For our next Readers’ Review: “Alice’s Adventures in Wonderland” by Lewis Carroll. The whimsical classic turns 150 this year. Help us mark the occasion by joining our discussion.
Diane and her guests talk priorities and prospects for compromise on tax rates, spending cuts and other key policy decisions in the final weeks of the lame duck Congress.
- Ron Elving senior Washington editor for NPR.
- Amy Walter political director for ABC News.
- Julie Hirschfeld Davis congressional correspondent for Bloomberg News.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Lawmakers and President Obama have just five weeks remaining to come to deal on taxes and spending. So far, progress to avert the so-called fiscal cliff has been slow. To help us understand what to expect from this lame duck session and its importance for President Obama's second term: Amy Walter, political director for ABC News, Ron Elving, senior Washington editor for NPR, and Julie Hirschfeld Davis, congressional correspondent for Bloomberg News.
MS. DIANE REHMDo join us. Questions, comments, call us on 800-433-8850. Send us your email to firstname.lastname@example.org. Follow us on Facebook or send us a tweet. Good morning, everybody.
MR. RON ELVINGGood morning, Diane.
MS. AMY WALTERGood morning.
MS. JULIE HIRSCHFELD DAVISGood morning, Diane.
REHMAmy Walter, what's the latest on the so-called fiscal cliff? Where do things stand?
WALTERWell, they stand where people seem to be acting reasonably, which is quite different from the Washington that we're used to. The polarizing and the pulverizing that we've seen over the course of the campaign seems to be giving way, at least at this point, to talk of compromise. There are Republicans going on television, talking to reporters, telling them that they might even violate the pledge, the infamous Grover Norquist pledge that says they will not raise taxes of any sort.
WALTERYou hear Democrats going for it and saying, of course, we'll look at entitlement reform. So from -- on its face, you should be -- we should be very hopeful that something will happen. But you sort of dig underneath that, go underneath the facade a little bit, and what you see is still two parties very dug in on the issue of taxes and entitlement reform. Republicans say, we're happy to talk about putting revenues on the table as long as you don't raise tax rates.
WALTERDemocrats say, absolutely not. Tax rates must rise. Democrats say, we're happy to put entitlements on the table. Of course, we're not going to talk about Social Security. That's not the issue. So what we have is two parties that do -- they took some measure of this election where they heard voters saying, we want you guys to work together. We need to see compromise. We know how serious this is. They talk in a way that suggests we will get to compromise. However, we know there are big roadblocks along the way, and as with everything with Congress, nothing's ever as easy as it seems, Diane.
REHMBut, Ron Elving, haven't I heard even President Obama saying everything has to be on the table? We have to look at entitlements. We have to look at Social Security.
ELVINGWell, yes, you do hear people say that everything has to be on the table. You do hear the president say some of those magic words. The president may not be exactly the problem here. I think we have more of a problem on Capitol Hill than we have at the White House.
ELVINGAnd here's why I'd say that: The White House wins if we get a deal that satisfies the markets, makes consumers feel good again, gets everybody out there spending all the money that they would like to spend for Christmas and the holidays and travel and all the rest of it, and gets investors, businesses to take some of these cash off the sideline and get much busier investing in getting this economy rolling at a much more robust rate than it has been the last several years.
ELVINGThat's what the White House ultimately wants. Anyway it can get there without utterly slaughtering all the Democratic principles -- which they wouldn't, of course, be able to do because there'll be Democrats keeping them from doing it in the Congress -- is OK with the White House. They want a deal above all. Now, you go over to the other end of Pennsylvania Avenue, and you not only run into those Republicans that Amy was talking about but a whole bunch of Democrats who really feel as though by winning in November -- now, of course, they only have the Senate.
ELVINGBut they picked up a couple of seats there, and they picked up some seats in the House. They're back up to 200 seats in the House. And they feel as though they've been vindicated, and they want to see the president tough it out on Social Security and Medicare and Medicaid and a lot of other discretionary programs. So they're going to be as much of a problem for the president in trying to get to a deal that is so paramount for him and his future as the Republicans are.
REHMAnd, Julie, how do you see it?
DAVISWell, the other thing that we have to remember, the other side of the coin that Ron is talking about is we -- you have a more -- a slightly more liberal Democratic caucus on the Hill as he was alluding to. But you do also have a fairly sizable group of Republicans who were looking at the election and saying, you know, maybe we'll get a better deal if we have a Republican president after November. We're going to hold out. And those people may be more willing to come to the table.
DAVISThat's part of the reason that we're starting to see, as Amy mentioned, Republicans go on the record and say, well, tiptoeing toward, I might be willing to sacrifice my pledge if entitlements are on the table, if this, if that. I mean, the ifs are the crux of the issue here. And we tend to forget, given that we've just been through a pretty hard-fought campaign, that President Obama and John Boehner, the House speaker, were fairly close to a deal along these lines. They were on the brink of it last summer, and they weren't able to push it over the finish line.
