem with Medicare’s eligibility age. For both, this change is straightforward and could be included in an initial, small reform package. Next, Social Security should return to its original purpose of guaranteeing that all Americans are protected from poverty in retirement. As part of this insurance protection, benefits would evolve to an understandable, predictable flat benefit that is well above the poverty level. With Social Security functioning as an insurance program, moderate-income retirees would receive a smaller check, while affluent seniors would receive no check unless their financial circumstances change.

To encourage people to stay in the workforce longer, those who work beyond full retirement age would receive a higher level of after-tax income until they do retire.

Tax reform would support Social Security reforms by significantly increasing personal savings that seniors can take into retirement, and there would be no limit on the amount of these tax-deferred savings. Thus, more retirement income would be possible than under the current system. Social Security would become a safety valve against economic reversals and a floor for income after the statutory retirement age.

Defense cuts are already reducing military readiness, thus endangering the security of the United States. The defense portion of the BCA cuts is dangerously flawed and must be reversed. In Saving the American Dream, the sequester for defense spending (including the 2013 cuts) is eliminated, and the higher spending is more than offset with reforms in other spending and entitlements. Defense spending is brought slowly up to and held at 4 percent of GDP. Non-defense discretionary spending is set for 2013 at the BCA sequester level and then reduced to 2 percent of GDP, after which it is indexed to inflation.

Spending in 2014 and beyond should include reforms in long-standing but growing and expensive programs such as farm subsidies and transportation. A program of privatization, including federal asset sales, could begin as early as 2015. Anti-poverty spending should be rolled back and capped when the economy approaches full employment and then consolidated into fewer programs that reflect strong incentives for work and marriage.

Tax Reform. The economy remains plagued by the uncertainty of expiring tax policy and an unwieldy and inefficient tax code. Beyond preventing Taxmageddon by extending all current tax policy and delaying the Obamacare tax increases before January 1, 2013, Congress should pass broad substantive tax reform consistent with the New Flat Tax in Saving the American Dream. Tax reform should focus on promoting economic growth by reducing both tax rates and tax distortions while maintaining revenue and distributional neutrality. It should also simplify the tax system and improve its transparency so that taxpayers can better understand the influence of tax policy as well as the true cost of government.[8]

The broad direction for tax reform already in play, especially the bipartisan push for lower corporate income tax rates, is fully consistent with the New Flat Tax. Congress will likely find the goal of lower corporate tax rates quickly running up against the consequent need to lower tax rates for non-corporate businesses. This occurs naturally under the New Flat Tax, which taxes all businesses at a single rate on their domestic net cash flow at the entity level. Likewise, the growing support for a territorial tax system—under which U.S. businesses are taxed solely on their domestic income—is also fully consistent with the New Flat Tax, which levies tax solely on domestic income.

Under the New Flat Tax, the individual income tax and the payroll tax are rolled into one system with the same tax rate that is imposed on business income. Nearly all other federal levies are repealed, leaving a simple system for both individuals and businesses. Under the New Flat Tax as it applies to individuals, only income used for consumption is taxed, thus eliminating the existing tax bias against saving. In addition, all distorting credits, exemptions, and deductions are eliminated, leaving only two credits and three deductions.

The first credit is the above-mentioned tax credit for health insurance. This tax credit is less distortive of economic decisions than current law is, but it remains a clear subsidy for the purchase of health insurance. It is necessary because the current-law tax bias favoring health insurance is so powerful and so entrenched that simply eliminating the tax advantage is impracticable.

The second credit carried over from current law is the earned income credit (EIC). The EIC needs reform in its own right, but it is also the largest income-support component of the overall federal anti-poverty program and one of its most effective elements. Changes in the EIC should then be considered part of the proposed budget for anti-poverty programs.

The three deductions are as follows:

The deduction for charitable expense, which is retained because this tax system taxes the individual on what he or she spends. Charitable contributions benefit the receiving organization and thus should be deductible for the recipient. A deduction for higher education, which recognizes that education expenses are a form of saving and investing simultaneously, which in every other instance is excluded from tax under the New Flat Tax. An optional home mortgage deduction with the proviso that if the homeowner chooses a mortgage with deductible interest, then the lender must, as under current law, continue to pay tax on interest income earned. Alternatively, the home owner may choose to forgo the deduction, in which case the lender earns tax-free interest income and can thus charge a lower mortgage interest rate.

The New Flat Tax, the tax reform plan, is implemented effective January 1, 2014.

Addressing the Fiscal Cliff

Table 1 addresses each element of the fiscal cliff and the proposed steps that Congress should take on each of them.

—Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies, William W. Beach is Director of the Center for Data Analysis and Lazof Family Fellow in Economics, and Stuart M. Butler, PhD, is Director of the Center for Policy Innovation at The Heritage Foundation.

The editors are grateful to the team leaders who worked with policy experts throughout The Heritage Foundation to develop this report: J. D. Foster, Ph.D., Norman B. Ture Senior Fellow in the Economics of Fiscal Policy; Rea S. Hederman, Jr., Assistant Director and Research Fellow in the Center for Data Analysis; David C. John, Senior Research Fellow in Retirement Security and Financial Institutions; Robert E. Moffit, Ph.D., Senior Fellow in the Center for Policy Innovation; Nina Owcharenko, Director of the Center for Health Policy Studies; and Drew Gonshorowski, Policy Analyst in the Center for Data Analysis.

This plan was developed as part of the Solutions Initiative and funded by the Peter G. Peterson Foundation. The Peterson Foundation convened organizations with a variety of perspectives to develop plans addressing our nation’s fiscal challenges. The American Action Forum, Bipartisan Policy Center, Center for American Progress, Economic Policy Institute, and The Heritage Foundation, each received grants. All organizations had discretion and independence to develop their own goals and propose comprehensive solutions. The Peterson Foundation’s involvement with this project does not represent endorsement of any plan.

