US Dems, GOP Show Little Fiscal Flexibility As Election Nears

Published Aug 4, 2010. By John Shaw. In iMarketNews.com.

It may be with good reason that many are hoping President Obama's fiscal responsibility commission conjures up a miracle and produces a credible, long-term budget plan.

For Democrats and Republicans on Capitol Hill are showing little inclination to make any even rhetorical concession on key fiscal matters

is ever to be assembled and approved.

In recent weeks, Democrats and Republicans have appeared to harden their positions on key fiscal matters. This is unsurprising given that a critical midterm election is only four months away. But it will make securing an agreement even harder to achieve.

"Clearly everyone has shifted into election mode," said Bill Frenzel, a former Republican congressman who is now a guest scholar at the Brookings Institution.

"Neither party seems eager to offer any hints of being willing to make fiscal concessions. Instead, they are moving in the other direction," he said.

"I always get nervous before elections," said Bob Bixby, executive director of the Concord Coalition, a budget watchdog group.

"It's a danger zone in which people from both parties say things that box themselves in from actually solving problems after the election. Campaigns invite people to repudiate hard choices," he added.

A few weeks ago, House Majority Leader Steny Hoyer signalled that he would be open to making some adjustments in Social Security as part of a broad plan to overhaul the key program. Hoyer said the program needed to better balance its revenues and expenditures by possibly increasing the retirement age for full eligibility.

But days after Hoyer's remarks, House Speaker Nancy Pelosi not only distanced herself from Hoyer's comments but flatly contradicted them.

At her final weekly briefing of the summer, Pelosi said that she strongly opposes increasing the Social Security retirement age, even as part of a broad effort to confront long-term fiscal challenges.

"We should not balance the budget by raising the Social Security age," Pelosi said.

Ensuring the long-term solvency of Social Security and balancing the federal budget are distinct issues which should not be joined, she argued.

Pelosi said there are "many ways" to implement long-term deficit reductions. "Let's not start by raising the retirement age," she said.

If Pelosi seemed to quash the prospects of Social Security reform, congressional Republicans have been dismissive of any effort to pay for the renewal of the Bush tax cuts of 2001 and 2003.

They have brushed aside the suggestion of former Federal Reserve Board Chairman Alan Greenspan that if Congress wants to renew the Bush tax cuts these should be paid for.

In remarks to reporters Tuesday, Senate Minority Leader Mitch McConnell said all of the tax cuts passed in 2001 and 2003 should be renewed, not just those for individuals making up to $200,000 and couples making up to $250,000 as Obama has supported.

"We look forward to that debate," McConnell said.

He said that Republicans will press Democrats to explain "why it's a good idea to raise taxes in the middle of a recession."

Senate Minority Whip Jon Kyl said tax increases are not the way to reduce the nation's budget deficits. "You can't tax your way out of this problem. You grow," Kyl said.

Both the administration and congressional Democrats have said that tax cuts for individuals making up to $200,000 and couples earning up to $250,000 should be extended without offsets.

The cost of extending these tax cuts would be about $1.4 trillion over a decade. Extending all of the '01 and '03 tax cuts would cost more than $2 trillion over a decade.

Frenzel said that with Congress deadlocked over fiscal matters, policymakers in Washington appear to be pinning their hopes on the work of the presidential commission on fiscal responsibility chaired by former White House chief of staff Erskine Bowles and former senator Alan Simpson.

"I think a lot of people on the Hill are depending on this commission to rescue them. But the commission is going to find it very hard to get 14 of the 18 members to sign on to a hard-hitting program," Frenzel said. (The rules of the commission are that a final report requires the support of 14 of the 18 members.)

Frenzel said he hopes that if Simpson and Bowles can put together a plan that the majority of the panel support "it could help frame the fiscal debate for next year."

"No one else is doing anything positive to help us solve this problem next year," Frenzel says.

Bixby said that while he believes the Bowles-Simpson commission can do "some positive things" he is concerned that it has given lawmakers "cover to avoid making hard choices now. Everyone can say, let's just wait and see what the commission comes up with."