REHMSo are they more likely to be able to do that now?
DAVISI think because of all the reasons that my colleagues here have laid out, they are more likely. I think the stakes are higher in the economy. Everyone sees the political stakes as much higher. We now have an election in the immediate rearview mirror, and everyone is the mood, I think, to put some of what they learned from that behind them and just move on to newer fights. And also Republicans do have an interest in seeing tax reform happen.
DAVISIf they were able to get a framework of a deal, as they're talking about doing in the lame duck Congress, to next year come to the table and do a broader overhaul of the tax system, that would meet a goal that a lot of Republicans have been laying out for a very long time: to broaden the base, that is to expend the group of people who pay taxes in this country and to simplify the code and lower rates. So I think that they have a fairly large incentive, particularly now that they know they're not going to have a Republican president to deal with on this negotiation.
REHMI have heard some conservative commentators say that President Obama really wants to go over the cliff. Talk about the cliff and what would happen if there were no agreement, Ron.
ELVINGFirst of all, it's not really a cliff. It's a set of deadlines. They were set up intentionally. They were set up to force exactly the kind of situation that we have now where people would have another good reason to make this the time that they faced all over the political pain that has to be done. Sen. Bob Corker has used, in today's Washington Post, the analogy of ripping off the Band-Aid. This is the moment. Let's do it. We've forced ourselves to do it. So we're coming up to these deadlines.
ELVINGThey've extended all the Bush Tax cuts until the Jan. 1, and they also set the end of this year as the moment for some automatic spending cuts they call sequestration, equally distributed between defense and non-defense. It brings both parties onboard. These cuts are extraordinarily deep, sudden and fast, and they would also probably -- most economists seem to think, including the president's own advisers, that if all that happened at the same time, the tax increases and the spending cuts on the part of the federal government, would be de-stimulating to such a degree that it would be like falling off a cliff.
ELVINGThat's where all of this came from. That's where the analogy comes from, the metaphor. And the fact of the matter is we would all wake up on Jan. 1 and the world would look much the same. We would notice in our next paycheck the federal government, if you do pay federal income tax as opposed to payroll taxes, if you do pay the progressive income tax -- and about half -- a little more than half of Americans do -- that would go up. And you would surely notice it because it would be going up a good bit.
ELVINGAnd also, some other taxes would increase that you might see further down the road. And if you depend on the federal government in any sense, either as an employer or a contractor or someone who receives a benefit from the federal government, you would probably see that affected fairly quickly. And that's what's meant by all this. And they're forcing themselves or attempting to force themselves to really make the tough decisions. In the past, they've come to these precipices, and they have figured out some way to climb down. We'll see what they do this time.
REHMAnd, Amy, what would be the advantage if, in fact, Congress did nothing and we did go off the fiscal cliff according to conservative commentators?
WALTERWell, some conservatives suggest that going off the cliff actually gives these Republicans who signed this pledge that they won't raise taxes an opportunity to basically stay true to that pledge because what they will be doing in the next year is actually voting to cut taxes, right? A tax increase has been imposed automatically. They did nothing to do that. It just happened. Now, they get to go and cut taxes. And theoretically, you could also do real tax reform instead of just moving around the edges.
REHMAnd what would be the advantage to the White House?
WALTERThe White House would then argue that, you know, they get a political -- I don't think the White House wants this, quite frankly. I think there are many liberals who would like this. I think there are a lot of liberals -- we've seen Patty Murray for example from Washington State and others -- suggesting similarly to some conservatives like over the edge. It's not as bad as you think, number one, and, number two, you know what, we won this election. The voters are on our side.
WALTERWe saw it in the exit polls. We're seeing it in recent polls, one that came out today from CNN suggesting that voters would blame Republicans more if there were a fiscal cliff disaster, that voters want to see taxes raised on wealthy people. Fine. They want to bluff. Let's call their bluff. And then let's keep Republicans in the minority in Congress forever. We have a midterm election coming up. Let's see them try to defend that.
REHMSo what are the odds that nothing gets done, Julie?
DAVISI mean, I think there are -- you always have to give at least maybe a little under 50 percent chance that nothing gets done, I mean -- but not much under 50 percent. I think they are very much on the bubble here in terms of whether or not they're going to be able to push this through in a way that they couldn't do last year. The political dynamics have changed. But you still do have two sides that are very much stuck into their positions.
DAVISAnd one of the issues with going over the fiscal cliff, which some have argued, as you say, maybe do it for a little while, maybe a couple of days, a week, we saw what happened in 2008 when the TARP bill, the financial bailout bill, went down in the House and the markets went berserk. And that snapped lawmakers to attention on Capitol Hill in a way that nothing previously had.
DAVISAnd we could see a similar effect if we go over the cliff and the markets react very negatively, which all the indications since the election has ended are that they would, you know, you could see Capitol Hill really light up, the switchboards really light up. The U.S. Chamber of Commerce, you know, might be running around. You got business groups who are very much invested in having this solved. So that could be a precursor to a deal.