View the original article here

Over the cliff and into a permanent one

By A.B. Stoddard, columnist, The Hill - 01/08/13 02:41 PM ET

The Hill's A.B. Stoddard takes your questions on the "fiscal cliff" deal and the prospects for gun-control legislation in the 113th Congress.

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Patent 'Cliff' a Challenge, but We Can Manage: Lilly CEO

Victor J. Blue | Bloomberg | Getty Images

Eli Lilly will be "very challenged" by the loss of exclusivity on several blockbuster drugs, CEO John Lechleiter told CNBC on Tuesday, but added the company is engaged in other ways to revive growth next year.

Lilly is one of many drug manufacturers confronting a wave of patent expirations that imperils its ability to profit from key drugs. The "patent cliff," which it's called by many industry watchers, could shave as much as $25 billion off drug sales this year, according to estimates from Fitch Ratings.

Although Lechleiter said his company would be "very challenged" by the loss of key patents, he told CNBC's "Squawk on the Street" that Lilly was cultivating new lines of medicines and existing markets.

"We saw the patent cliff coming as recently as the middle of the last decade and began to invest in our pipeline," the CEO said, giving management time to respond with new drug trials. He said Lilly has about seven in various stages of testing.

"Unfortunately, the timing of the launch of the first of those products doesn't precisely coincide with the loss of revenue from our patents," Lechleiter said.

In 2011, a federal court ruled that generic drug companies could not sell versions of Eli Lilly's blockbuster Cymbalta until this June, when the patent protection is expected to lapse.

"But the guidance we've given is we expect to resume growth after 2014, when we will feel the brunt of the loss of the Cymbalta patent," he said, speaking of Lilly's anti-depression drug. "We're very confident we can achieve that."

Lechleiter stated that the patent cliff had impacted Lilly's decision to hike its dividend payments.

"We provided guidance in 2009, so roughly three years ago, that as we go through this period, we're going to be very challenged with the loss of several of our patented products," he said, adding that the company's goal "was to maintain the dividend at the current level and, of course, that's what we've done."

View the original article here

Poll: 50 percent disapprove of Boehner on 'fiscal cliff' negotiations

By Alicia M. Cohn - 01/04/13 05:12 PM ET

Americans are evenly split in their opinion of the “fiscal cliff” deal signed into law this week, but more people disapprove of the way congressional leaders handled negotiations than President Obama or Vice President Biden, according to a new poll released Friday.

The Gallup poll found that 43 percent approve of the tax bill, while 45 percent disapprove and 12 percent have no opinion.

The poll has a margin of error of 4 percentage points, making the split a statistical tie.

The national poll mostly proves true multiple polls from last year predicting that the public would blame Republicans more than Democrats if the country went over the “fiscal cliff,” but Democrats in Congress did not fare much better.

When asked about generic Democratic leaders and Republican leaders, Americans disapproved more than approved of both groups. Republicans leaders earned a 67 percent disapproval rating over the fiscal-cliff negotiations, with 25 percent approval, while Democratic leaders earned 55 to 34 percent ratings. 

Speaker John Boehner (R-Ohio) apparently took the most blame, with half of those polled disapproving of the way he handled negotiations, at 50 percent disapproval to 31 percent approval. The numbers for Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) are close, with 48 percent disapproval to 27 percent approval for Reid and 46 percent to 28 for McConnell, although about 25 percent of those asked had no opinion for either man.

Obama and Biden fared better in Americans’ opinion of those involved in negotiations, with statistically tied approval-disapproval numbers. Obama earned 48 percent disapproval to 46 percent approval, and Biden 42 to 40 percent.

Technically, Congress missed the deadlines at the end of the year that allowed the George W. Bush-era tax rates to expire and the automatic spending cuts triggered by sequestration to kick in. Biden and McConnell ultimately brokered a deal that the Senate passed on New Year's Day followed by the House that night.

The legislation indefinitely extends the expiring Bush-era tax rates on annual family incomes up to $450,000, and for individuals up to a $400,000 cut-off. It also lifts the top capital gains and dividends rates to 20 percent, extends unemployment benefits for a year and delays for two months the automatic spending cuts triggered by the sequestering process.

More Republicans and Independents disapprove than approve of the deal itself, while more Democrats approve than disapprove, the poll found. The legislation passed with more Democratic than Republican support — it received 85 Republican votes in the House, but all except five Republican senators voted for it.

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Fiscal Cliff Deal Cancels CLASS

Those hunting for a bit of good news in the fiscal cliff deal can look to a provision repealing a long-term care program attached to ObamaCare.

When the health law first passed, it included a $70 billion entitlement known as the CLASS Act. The Community Living Assistance Service and Supports Act was supposed to be a self-sustaining program that provided cash benefits intended to help finance long-term care. It was an optional program that workers could buy into at regulated rates that weren't allowed to take health history into account. The program was even supposed to reduce the deficit: It accounted for about half of ObamaCare's scored deficit reduction.

But after the law passed, further analyses warned that instead of a self-financing, deficit reducing benefit program, CLASS would instead be a fiscal disaster, unable to self-finance and resulting in a long-term increase in the deficit and sky-high premiums for many beneficiaries, according to researchers at Boston College. Eventually, even the Obama administration had to admit that it wouldn't work. “While the law outlined a framework for the CLASS Act,” Health and Human Services Secretary Kathleen Sebelius told members of Congress in February, 2011, “we determined pretty quickly that it would not meet the requirement that the act be self-sustaining and not rely on taxpayer assistance.”

And so the administration closed the program. But it stayed on the books, which meant that, at least in theory, it could someday be revived.

No more: The fiscal cliff deal that passed in the House on Tuesday struck CLASS from the books for good. Which means that unless Congress passes new legislation, the program isn't coming back. Given its dormant status, CLASS wasn't likely to do much damage. But there were those who seemed interested in reviving the program — and attempting to "fix" its problems by making buy-in mandatory. Repeal takes that possibility off the table. 

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How 'Cliff' Deal Impacts Health Care Stocks

 Highlight transcript below to create clipTranscript:  Print  |  Email Go  Click text to jump within videoWed 02 Jan 13 | 10:03 AM ET CNBC's Jackie DeAngelis explains how the "fiscal cliff" deal will impact the health care sector in the long-term. And, Jonathan Bush, Athenahealth chairman, CEO & president, provides perspective on health care reform and the 'cliff' deal.

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Medical device makers rise after fiscal cliff deal

WASHINGTON -- Shares of medical device makers rose with the broader market Wednesday after Congress passed a bill to avoid the fiscal cliff which did not include a key provision sought by the industry.

Medical device makers seized on the fiscal cliff negotiations as perhaps their last chance to head off a 2.3 percent tax which took effect Jan. 1. The tax is aimed at high-end devices like pacemakers and CT scanners and is designed to raise over $29 billion in federal funds over the next decade. Companies like Medtronic Inc. have been lobbying against the tax since it passed with President Obama's health care overhaul in 2010.

An effort to block the tax got a boost earlier this month when 18 Senate Democrats signed a letter supporting a delay of its implementation. The Republic controlled House previously supported a full repeal of the tax.

But a provision delaying the device tax was not included in the last-minute package passed by House lawmakers late Tuesday. The narrowly tailored bill raises taxes on incomes exceeding $400,000 for individuals and $450,000 for couples, while continuing decade-old income tax cuts for everyone else.

Wells Fargo analyst Lawrence Biegelsen said Wednesday that ongoing negotiations between Congress and the White House, particularly over the nation's debt ceiling, could provide future opportunities to delay the device tax.

"However, the fact that a delay was not included in the end of year fiscal cliff agreement is clearly a setback and demonstrates how determined the proponents of the medical device tax _ and other taxes in the Affordable Care Act _ are to keep those taxes on the books," Biegelsen states in a note to investors. He adds that the likelihood of a complete repeal of the tax is "low at this point," and includes the cost of the measure in financial estimates for the coming year.

Shares of Minneapolis-based Medtronic, the world's largest medical implant maker, rose 53 cents, or 1.3 percent, to $41.55 in afternoon trading. Boston Scientific Corp. shares rose 10 cents, or 1.8 percent, to $5.83. St. Jude Medical rose 21 cents to $36.35.

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Democratic Congressman Laughs At Fox News’ Fiscal Cliff Misinformation

Rep. Adam Smith (D-WA) schooled the hosts of Fox & Friends on the details of the deal to avert the so-called “fiscal cliff” during an appearance to explain his opposition to the Senate-passed compromise on Wednesday morning. Smith also laughed off the network’s suggestion that President Obama has not offered specific spending cuts.

Smith said he voted against the “American Taxpayer Relief Act of 2012” because the measure locked in low revenue levels that could necessitate dramatic spending cuts in the future. The Fox News hosts appeared incredulous, however, arguing that Obama failed to put any spending cuts on the table or show leadership on entitlement reform. Once Smith pointed to Obama’s proposal to change the growth of Social Security benefits, co-host Steve Doocy quickly dismissed the plan as a “nonstarter.” The Congressman laughed at the network’s attempt to criticize Obama and then debunked its claim that the GOP offered more specific spending reductions than the president:

DOOCY: Congressman, it’s great that you’re worried about spending and taxes, but you know, there are a lot of people who are watching this and they see the president and he really took no leadership when it comes to cutting spending with the budget and with this latest crisis, so it seems like….

SMITH: I don’t actually agree with that. The president put on the table cuts to entitlements. He put on the table the chained CPI issue, among other issues.

DOOCY: Wait, but that was a nonstarter for a lot of people in your party.

SMITH: [Laughs] Here is the thing, I mean you can say, ‘well, he’s not showing leadership.’ But now what you’re saying is he showed leadership, but nobody else was willing to. So it’s really hard to blame the president … As long as we’re talking about the president, let me also make the point, Speaker Boehner, the Republicans, what have they put on the table in terms of specific spending?

BRIAN KILMEADE (CO-HOST): Look at the Ryan plan. Look at the budget they passed.

SMITH: No. A budget is not an appropriations bill, Brian. The budget said across the board, we will cut 10%. We’re not going to tell you what, we’re not going to tell you where. We’re just going to imagine that it’s going to happen. In terms of specific spending cuts, the president had actually put more on the table during this last negotiation than the so-called fiscal conservatives leading the House.

KILMEADE: Really? Because I don’t know anything that he wanted to cut besides defense.

SMITH: I just told you! I just told you!

Watch it:

“I’m concerned that revenue has been sort of taken off the table at this point,” Smith said. Ninety-percent “of the Bush tax cuts are now locked in permanently, so any effort to deal with the very large debt and deficit that we have going down the road here revenue is pretty much off the table and we didn’t get much. Those are my concerns and that’s why I voted no.”

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House Passes Senate’s Fiscal Cliff Bill

After threatening to amend the Senate’s fiscal cliff bill to include spending reductions, the House passed the measure Tuesday evening by a vote of 257-167, with 85 Republican votes. 151 Republicans, including House Majority Leader Eric Cantor (R-VA) and Majority Whip Kevin McCarthy (R-CA), and 16 Democrats voted against the bill. The “American Taxpayer Relief Act of 2012” now goes to President Obama for his signature.

During debate, Rep. Dave Camp (R-MI) urged Republicans to support the bill, arguing that it “settles the level of revenue Washington should bring in.” The GOP has indicated that it would not support revenue increases in the upcoming battles to raise the debt ceiling, turn off the sequester cuts, and keep the government running through a continuing budget resolution. Instead, conservative lawmakers in both the House and the Senate have said that they will take advantage of these critical debates to extract deep cuts to Social Security, Medicare, and Medicaid.

“I just don’t want the gentleman’s statement that this settles permanently how much revenue will be made available,” Rep. Sandy Levin (D-MI) said in response to Camp. “The President has made clear there has to be a balanced approach and no one should be misled into thinking otherwise. No one.”