REHMJulie Hirschfield Davis of Bloomberg News. Short break. When we come back, we'll talk about the Democrats' tax plan and the Republicans' tax plan. Stay with us.
REHMAnd if you've just joined us, Ron Elving is here. He is senior Washington editor for NPR. Julie Hirschfeld Davis, congressional correspondent for Bloomberg News, and Amy Walter, political director for ABC News. Before we get to specific tax plans, here's an email from Bob in Rochester, who's listening on WXXI: "Please explain why Social Security should be part of the discussion. As I understand it, Social Security is not part of the deficit and debt problem." Ron.
ELVINGWell, it is, and it isn't. After all, Social Security -- and this is a very long-standing debate as to whether or not Social Security is or isn't part of the deficit problem. The fact is that Social Security Trust Fund has been visited, raided -- choose whatever verb you want to use -- for many decades...
REHMRaided is a good word.
ELVING...to cover the costs of running the current federal government, and therefore, while there is a wonderful principled argument to be made that Social Security should be absolutely left alone, it probably will not be. And in the past, when Social Security has reached its points of insolvency or at least future insolvency and people got panicked about it, particularly in the early '80s, and a guy named Alan Greenspan rode into town -- and he was not yet been chairman of the Federal Reserve Board.
ELVINGAnd he and a bunch of Democrats and Ronald Reagan all worked out a deal that was supposed to keep Social Security solvent forever, more or less. And now 30 years have passed, and Social Security is really not in terrible condition, but it does need some tweaks. They either need to raise the income limit at which they cut off taxing people's income, which is now a little over $100,000.
ELVINGThey could make it 120, 130. That would take care of it quite a bit.
REHMOr they could lift it all together.
ELVINGThey could lift it all together. But remember that the original bargain on Social Security all the way back to the 1930s was that this was not a progressive tax. This was people putting money aside for their own retirement, and we were not supposedly taxing the well-off to pay for the poor. We were making everybody put something aside and keeping it in the care of the government. Now, that seems a little antique at the moment, and it hasn't worked out exactly the way that it was designed.
ELVINGBut Social Security in and of itself, with a little bit of either delayed benefits or, you know, thinning the benefits just a little bit, a little bit of tweaking here and there could turn itself solvent for the foreseeable future. So it's rather a different animal even though it is part of the mix in all these discussions. And it may be left alone. Back in the sequestration talk of the summer of 2011, when they were going after everybody else and they were setting up this cliff that we're now approaching, they were pretty weary about including Social Security, and they tried to hold it off to one side.
REHMSo do you think that kind of change will happen in these discussions, Julie?
DAVISWell, I think it's the least likely thing to happen. Certainly, if the issue were only Social Security, we wouldn't be having this discussion, and everyone recognizes that. And now that we're hearing Democrats start to talk more openly about entitlement reform and Medicare changes that need to happen, you do still have a fairly sizeable group of Democrats, liberals and -- of all stripes saying, you know, Social Security is really not the issue here.
DAVISBut there is another principal here, which I think is important in these negotiations, which is that if Democrats want Republicans to come to the table in the way that they would need to with revenue to solve this problem, they have to, as President Obama often says, put some skin in the game. And given that Social Security is not going to be solvent forever, even if it's not the driver of the current problem, there's a feeling that you kind all hold hands, wrapped this all up in a bow and figure out a way to make it solvent for longer as you deal with much immediate problems of Medicare.
WALTERWell, and -- I'm going to just pick up on Julie's point about Medicare. I mean, that's really the issue, right, the driver of so much debt. And, of course, it goes back to health care cost, and we talk -- we could talk about Obamacare, right? It keeps -- this issue will continue to arise because health care costs are the one thing that seemingly go out of control that government and no sort of deal seems to be able to fix.
WALTERHowever, fixing some things about Medicare certainly are doable. And, you know, we had a big fight in this election about Medicare. Now, the interesting point is, you know, both sides can see victory there. On the one hand, the Romney ticket lost and, of course, on that ticket was Paul Ryan, who made the issue of Medicare a centerpiece of his budget. The so-called voucherization as Democrats would say, premium support is how Republicans would argue, lost in one sense.
WALTEROn the other hand, it didn't lose that badly. I mean, it's not as if the issue was the defining focus of this campaign, and in some cases, while the president was ahead on Medicare, in the final tally, it was not by such a tremendous percentage that Republicans can look back and say, boy, that was really dangerous. We shouldn't have brought that up at all. In fact, they can say, we didn't get beat that bad on it.
DAVISThe other thing is that if you look at the groups that Mitt Romney and Paul Ryan won, seniors were a big part of it. I mean, it's been the case in the past that you couldn't talk about this without being really afraid that you were going to alienate an important voting constituency. It -- we didn't really see it happen in Florida or anywhere else, really, for Mitt Romney. And now, you could argue that Medicare wasn't the primary issue in this election. But it was certainly very much in the conversation.
DAVISAnd as Amy said, when Paul Ryan became the vice presidential pick, it was a major item on people's radar screen. And they didn't pay for it among older voters. So that is an indication, I think, for Republicans that they can maybe do this and maybe even for Democrats and not get -- pay such a huge political price if they do it the right way.
REHMLet's talk about taxes. What's the Democrats' tax plan?
ELVINGThe basics of Democratic tax plan are that rates would go up for people with incomes over $250,000.
ELVINGThis is only the income over $250,000.
ELVINGNow, right now, that's at 35 percent, and it would go up to 39.6 percent, which is a sizeable increase. It produces a fair amount of revenue, and it, of course, totally violates what would -- Amy's already referred to as the Grover Norquist pledge, which is no tax increase of any kind. And it is generally conceded by Republicans that the most onerous kind of a tax increase is a tax rate increase. That's what they really want to hold down. That's what they've been fighting for since Ronald Reagan came to town 30 years ago.
ELVINGSo that's really the focal point, I think, for the early negotiations. Are they going to insist on splitting the difference between 35 and 39.6, or are the Republicans really going to hold the line? And they might at 35 which would then mean the action moves over to this other kind of tax discussion, which is what about the "tax expenditures." These are the deductions, the exemptions, all the ways that people lower their tax bill by lowering their taxable income.
ELVINGAnd this, of course, is primarily about people who have a good deal of money. Because people who don't make a lot of money basically take the standard deduction and don't really get to write off a lot of things that they would otherwise get to write off if they had a larger income. So deductions and exemptions are largely about people with more money. And if you cap the amount that people may deduct, say, take $50,000, some people say that at $50,000, you could generate a trillion dollars in revenue over the course of 10 years.
ELVINGIf you take it -- I mean, some people would put it more like 850, and all these things are notional. Of course, $850 billion versus a trillion, I wouldn't want to bet my life on which it would be. But these are the estimates we're working with. And if you then ratchet that down to, say, $40,000 in deductions and exemptions for these folks, whoa, now you're really raising money, and you get it all the way down to $30,000, and you would be in the ballpark of the 1.6 trillion. You're not necessarily all the way there. But with some other tax changes…
ELVING...inheritance tax changes and so on, you might very well have something approximating what Barack Obama is asking for in revenue out of the total $4.4 trillion in debt deal.
REHMAmy Walter, what about Bill Kristol's comment last week? "Hey, guys, come on. We can raise these taxes a little bit. It's not going to hurt millionaires to pay a little more." How much impact does a statement like that have coming from a conservative of the nth degree?
WALTERThat is an interesting point, and he made that point again this weekend.
REHMHe sure did.
WALTERNow, the real question -- and this is the dog that hasn't barked yet -- is where is the Tea Party in all this? I mean, if you say the folks that have been out in the media either on the Sunday shows or talking to the folks at Bloomberg, et cetera, these are some of the folks who are the most open to compromise. These are some of the people who've been around the table a lot. There a lot of senators talking. Senate's very important.
WALTERBut this is a deal that needs to get cut by John Boehner and the House. We haven't heard much from them, and I suspect we will soon. When are we going to hear from Paul Ryan, right? He is supposed to be the de facto leader now in the House because of his stature. Certainly, that was his -- his profile was raised a great deal during the election, being the running mate. So where does he and when does he weigh in? And when do these outside groups start to make their vision known?
WALTERI was talking to the head of the Americans for Prosperity, the group that's a conservative group, funded in large part by the Koch brothers. On election night, I said, well, what's next for you guys? Are you going to engage in this fight over the so-called fiscal cliff? Probably we most likely will. Will that be TV ads? Will that be lobbying? It's unclear, but all of these folks have yet to weigh in.
WALTERSo we're talking, at this point, about a handful of people who've spoken publicly, but we haven't heard from some of the most important voices, and specifically the conservative, the Tea Party faction and those folks, even the old-timers, who remember the Ronald Reagan era and when Grover Norquist was at the peak of his power. When are they going to start weighing in? And I suspect once we see some real outlines is when they'll start to talk.
REHMBut surely you've got John Boehner still very much in the picture, and how much of a role is he going to play in deciding how this gets worked out, Julie?
DAVISWell, I think he plays a very -- a huge role, as he did last year. And what's a little bit different this time around is that he and Eric Cantor -- the majority leader who is more aligned, more closely tied with the Tea Party faction, although he came to Congress before that was a thing -- and John Boehner are sounding and acting as if they're more on the same page this time. They -- and as Amy says, we haven't really heard the other shoe drop in terms of what the Tea Party may insist on, what they will countenance and what they won't.