As the House began voting on the measure, Grover Norquist gave his blessing, tweeting that since the vote took place in the new year — after the Bush tax cuts have technically expired — “Every R voting for Senate bill is cutting taxes and keeping his/her pledge.”

Rep. Paul Ryan (R-WI) explains why he voted in favor of the bill: “When you like something, you vote for it. …I wasn’t afraid.” House Speaker John Boehner (R-OH), who usually doesn’t vote, also backed the measure.

In a statement from the White House, President Obama praised the bill as “one step in the broader effort to strengthen our economy.” But he admitted that “the deficit is still too high” and called for a balanced approach of raising new revenues by closing tax loopholes and eliminating deductions for rich individuals and corporations and cutting government spending. Obama called Medicare the “biggest contributor to our deficit” and said that Congress must “find a way to reform our program without hurting seniors who count on it to survive.” He also drew an important line in the sand, reiterating that he “will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up, through the laws that they passed.” If Congress refuses to raise the debt ceiling, Obama said, “the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff.”

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January 2 News: Fiscal Cliff Deal Extends Wind Tax Credits One Year

The wind energy industry in the U.S. breathed a sigh of relief as Congress passed a fiscal cliff deal on Tuesday that included an extension of the wind energy tax credits for wind projects that start in 2013. [GigaOm]

A bill to provide tens of billions of dollars in federal aid to states pummeled by Hurricane Sandy was in danger of dying Tuesday night as the House seemed headed for adjournment without taking up the legislation. [New York Times]

This year, summer came on like a grudge, with record-breaking heat, inescapable drought, and the sense that the effects of climate change had arrived – and that life in America’s mythic frontier might never be the same. [Men's Journal]

A new analysis of temperature records indicates that the Western Antarctic Ice Sheet is warming nearly twice as fast as previously thought. [BBC]

Annual gas prices hit a record high in 2012, the AAA motor club said Monday. On average, the national gas price for the year was $3.60 per gallon, eclipsing last year’s record of $3.51 per gallon. AAA attributed the increase to weather events and global turmoil. [The Hill]

A new study published this week in the journal Geophysical Research Letters provides a look at a dynamic that may further accelerate the Arctic ice melt: the rate at which the ocean underneath the ice absorbs sunlight. [New York Times]

Renewable energy has not yet won the battle for market share over fossil fuels but it appears to be doing well when it comes to mind share, according to a survey by Dow Jones’ Factiva service. [Forbes]

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The Fiscal Cliff Deal, By The Numbers

Last night, the House of Representatives passed the Senate’s compromise bill to avert the so-called “fiscal cliff.” The bill, dubbed the “American Taxpayer Relief Act of 2012,” raised taxes on (some of) the wealthiest Americans, while punting several other budget decisions down the road, including whether or not the so-called “sequester” spending cuts will occur. Here are some important numbers from the bill’s resolution of the fiscal cliff’s tax side:

– The first major tax increase for the wealthy in 20 years. Allowing the expiration of some of the Bush tax cuts amounts to the first major tax increase for the wealthiest Americans since the 1990s.

– The Bush tax cuts expire for just 0.7 percent of taxpayers. The expiration will occur on income in excess of $400,000 (or $450,000 for a couple). This translates into “a little over 1 million Americans” according to the Tax Policy Center. The capital gains and dividend tax will also increase to 20 percent for wealthy earners.

– The top 1 percent will pay an average of $73,633 more in taxes. Bloomberg News noted that, “among households with incomes between $500,000 and $1 million, taxes would go up by an average of $14,812.”

– 77 percent of households will see a tax hike. Due to the expiration of a cut in the payroll tax, most workers will see their taxes increase slightly in 2013. The expiration of the payroll tax cut will deal a significant blow to the economy.

– $4 trillion in deficits and $600 billion in revenue. According to the Congressional Budget Office, the bill will increase the deficit by around $4 trillion over the next ten years compared to a world in which all of the Bush tax cuts expired. However, it raises about $600 billion more in revenue compared to the policies that were in place in 2012.

– $2.50 in spending cuts for every $1 in revenue. As Americans for Tax Fairness noted, “This bill raises $620 billion over 10 years, but $1.5 trillion in budget cuts were already enacted last year; that means for every one dollar in new taxes there have been 2.5 dollars in spending cuts to reduce the deficit.”

– Two million unemployed workers see benefits saved. Without the extension included in the fiscal cliff deal, millions of workers would have seen their federal unemployment insurance pulled out from under them.

– Estate tax giveaway costs billions. The estate tax rate will increase slightly to 40 percent this year with a $5 million exemption, but it would have gone to 55 percent with a $1 million exemption in the absence of a deal. As the Atlantic’s Matt O’Brien noted, “Only 3,730 households will pay the estate tax next year if the exemption is set at $5 million, versus 47,170 if it’s set at $1 million.”

The bill also extended provisions of the farm bill that will prevent milk prices from spiking and included an important provision to help underwater homeowners.

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Israel: Dems 'injected some adult supervision' into 'fiscal cliff' debate

Rep. Steve Israel (D-N.Y.) argued Wednesday that Democrats provided "adult supervision" during the "fiscal cliff" debate and should be credited with avoiding automatic tax increases and spending cuts.

"There were elements of the bill that I did not like," Israel told CNN's "Starting Point." "But at the end of the day, it was House Democrats who injected some adult supervision, some pragmatism, a sense of compromise and solutions. That’s what the country wants."

The chairman of Democratic Congressional Campaign Committee said he wished "that the Republicans would have produced more votes" in support of the legislation, which passed on a 257-167 vote late Wednesday night. 

House Republicans were split on the bill, with 85 — including Speaker John Boehner (R-Ohio) — voting in favor. But 151 voted no, including high-profile defectors like Majority Leader Eric Cantor (R-Va.) and Majority Whip Kevin McCarthy (R-Calif.).

"The best they could do was 85, 86 votes," Israel said. "So even though they have the majority in the House of Representatives, it was House Democrats who stopped us from going off this cliff.”

The late-night vote will indefinitely extend the George W. Bush-era tax cuts on all household income under $450,000, extend unemployment insurance and delay automatic spending cuts for another two months.

Israel also blasted House Republicans for tabling a vote on Hurricane Sandy aid until the next Congress. 

Republican leaders have argued the $60 billion Senate bill was bloated with excess spending, while a bipartisan group of legislators from New York and New Jersey — the areas hardest hit by the storm's landfall — have urged quick passage of the relief bill.

"Just when we avoided one cliff, the House Republicans threw us over another," Israel said. "We rushed to aid ... Kabul and Baghdad when they had damage, but when it comes to aid to New York and New Jersey, the House Republican leadership decided we weren't worth it. It is indefensible."

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Congress In Contempt, Part 1: The Fiscal Cliff Is Only One Example Of Congressional Failure

by Bill Becker

There was a moment when the Founding Fathers considered putting a provision in the Constitution that would allow citizens to recall members of Congress. The proposal failed.  As a result, only members of Congress can remove other members of Congress from office.

It’s a pity.  As the 112th Congress passes into an ignominious history and a not-much-different 113th Congress takes over, one wishes the citizenry had the right to kick members out of office not just during an election year, but any time they don’t do their jobs.  Clearly, members of Congress are not doing their jobs today. By one measure, 95% of Americans think lawmakers are doing a lousy job.  One suspects the other 5% are the members of Congress themselves, along with their staffs and families.

The fiscal cliff debacle is merely the latest case in which our derelict and dysfunctional Congress has put the nation’s families, businesses and the overall economy at risk.  Even though Congress reached a last-minute agreement on the fiscal cliff last night,  significant damage already has been done by the politics of brinkmanship. From failing to fund Superstorm Sandy relief to outright denial of climate change, Congress has proved itself particularly inept.

Consider: While Congress went home for Christmas without reaching an agreement on taxes and spending, some 12 million Americans spent the holiday jobless. Two million of them lost their unemployment compensation when the crystal ball in Times Square hit bottom at the cusp of the New Year.

The health of America’s small businesses was a significant campaign issue in 2012, but it doesn’t seem to be a concern on Capitol Hill now that the election is over. The prospect of higher taxes and deep cuts in government programs caused consumer confidence to plummet six points in December, the most important time of year for business earnings, even more important this year as the economy continues climbing out of the pit created by the recession.

Think back over the last two years.  The genesis of the fiscal cliff was Congress’s standoff on raising the national debt ceiling in 2011. Legislation finally was approved only hours before the federal government defaulted on its debts.  Citing this “political brinksmanship” as a sign that Congress is “less able, less effective and less predictable” in managing the nation’s fiscal affairs, Standard & Poor’s took the unprecedented step of lowering America’s credit rating.

After last November’s election, in which voters seemed to signal they wanted an end to block-headed partisanship, congressional leaders expressed optimism they’d reach a deal  on taxes and spending before the end of the year. The fiscal cliff debacle indicates, however, that Congress didn’t get the message from voters or from Standard & Poor’s.  And another big cliff is just ahead: The need to raise the debt ceiling again in the next few weeks. The possible consequences of another standoff have been described by Jonathan Masters of the Council on Foreign Relations:

Many analysts say congressional gridlock over the debt limit will likely sow significant uncertainty in the bond markets and place upward pressure on interest rates. Rate increases would not only hike future borrowing costs of the federal government, but would also raise capital costs for struggling U.S. businesses and cash-strapped homebuyers. In addition, rising rates could divert future taxpayer money away from much-needed federal investments in such areas as infrastructure, education, and health care…Speaking to the Economic Club of New York in November 2012, Fed Chairman Ben Bernanke warned that congressional inaction with regard to the fiscal cliff, the raising of the debt ceiling, and the longer-term budget situation was creating uncertainty that “appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy.”

Masters points out that for all the rhetoric about economic stability and fiscal discipline, the debt ceiling standoff in 2011 actually added to government waste and the economy’s jitters:

A 2012 study by the non-partisan Government Accountability Office estimated that delays in raising the debt ceiling in 2011 cost taxpayers approximately $1.3 billion for FY 2011. BPC (the Bipartisan Policy Center in Washington D.C.) estimated the ten-year costs of the prolonged fight at roughly $19 billion.

The stock market also was thrown into frenzy in the lead-up to and aftermath of the 2011 debt limit debate, with the Dow Jones Industrial Average plunging roughly 2,000 points from the final days of July through the first days of August. Indeed, the Dow recorded one of its worst single-day drops in history on August 8, the day after the S&P downgrade, tumbling 635 points.

Lawmakers in the modern era have been inept at timely decisions on spending in general.  American families found something new in their stockings this Christmas: The threat that milk prices would double after Jan. 1 because Congress failed to reauthorize the nation’s farm program when it expired earlier in the year.  Worse, farm experts warned the nation’s agricultural sector would be thrown into turmoil. As the year ended, lawmakers extended the program temporarily for one year, pushing the milk can down the road.

Last June, Congress finally approved a national transportation bill three years after the old bill expired, but only after 130 mayors from 36 states petitioned congressional leaders to finally get the job done.

Congressional cowardice is on full display when it’s time to approve the federal government’s annual budgets. Members avoided making tough budget decisions just before the November election by failing to approve a new budget when old one expired on Oct. 1. Congress finally approved a temporary budget bill just a week before the federal government would have been forced to shut down.  The temporary budget – still in effect today — essentially puts federal agencies on hold until at least next March, after the 113th Congress has been seated and when the next election is still 20 months away.