DAVISSo it's hard to tell where the rifts might come between Boehner and the other leaders who will play a role in this. But there's no question that it's going to be he and President Obama who hammer this out, of course with a hefty assist by Mitch McConnell in the Senate. He continues to have the most prominent role, but his hands are tied, to some respect, by the Tea Party and the House. They kept their majority while the Republicans in the Senate failed to win back the majority in the Senate.
DAVISObviously the Republicans didn't win the presidency. They can plausibly argue that they got returned to Washington by voters who liked what they were doing and want to see them keep doing it. So they're going to have to figure out a way that they can take a position here and stay true to that in some way.
REHMAnd what is President Obama's strategy going to be throughout all this, Ron?
ELVINGWell, that's a good mystery at this point. I -- I'm not absolutely certain…
REHMIs he going to go out on the road?
ELVING...that he has the kind of strategy that he had for reelection...
ELVING...which was a carefully disciplined, well-laid out, highly organized strategy of what we're going to do. You come and deal with it. In this case, I don't think that's the way they're going to play this. It hasn't been the way they've played big negotiations with the Congress in the past. There has been much more -- you can call it uncertainty. You can call it you come to us. You can call it what you will. But I don't see him going out, let's say later this afternoon, and saying, here's a detailed version of my plan. Take it or leave it. That's not going to be their style. It's not his style.
ELVINGAnd I suspect that they're going to watch the process a little bit, see where the holes develop, see where the vulnerabilities are, and one other group that's -- that I think going to weigh in here and be a major actor would be the lobbying arms of some of the Washington interests, just to use the common term. Let's talk about people who handle mortgages, people who build homes, people who are involved in the housing industry. They like that mortgage deduction for mortgage interest -- the tax deduction for mortgage interest -- very, very much.
REHMAnd so do a lot of young people buying their first homes.
ELVINGThat's right. A lot of people are very attached to that. And when they're suddenly told, no, your tax rates aren't going to go up, but you can't write off the mortgage on your house, whoa, we're going to hear from them.
REHMAnd you're listening to "The Diane Rehm Show." Amy.
WALTERI mean, I think the interesting thing to watch for for the president is are we going to see a more engaged president one on one with Boehner and congressional Republicans behind the scenes, doing that kind of work, or are we going to see the president that we saw on the campaign trail who wants to rally the public? He said, it's your job, Americans, to...
REHMWhat's your guess?
WALTERWell, OK, how about this? What I think he should be doing versus what he will be doing. I think he's much more comfortable out on the stump, making the case, and you can point to the polls that say he's right. But if you look at who these members are that he needs to get on his side, the people in their district are not the people in these polls. The people in their districts are not who they're worried about. They're worried about a primary, and a primary electorate is absolutely not the kind of electorate that Barack Obama is talking to when he goes out on the trail.
WALTERSo, I mean, I think if -- this is sort of setting not just the future of the fiscal cliff negotiations, but the future that the president wants to have with Congress for the next four years, which is is he going to be a more engaged president that is doing the kind of sit down, get your hands dirty, not very much fun, not necessarily very glamorous work? Or is he going to try to do what he did in his first term, which is fly above it, let congressional leaders hash it out and then he comes and swoops in at the end?
REHMAll right. Let's open the phones first to Arlington, Va. Good morning, Adam.
ADAMGood morning, Diane.
REHMHi there. Go right ahead, sir.
ADAMSure. I remember during the second presidential debate, Obama said that the sequestration cuts would not happen. It sounded like he was taking ownership of it there. Do you feel that if the cuts do not go -- if the cuts actually do go through and a deal is not made, will he be held responsible? Will that comment come back to bite him?
DAVISWell, I think if that happened, it certainly would, and for that reason, it's not going to happen. I mean, I think that President Obama doesn't want to see it happen. We know that congressional Republicans don't want to see it happen.
REHMBecause of defense cuts, especially.
DAVISBecause -- yeah. This was designed as something that God forbid it should ever happen, so we need to reach a deal. It wasn't designed as something that policy wise would be a good thing, that substantively anyone would want to see happen. I think, at the very least -- and this would be an outcome that I think voters would probably not very -- not like very much, and a lot of members of Congress and certainly President Obama wouldn't like very much.
DAVISBut at the very least, we're going to see them kick that can and figure out a way to reverse those cuts if they can't do anything else. I don't really expect to see that happen, and I think that's why he felt confident enough in that debate to say...
REHMTo say that.
DAVIS...it's just not going to happen.
ELVINGHe was clearly not in a position to say, yeah, gee, that could happen. That would be really bad. So he was going to say, as confidently as possible, don't worry. I got this. We heard this from Barack Obama, by the way, in the spring of 2009 when, as we've all pretty much forgotten, the banking system was on the brink of collapse and, seriously, the world financial system was really wobbling. And there were moments when people thought, gee, we just elected this rookie president who doesn't really have a business background.