Stop-gap budgets have become a tradition in Congress.  As Brendan Greeley reports on Bloomberg Businessweek:

Since 1952, according to the Congressional Research Service, Congress has completed its spending bills by its own deadlines only four times—in 1977, 1989, 1995, and 1997. Year after year, lawmakers enact continuing resolutions to tide agencies over until appropriations bills pass. Fiscal year 2011—all 365 days of it—was paid for this way. Though a hyperpartisan year on Capitol Hill, it was by no means exceptional.  According to the CRS, 178 days every year, on average, have been funded through continuing resolutions since 1977. Basically, half the time there is no budget.

What are the consequences? More wasted money and government inefficiency. Greeley continues:

The uncertainty creates all kinds of inefficiencies,..(F)ederal contractors build a risk premium into their fees, charging back to taxpayers the extra uncertainty of potential funding disruptions. Agency leaders also have trouble staffing for new projects when there’s no budget. They have to resort to signing contracts on a monthly rather than an annual basis. Because every contract costs money to close, more contracts mean greater administrative and legal costs…

And the inefficiencies don’t end when the appropriations finally come through. Contractors or hires with critical skills may already have found other work. Agencies have trouble spending what they then receive before the end of the fiscal year.

Congress doesn’t tell us how much its tardy budgeting costs taxpayers, but it sometimes can’t hide the costs of partisan grandstanding.  For example, with important legislative work languishing, House Republicans held 33 votes to repeal Obamacare by July of last year, even though it was clear the Senate would never agree.  As Huffington Post reported:

While Republicans lambast the cost of implementing health care reform, a new report shows that their efforts to repeal the law have come at a major cost to taxpayers — to the tune of nearly $50 million…Republicans’ many fruitless attempts at repealing the Affordable Care Act have taken up at least 80 hours of time on the House floor since 2010, amounting to two full work weeks. As the House, according to the Congressional Research Service, costs taxpayers $24 million a week to operate, those two weeks amounted to a total cost of approximately $48 million.

In large part because of delays in the Senate’s confirmation of President Obama’s appointments, Chief Justice John Roberts reported on Dec. 31 that “judicial emergencies” have developed in 27 jurisdictions where judicial vacancies have not been filled.   “The pattern throughout (President Obama’s) tenure has been uncontroversial judicial nominees…going nowhere on the Senate floor,” according to Jennifer Bendery’s analysis of last year’s Senate confirmation process on Huffington Post.

While extreme weather caused unprecedented levels of damage to communities across the United States in 2012, the 112th Congress avoided discussing, let alone acting on, global climate change. It failed to pass the Violence Against Women Act. Red and blue states have lost thousands of jobs in the emerging wind energy industry because Congress stalled on passing the Production Tax Credit for utility-scale wind development by year’s end.  And while bargaining to cut spending on programs such as Medicare and Social Security, lawmakers refused to touch sacred cows like the billions of dollars of unnecessary taxpayer subsidies Congress gives the oil industry.

Last November’s election was an opportunity for voters to discipline Congress for all of this. But even with public approval of Congress at one of the lowest levels ever,  91% of the members up for reelection in November were returned to office.

We appear to be a masochistic electorate and Congress appears to count on it and to holds us in contempt.  That’s not likely to change until we impose the discipline on it that it’s unwilling to impose upon itself.  How? I’ll offer some suggestions in Part 2.

Bill Becker is the Executive Director of the Presidential Climate Action Project. For more specific information about the Soldiers Grove experience and its lessons for other disaster-affected communities, see Becker’s report,  “Rebuilding for the Future”.

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Rep. Blackburn downplays party split over ‘fiscal cliff’ tax bill

By Alicia M. Cohn - 01/02/13 08:19 AM ET

Rep. Marsha Blackburn (R-Tenn.) on Wednesday downplayed divisions within the Republican Party over the "fiscal cliff" tax bill, which passed late on Tuesday night. 

"We had a very spirited debate" as a conference, she acknowledged on CNN's "Starting Point." 

Only 85 House Republicans voted for the bill, which prevents a majority of expected tax hikes and delays the automatic spending cuts triggered by end-of-the-year "fiscal cliff" deadlines. 

The bill split the House GOP leadership, with Speaker John Boehner (R-Ohio) voting in support and Majority Leader Eric Cantor (R-Va.) and Majority Whip Kevin McCarthy (R-Calif.) voting no. Another key leader, Rep. Paul Ryan (R-Wis.), voted yes.

Many Republicans expressed dismay with the bill because it does not include significant spending cuts. According to the Congressional Budget Office, the deal will add $3.9 trillion to the deficit over the next decade.

But Blackburn described behind-the-scenes discussions as "healthy" and "respectful."  

"What the Speaker of the House, leadership did was let the House work its will," she said.

Following the vote, McCarthy had said the party leadership did not whip votes for the bill. "There were good reasons to vote for it and good reasons to vote against it," he said.

Previous attempts by House Republicans to resolve the "fiscal cliff" had failed, with legislation either dead on arrival in the Senate or, in the case of Boehner’s “Plan B” tax proposal last month, dropped after leaders could not win enough GOP support. 

The bill that passed on Tuesday night was the result of a deal brokered by Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) and passed by the Senate early on New Year’s Day.

The measure extends indefinitely the expiring George W. Bush-era tax rates on annual family income up to $450,000, and for individuals up to a $400,000 cutoff. It also lifts the top capital gains and dividends rates to 20 percent, extends unemployment benefits for a year, and delays for two months the automatic spending cuts triggered by the sequestering process. Democrats widely supported the legislation after a personal appeal by Biden.

The tax deal, though, has set up further spending battles, with across-the-board cuts now slated to take effect in March and the president pushing for a debt-limit hike by late February. 

Blackburn pledged that with January’s tax hikes avoided, deficit reduction would be the focus of every House negotiation in the future. 

Republican members decided "we are done with kicking this can down the road. This will happen no more. We grabbed that can. And that can is called spending cuts," she said. "We are going to have very spirited, very thoughtful debates on cutting what this government wants to spend."

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GOP Congressmen Suggest Republican Senators Who Voted For ‘Fiscal Cliff’ Compromise Were Drunk

House Oversight Committee Chairman Darrell Issa (R-CA), who is joining a growing number of Republicans trying to add more spending cuts to the last-minute fiscal cliff deal and send it back to the Senate, joked that Senators may have been drunk when they passed the measure in the early hours of Jan 1.

Responding to a question on CNN’s The Situation Room about why fiscal hawks like Sen. Pat Toomey (R-PA) supported the measure in the Senate, Issa implied that the 89 senators voted for the compromise because of the late night partying in celebration of the New Year. Pressed by host Wolf Blitzer for clarification, Issa said that he was just “having a little fun” with his answer:

BLITZER: All of those 89, including all of those conservative Republicans, including Pat Toomey and others, they were wrong?

ISSA: You know, Wolf, frankly I can’t account for what happens after midnight and all of that partying and revelry and drinking that goes on on New Years Eve at 2:00 in the morning. What I can tell you is they did half of a bill. The half of the bill certainly is going to be popular in the way of holding down taxes but the other half is there’s no spending reductions…. In other words, $4 trillion will be added to the debt over ten years with this tax cut unless we do some spending cuts to help offset it. Right now the president is still in a spending mood. We need to get him in a savings mood.

BLITZER: I just want to clarify one point, you said it was after the new year’s and they were partying. Are you suggesting that Mitch McConnell and your fellow Republicans in the Senate they were a little bit drunk when they voted on this last night?

ISSA: Of course not. I was having a little fun with you, Wolf. The fact is, it was after midnight. It was a piece of legislation intended to be passable, not necessarily to be right.

Watch it:

Rep. Steve LaTourette (R-OH) made a similar comment to reporters, saying, “Our sense…was that a number of the [Senate] Republicans who voted for it must have been drunk.”

Following a Tuesday afternoon GOP conference meeting, House Republicans, including House Majority Leader Eric Cantor (R-VA), are publicly opposing the Senate-passed measure. Members are reportedly working on adding an amendment that would reduce spending. But Senate Majority Leader Harry Reid (D-NV) has vowed to block any further changes to the bill, leaving Boehner with the options of: 1) putting the Senate-passed bill to a House vote (and see it pass with Democratic votes and overwhelming Republican opposition) or 2) adding spending cuts that “they know Democrats can’t live with,” passing the revised bill through the House with little if any Democratic support, and see it go nowhere the Senate — sending the nation over the cliff.

The House will vote on the Senate bill as written, without a spending amendment, at around 9:30 PM. The measure is expected to pass, at which point it will go to President Obama for his signature.

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What Does The Fiscal Cliff Debacle Say About Our Chances To Avoid The Far More Worrisome Climate Cliff?

What a sorry spectacle it has been in Washington, DC these last few weeks. Our political leaders failed to meet their self-imposed deadline for dealing with the deficit in a manner that doesn’t mean austerity-driven recession.

And while it looks like they do have a bipartisan deal — assuming it can pass the House after winning easy Senate approval — the plan avoids many of the toughest choices (details here).

The deal isn’t terrible — it extends the wind tax credit, for instance. In the top story on its website, the NY Times asserts that the plan “while containing many concessions that angered Democrats, still favors the latter party’s priorities and imposes a tax increase on the wealthiest Americans.”

Perhaps, but as Nobelist Paul Krugman explains in a blog post this morning, we won’t know if the deal was sort-of-okay or dreadful until we see what happens next (in the debt ceiling fight):

If Obama stands his ground in that confrontation, this deal won’t look bad in retrospect. If he doesn’t, yesterday will be seen as the day he began throwing away his presidency and the hopes of everyone who supported him.

That final sentence is true only if you don’t count Obama’s failure on climate as the day(s) he began throwing away his presidency and the hopes of countless generations (see “Obama Wins Reelection, Now Must Become A Climate Hawk To Avoid Dust-Bin Of History, Dust Bowl For America“).

The NY Times concludes that one big lesson from the debacle is “Grand Bargains Give Way to Quick Fixes” and “bipartisan legislative dreams seem all but certain to be miniaturized” — but that has been obvious for a while. It’s not like Obama got any House GOP votes to support either the stimulus bill or health care plan.

Indeed, the fiscal cliff was a largely manufactured crisis, as Krugman explained in his Sunday NYT oped, “Brewing Up Confusion.” The truth is for all the political hand-wringing, all the media sturm und drang, neither party considers the deficit the preeminent or most urgent economic threat to the nation. Progressives understand slow economic growth and high unemployment are the top problems and that the solution is more investment plus help for the unemployed. The Tea Party crowd that have taken over the conservative movement (and GOP) thinks government spending is the problem (otherwise they would have hardly been so adamant against tax hikes being part of a grand bargain).

Cartoonists, at least, get that the fiscal cliff is a mild soar throat compared to the early-stage emphysema that is the climate cliff.

Image by Matt Bors/Daily Kos via Buzzfeed.

So perhaps the headline question should have been “Does The Fiscal Cliff Debacle Say Anything New About Our Chances To Avoid Climate Cliff?” To answer that question, it’s worth pointing out what we already knew about those chances from the last truly big economic threat to the nation — which I discussed in an October 2008 post, “Is 450 ppm (or less) politically possible? Part 7: The harsh lessons of the financial bailout.” I’m excerpting it below because the piece shows how little has changed in 4+ years:

No, 450 is not politically possible today. Nor is 550. Nor is action sufficient to stave off 1000 ppm and 6°C warming.

OK, that was clear before because Congressional conservatives can certainly block the necessary action and demagogue the energy price issue — and they obviously intend to (see “Part 6: What the Boxer-Lieberman-Warner bill debate tells us“).