ELVINGAnd so he gave a series of speeches, a series of appearances in which he was essentially saying, everybody chill out. I got this. I got this. We're going to keep this together. It's not going to happen in the worst scenario kind of way. And that was really one of his best moments as president. It faded rather quickly as they got into health care and a lot of other more complicated stuff. But for that moment, he was very reassuring, and I think that's what he was trying to do in that fall debate.
REHMRon Elving of NPR. More of your questions, comments when we come back. Stay with us.
REHMAnd welcome back. We'll go right back to the phones to Birmingham, Ala. Kyle, you're on the air.
KYLEHi. Good morning, Diane.
REHMGood morning, sir.
KYLEI wanted to comment on one of your guests. I think it's Ron commenting on Social Security...
KYLE...suggested something that it isn't rated or visited. I think that's a common kind of feeling that the Social Security Trust Fund -- the money that should be there is not. But as far as I can tell, it is working exactly as it has worked for the past 60 years which is the excess of taxes over what's paid out is put into treasury bills. And that money is not -- has not been stolen or rated. It just isn't there quite like people might imagine it.
KYLEBut what really worries me is that sometimes it makes it sound like if it was -- if the three-or-so trillion dollars that is supposed to be on the treasury fund was there in gold bars or barrels of oil, then that would mean that Social Security was funded.
REHMLittle premier, Ron.
ELVINGYes, and this is bookkeeping to some degree. And the full phasing credit of the federal government absolutely stands behind Social Security, and people who have been on Social Security for a number of years have nothing to worry about. And, in fact, I would speculate that none of us has anything to worry about with respect to Social Security. We might get it a little later. We might get it in slightly smaller streams.
ELVINGAnd we might have to pay a little more payroll tax along the way to getting there, but it's not in any kind of special danger. And I do think there's been a lot of scary talk and a lot of fear-mongering on this subject because people really should not fear any threat to their Social Security benefits. I think Medicare is a little different because the costs there are too explosive and...
REHMAnd going up.
ELVING...because the funding mechanism is nowhere near as certain and it doesn't have the same level of universal acceptance in terms of Social Security, so I would say that the caller is absolutely right. No one should have any fear about this but that, yes, there is this image, there is this myth that somehow there's a gold bar somewhere with your name on it. And that's just not the way it works.
REHMTo Brandenburg, Ky. Hi there, Ron.
RONHey. Good morning. I called in right about the break. As you approached the break, it was suggested that we could not go with the fiscal cliff particularly because of the cuts to the military. Well, I'm calling in as a retired Army major, just recently, multiple deployed to Iraq and Afghanistan. And I say, if that's the only way we might start, we'll see in our military expenditures, our defense expenditures, I say go over the cliff.
RONAgain, after 23 years active service, eight years guard, you know, I respect the military, but we need to start getting real. Pre-9/11, we had a DOD budget of about $305 billion. It's now approximately $700 billion. Once you add in NSA, Homeland Security, every other aspect of our national security apparatus, one estimate is we're about $1.6 trillion a year, far outspending the entire rest of the world. It doesn't make us more secure. It doesn't defend our freedom. It's actually threatening our security and freedom because of the cost at this time. That's reality.
DAVISWell, you know, I think the caller makes a good point, and actually, it is something that we have heard more members of Congress, particularly Republican members of Congress, particularly Tea Party-affiliated folks and people who consider themselves to be more libertarian, say, we have to look at every aspect of the budget. If we want to talk about spending cuts and we're spending cuts that will really have an impact on holding down the explosion of the national debt, we have to look at military cuts.
DAVISAnd I do think we are going to see more of an appetite for doing that. I don't believe that we'll see the sequestration go into effect to the degree that it was -- that it's scheduled to automatically. But I do think that as part of any deal, there is an increased appetite. And for the reason that your caller points out, that people are more willing to look at this. It's a huge part of the budget. And it's not that people think there should be draconian cuts.
DAVISBut this approach of saying everything has to be on the table except for military or defense spending, I think that's over. We did hear Mitt Romney argue for that a little bit in the campaign. He wanted to see spending cuts everywhere, tax reductions everywhere, but not only hold the defense spending harmless but actually keep the floor above where it is now. I think we saw pretty sound rejection of that information.
REHMThanks for calling, Ron. Here's an email from Keith. He says, "You asked what would be the main benefit for the administration if we went over the fiscal cliff. Going over the cliff would allow the administration to go back and cut taxes selectively for those groups that the administration has identified as deserving, those who aren't below $250,000 or whatever the threshold is decided on. The counterpart would be that those who weren't above the threshold would be subject to tax rates applicable before the Bush tax cuts."
WALTERRight. Although they could, theoretically -- I mean, the president has made it pretty clear he wants to do that without having to go over the fiscal cliff, right?
WALTERYou don't have to -- this isn't about, you know, there are some people who suggest the only way to fix something is you got to break it completely and then rebuild it as opposed to trying to patch and wire it and rejigger it every now and then.