But I think the financial bailout bill story has yet more sobering lessons:

Multi-hundred-billion-dollar-sized government action happens only when there is a very, very big crisis. Yes, lots of people out there think happy talk about clean energy and green collar jobs is mainly what you need to get a massive government spending program. Not gonna happen. The happy talk can help sell the needed policies, but without the crisis, it leads nowhere.A necessary, but not sufficient, condition for a crisis to be “very, very big” is that it must be labeled as such by very serious people who are perceived as essentially nonpartisan opinion leaders. In this case, it was the panic from people like uber-billionaire Warren Buffet and Fed Chairman Ben Bernanke and Alan Greenspan and even people like CNBC’s Jim Cramer (yes, he shouts a lot, but he called this meltdown a year ago and has a lot of credibility with the media).In addition, bad things must be happening to regular people right now. It was quite interesting that the House in particular voted down the original bailout but reversed itself in large part because of the ensuing stock market meltdown and in part because they started to hear from all of the small and large businesses in their districts that the credit market was freezing up.The credible people must say that the government action is going to solve the problem.This is a crucial point also missed by lots of people. If Buffet and Bernanke and Cramer said the sky is falling but your plan ain’t going to stop it, then your plan is dead, dead, dead.

What does this say about the climate predicament?

We have one very big crisis that requires unprecedented government action. The “good news,” if one can call it that, is the crisis is real and imminent — and it does lend itself to government-led solutions. Also, like the bailout, the total dollar “cost” of the solution is not the total dollar cost to the taxpayer, since, for the bailout, the underlying financial assets the government will buy have value and, for global warming, the cap-and-trade bill plus clean tech push will create massive energy savings and whole new industries.But we simply don’t have a critical mass of credible nonpartisan opinion leaders who understand the nature of our energy and climate problem (see “Most opinion leaders just don’t get global warming“). When the heck are people like Warren Buffet and Bill Gates going to speak up on dire nature of the global warming situation, rather than, say, scoping out climate-destroying investments in Canada (see “Gates and Buffet to invest in tar sands and spawn more two-headed fish“)? Yes, we have virtually the entire scientific community begging for strong action, but they aren’t opinion leaders in this country anymore and indeed they aren’t credible to a large segment of U.S. society (see “The Deniers are winning, but only with the GOP“). Meeting this necessary condition for serious action is greatly complicated by the conservative crusade against climate action, which is not just a disinformation campaign but a concerted effort to label any scientist or journalist or opinion maker who speaks out on global warming as just a stooge of the left-wing eco-imperialists — “environmental activists, attended by compliant scientists and opportunistic politicians, are advocating radical economic and social regulation,” as Charles Krauthammer put it, or “more government subservience to environmentalists and more government supervision of our lives” as George Will put it (see “The real reason conservatives don’t believe in climate science“). In short, the disinformation campaign seeks to discredit all credible calls for action.Bad things are happening to real people right now thanks in part to human-caused climate change — droughts, wildfires, flooding, extreme weather, and on and on. But many environmentalists and journalists downplay the causality or think it is a mistake to talk about those things (see “The NY Times Blows the Wildfire Story” and “The NY Times Blows the Drought Story, too” and “Gustav, climate, drilling — Some enviros self-censor, but should progressives?” and “The Washington Post’s Joel Achebach doesn’t understand basic climate science“). And, of course, we have the disinformation campaign telling everybody either that the future won’t be too bad. [The late] Michael Crichton says he is “underwhelmed” by the problem after his “review” of the science. George Will says that climate change might even be “beneficial,” and NYT columnist Jon Tierney writes, “There’s a chance the warming could be mild enough to produce net benefits.” Heck, we even have the GOP Vice Presidential pick telling 70 million Americans last week that climate change impacts stem from “cyclical temperature changes on our planet.” In this classic denier myth, all we have to do is wait and the storm will pass.The government-led climate and energy actions that might be politically possible today won’t solve the crisis. That was certainly true of the Boxer-Lieberman-Warner bill (see “Boxer bill update: Probably no U.S. CO2 emissions cut until after 2025“).

I find only one glimmer of hope from the financial crisis. Congress and the executive branch acted before the real disaster happened, before we ended up in another Great Depression, indeed before we even technically entered a recession.

So perhaps we can act on climate before the real disaster happens. Yes, I realize that Washington acted because everyone understood we were only days or weeks away from complete financial meltdown and we obviously can’t wait to act until we get anywhere near that close to the climate precipice.

We must act on climate within the next few years — decades before the real, preventable disaster happens. Indeed, no plausible action the nation and the world will take could have significant impact on the the climate for probably the next three decades. It is the post-2040 Hell and High Water scenario, crossing the point of no return to 6°C (or higher) warming, that we are trying — or rather, should be trying — desperately to prevent.

The response to the financial bailout crisis obviously offers no comfort to people hoping we can act decades before the true climate catastrophe hits. But I choose to see the glass as one-tenth full. Why?

The unknown wild-card factor here is presidential leadership. We have never had an inspirational president who was genuinely committed to serious climate action and who actually campaigned on a broad and deep agenda that would put us on a path to solve the problem (see “Obama’s excellent energy and climate plan“).

Right now, Obama’s plan is not politically possible. And not just because conservatives oppose it and will demagogue it, but also because moderates don’t get the problem and have been politically intimidated by the demagoguing. And because scientists, environmentalists, and progressives have had poor and inconsistent messaging. And because the traditional media still does a grossly inadequate job (see “Media enable denier spin 2: What if the MSM simply can’t cover humanity’s self-destruction?“).

But true leaders have transformed what is politically possible in the past. That is where hope lies today.

Yes, that was all written before we elected a leader who promised strong climate action and a Congress where Democrats had big majorities.

The bottom line remains the same, though. We aren’t going to get serious action until we have our climate Churchill — and probably not until climate impacts get so bad that at least those in the persuadable middle start demanding action (see “What Are the Near-Term Climate Pearl Harbors? What Will Take Us from Procrastination To Action?“).

The fiscal cliff debacle primarily tells us that the recent election changed nothing for political leaders of either party. We’re stuck with the climate status quo and, unlike our various economic woes, that is a prescription for irreversible, civilization-destroying disaster:

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