WALTERAnd, look, if we're going to get to this, say, why do this medium fix and then wait till next year and do the real big tax reform fix when we just kick it to 2013, then deal with all of it at once? We talk about all these deductions at once. We talk about tax rates. We make it smaller and fairer and better. If you thought that the health care bill and all the lobbying that went on with that and all the back and forth was awful, just wait until you see what happens with tax reform. It is every single group in this country has skin in the game.
WALTERAnd it would be unbelievable.
REHMHere is a question that I think a lot of people have because it came out during the campaign. From Dell in Florida, "Is it true, as claimed by Republicans, that you could take all the rich people's money, not just more taxes from them, and that would not solve the problem of overspending? Taking in less than is going out." Ron.
ELVINGWell, if you continue to spend...
ELVING...more than you take in, you will always have a deficit, yes. And if you expected to take all the assets away from some definition of rich in one moment and then come back and do it again next year, obviously, you would be disappointed in the second year. But that having been said, what's being proposed here is really nothing like a confiscatory tax, although it will be called that. If you go from 35 percent to 39.6 percent, that is a substantial increase. It does not mean you're taking everything that people have.
ELVINGAlso, we are only talking about the income over a certain dollar amount, and this is sometimes a lost point, that we're only talking about raising taxes on the income above 250 -- and, by the way, I don't know that it'll wind up being 250. It might very well wind up being a much higher number, 500, for example, seems pretty likely. So we're talking only about that portion of income that is above $500,000. The first $500,000 would continue to enjoy the lower tax rates we've had for the last 10 so years, so...
REHMWould that be a compromise that you think both Democrats and Republicans could agree on 500,000 as opposed to 250?
ELVINGAs long as both sides can claim credit for it and say, look, hey, you know what, I'll just put it the other way. Let's say that both sides can then blame that on the other side and take credit for having softened the blow one way or another. And, of course, they have opposite arguments to make it to their respective constituencies, and they will make those arguments. But at some point or another, we're going to move off the numbers we're talking about now and start talking about something that's a little closer to the middle.
REHMAll right. To Jason in Dallas, Texas. Good morning to you.
JASONGood morning, Diane.
JASONMy question kind of was touched on by one of the recent emails about if we go off the cliff and the president tries to get this civic tax cuts that he would like to see, but also maybe doing some other kind of a stimulus package to help, you know, buffer the supposed double-dip recession.
JASONMy question is, if that's put forward in that way that we go over the cliff and then the president puts forward what he wants and that gives the Republicans an opportunity to shoot those down specifically, what message does that give to the people about what the Republican Party stands for right now? And I'll take my question -- my answer off the air.
DAVISWell, I think that is part of the calculus for the Democrats who -- and some of the conservative Republicans who are saying we should go over the cliff and see what happens. Part of it is a negotiating tactic because as Amy said earlier, there is a feeling on the part of the White House that they've laid out what they want to do here. The polls show that at least on the issue of taxing the wealthy more, the public is on their side.
DAVISYou know, let's go over the cliff and see if the public tolerates a situation where they see a Republican-led Congress blocking consensus on an issue that everyone agrees is important. Now, we saw after the 2010 elections, there was some polling that was disconcerting to Democrats that showed that people wanted to see the deficit handled and they trusted Republicans more to do it. Now, we're seeing the opposite side of that coin.
DAVISThey want this handled, but they are more likely to see Republicans as the culprit if something doesn't happen. Whether that's fair or not, that is the way the table has been set here, and it's advantageous to the president because if there isn't a deal and if the cliff is breached then it's likely that the public will blame Republicans more.
WALTERAnd let's also just talk about trying to look into the future for political fallout. It's always dangerous to do that, right? Everybody likes to play these chess games and say, well, if I moved the rook here and then the queen, this is going to happen. The reality is we go over the cliff, the markets do as we suspect that they do, everybody is going to suffer, everybody who is involved in this. Maybe the Republicans get more of the blame, but certainly both sides are going to get the blame.
WALTERAnd Washington, which already has an approval rating barely higher than athlete's foot is going to see its approval ratings go down maybe into the negative levels. So I don't think it does anybody any political good to let this happen. And, in fact, I think what Boehner and the president are saying, my suspicion, is that they have a chance now to make each side look good. By making the other guy look good, they make themselves look good.
WALTEREmbolden their own future and then the future of the party.
REHMLet's talk for a moment about unemployment benefits because they're tied in here. Amy, what could happen there?
WALTERWell, it's -- it would end the extension for the unemployment benefits.
REHMThe extension deal?
WALTERThat's right. I don't know what the -- do you know which -- what number on...
REHMIt's up to 99 weeks...
REHM...and could go back.
WALTERRight. And we can also be looking at -- remember, we have the payroll tax cut that Ron mentioned that also is a piece of this. Nobody is fighting to keep the payroll tax cut, Democrats or Republicans. So when we talk about the fiscal cliff, we're focusing almost exclusively on this big number of the 39.6 versus 35 percent, but there are lots of other little pieces in there that are going to impact folks...
REHMA lot of people.
WALTER...and a lot of people. And we don't talk about that as much in some ways because we sort of expected this was going to go away anyway. That these were meant to be short-term patches rather than long-term fixes.
REHMAnd speaking of short term, how long do you think all these is going to take?
REHMIs it going to go to one minute before midnight on New Year's Eve?
ELVINGOh, it could, it could. There is no question that it could.
REHMI hope it doesn't.
WALTERThey never do anything on time, right? They're never like, hey, you know, if we get it done by the 15th, we can all get our Christmas shopping done and...
ELVINGThat's what Nancy Pelosi said.
WALTERYeah. Right. Let's just work together and get it done on time.
ELVINGYeah. She said, let's go shopping for our grandchildren. That's a lovely idea. But the reason that we have deadlines in politics is because that does motivate behavior. It does finally get things done, and that's what this whole business is about. The fiscal cliff is really a deadline. That's really what it is. And I suspect that something will get done. And I hate to say this, but I suspect it'll get done in the last hours. That then gives us a little more time next year but gets some kind of framework in place that actually does involve some political pain.
REHMAnd you're listening to "The Diane Rehm Show." On another issue, what about immigration reform, Julie?
DAVISWell, I think we're probably not going to see anything on immigration reform in the lame duck Congress, but I -- it should not be very long at all after President Obama takes his second inaugural.
DAVISBecause Republicans are at the point now where, you know, they're openly saying, we've got to get well on this issue. We've had the wrong approach. We've now been through an election where 71 percent of Hispanics supported the president and, you know, tiny and not large enough proportion of that very fast growing group of voters saw a fit to even support Republicans at the presidential level or on down the ticket. So they know that if nothing else, their message has been wrong.
DAVISI think there's going to be a big debate over whether the substance has been wrong, but they know they have to talk differently and act differently on this issue to be able to have a chance in elections in the future.
REHMTo Jacksonville, Fla. Hi there, Lorrie. (sp?)
LORRIEHow are you?
LORRIEMy question is this: Constitutionally, given that direct taxes are Social Security and Medicaid and indirect taxes are things like property tax, sales tax and the profit tax, which you all call the income tax, haven't -- who we're going to tax been on the table all the time? And isn't the real issue now who we're going to tax more?
ELVINGYes. I would say it is the real issue that someone is going to pay more taxes. I don't think there's any question, but that someone is going to pay more taxes. My guess is it would be a lot of some ones. And that because of some of these expiring provisions, like the payroll tax and so on, it will be a lot of people who do not consider themselves rich. It'll be people who are by no means rich.
ELVINGBut if that's going to happen, then as the president has said, we also must go to those who are, by most any measure, well-off, wealthy, rich, call them what you will, and ask of them a greater contribution and, you know, stop holding them harmless and all of this on the theory that they create jobs with every dollar they don't spend in taxes.
REHMAnd beyond the fiscal cliff, you said the immigration until after all this is solved, what else might be looked at, indeed, accomplished before the end of the year?
ELVINGWe've got quite a list. We've got a defense authorization bill. They still haven't gotten that done. It's under filibuster threat in the Senate. The FISA bill, this is Foreign Intelligence Surveillance Act we heard so much about in the terrorist era, terrorism era or war on terror era. And we're obviously still worried about terrorism. We have a postal reform bill that is going to mean a lot to an awful lot of people whether they realized it yet or not. We have the Violence Against Women Act.
ELVINGWe just had a major observation of the international violence against women effort yesterday. That has not been renewed and that is running out at the end of this year. And finally, for all those people who care about food, the Farm Bill has not been renewed. And that is a rather major issue for people on food stamps, for people who produce food, for people who process food. That too has been held up in the House because they just don't have the votes to pass it.
REHMSo are they going to -- they came back today, are they going to accomplish a lot or a little?
DAVISWell, I mean, what you typically see at this stage of the process, whether it's a lame duck Congress or the end of a proper Congress, is these omnibus efforts, where everything, for good or for ill -- usually for ill -- gets kind of wrapped up...
DAVIS...in a big -- on a vehicle. And, you know, the staffers who are working hard to negotiate all the details on this stuff, they know they are only a few trains leaving the station between now and Christmas, so we're going to probably see a pretty big train carrying a lot of trucks. And so they could get a lot done, but it probably will be messy.
REHMJulie Hirschfeld Davis, Ron Elving, Amy Walter, let's hope they do a lot and do it well. Thank you.
ELVINGThank you, Diane.
WALTERThank you, Diane.
REHMAnd thanks for listening, all. I'm Diane Rehm.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Susan Nabors, Rebecca Kaufman, Lisa Dunn and Jill Colgan. The engineer is Erin Stamper. Natalie Yuravlivker answers the phones.
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