Friday, November 09, 2012

Obama On The Fiscal Cliff: "We Can't Just Cut Our Way To Prosperity"

Nov 9: In a relatively brief statement at the White House President Obama laid out his general strategy to address the serious problem of the "Fiscal Cliff" which must be address before the end of the year [See WIMS 11/8/12]. Significantly, he said he would not back down on his commitment not to raise taxes of 98% of households and 97% of small businesses, which would increase substantially at the end of the year if the "Bush tax cuts" are allowed to expire. He also said that those making over $250,000 should be paying more to address the deficit issue and invest in programs to move the country forward. And, he seemed to leave the door open on how revenues could be increased for those making over $250,000, but he said Congress can act immediately to extend the tax cuts for those making under $250,000 and end their uncertainty now. Specifically, the President said:

"As I said on Tuesday night, the American people voted for action not politics as usual. You elected us to focus on your jobs, not ours. And in that spirit I've invited leaders of both parties to the White House next week so we can start to build consensus around the challenges that we can only solve together. And I also intend to bring in business and labor and civic leaders from all across the country here to Washington to get their ideas and input, as well. You know, at a time when our economy's still recovering from the great recession, our top priority has to be jobs and growth. That's the focus of the plan that I talked about during the campaign.

"It's a plan that rewards small businesses and manufacturers that create jobs here and not overseas. It's a plan to give people the chance to get the education and training that businesses are looking for right now. It's a plan to make sure this country is a global leader in research and technology and clean energy, which will attract new companies and highways jobs to America. It's a plan to put folks back to work, including our veterans, rebuilding our roads and our bridges and other infrastructure. And it's a plan to reduce our deficit in a balanced and responsible way.

"Our work is made that much more urgent because at the end of this year we face a series of deadlines that require us to make major decisions about how to pay our deficit down, decisions that will have a huge impact on both the economy and the middle class, both now and in the future. Last year, I worked with Democrats and Republicans to cut a trillion dollars worth of spending that we just couldn't afford. I intend to work with both parties to do more, and that includes making reforms that will bring down the cost of health care, so we can strengthen programs like Medicaid and Medicare for the long haul, but, as I've said before, we can't just cut our way to prosperity.

"If we're serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes. That's how we did it. That's how we did it in the 1990s, when Bill Clinton was president. That's how we can reduce the deficit while still making the investments we need to build a strong middle class, and a strong economy. That's the only way we can still afford to train our workers, or help our kids pay for college, or make sure that good jobs and clean energy or high tech manufacturing don't end up in countries like China.

"Now, already I've put forward a detailed plan, that allows us to make these investments while reducing our deficit by $4 trillion over the next decade. I want to be clear, I'm not wedded to every detail of my plan. I'm open to compromise. I'm open to new ideas. I'm committed to solving our fiscal challenges, but I refuse to accept any approach that isn't balanced. I'm not gonna ask students and seniors and middle class families to pay down the entire deficit, while people like me making over $250,000 aren't asked to pay a dime more in taxes. I'm not going to do that.

"And I just want to point out, this was a central question during the election. It was debated over and over again. And on Tuesday night we found out that the majority of Americans agree with my approach. And that includes Democrats, independents and a lot of Republicans across the country, as well as independent economists and budget experts. That's how you reduce the deficit, with a balanced approach. So our job now is to get a majority in Congress to reflect the will of the American people. I believe we can get that majority. I was encouraged to hear Speaker Boehner agree that tax revenue has to be part of this equation. So I look forward to hearing his ideas when I see him next week.

"And let me make one final point that every American needs to hear right now. If Congress fails to come to an agreement on an overall deficit-reduction package by the end of the year, everybody's taxes will automatically go up on January 1st -- everybody's -- including the 98 percent of Americans who make less than $250,000 a year. And that makes no sense. It would be bad for the economy and would hit families that are already struggling to make ends meet.

"Now, fortunately, we shouldn't need long negotiations or drama to solve that part of the problem. While there may be disagreement in Congress over whether or not to raise taxes on folks making over $250,000 a year, nobody -- not Republicans, not Democrats -- want taxes to go up for folks making under $250,000 a year. So let's not wait. Even as we're negotiating a broader deficit reduction package, let's extend the middle class tax cuts right now. Let's do that right now.

"That one step -- that one step would give millions of families, 98 percent of Americans and 97 percent of small businesses, the certainty that they need going into the new year. It would immediately take a huge chunk of the economic uncertainty off the table. And that will lead to new jobs and faster growth. Business will know that consumers, they're not gonna see a big tax increase. They will know that most small businesses won't see a tax increase. And so a lot of the uncertainty that you're reading about that will be removed. In fact, the Senate has already passed a bill doing exactly this. So all we need is action from the House. Now, I've got the pen. Ready to sign the bill right away. I'm ready to do it. I'm ready to do it.

"You know, the American people understand that we're gonna have difference and disagreements in the months to come. They get that. But on Tuesday they said loud and clear that they won't tolerate dysfunction, they won't tolerate politicians who view compromise as a dirty word -- not when so many Americans are still out of work, not when so many families and small-business owners are still struggling to pay the bills. What the American people are looking for is cooperation. They're looking for a consensus. They're looking for common sense. Most of all, they want action. I intend to deliver for them in my second term. And I expect to find willing partners in both parties to make that happen. So let's get to work."

    Yesterday, the ... issued a report entitled, Economic Effects of Policies Contributing to Fiscal Tightening in 2013. CBO indicated that, "Substantial changes to tax and spending policies are scheduled to take effect in January 2013, significantly
reducing the federal budget deficit. According to the Congressional Budget Office's (CBO's) projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013) -- reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year. That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013. After next year, by the agency's estimates, economic growth will pick up, and the labor market will strengthen, returning output to its potential level (reflecting a high rate of use of labor and capital) and shrinking the unemployment rate to 5.5 percent by 2018."
    Senate Minority Leader Mitch McConnell (R-KY) issued a brief response to the President's statement saying, "I was glad to hear the President's focus on jobs and growth and his call for consensus. But there is no consensus on raising tax rates, which would undermine the jobs and growth we all believe are important to our economy. While I appreciate and share the President's desire to put the election behind us, the fact is we still have yet to hear an actual plan from the President for addressing the great economic challenges we face. What's needed now is a realistic and specific proposal from the President that can actually pass the Congress.

    "For the last two years, the President avoided outlining these kinds of realistic solutions. Now that the election is over, the American people expect a plan that reduces spending, reforms the entitlement system, and puts us on a path to ending our chronic annual deficits -- without harming an already fragile economy. While the Speaker and Republicans in Congress have sought common ground by calling for pro-growth tax reform without raising tax rates, we have yet to hear from Democrats on spending and entitlement reform. Every one of us wants to help the American people by helping the economy grow, and Republicans are eager to hear the President's proposals on this and many other pressing issues going forward. The President has a duty to lead. We implore him again to do so."

    Earlier in the day, before the President's statement, House Speaker John Boehner (R-OH) issued a statement saying in part, "The members of our majority understand how important it is to avert the fiscal cliff. That's why the House took action earlier this year to replace the 'sequester' with other types of cuts. And it's also why over the summer we passed a bill to extend all the current tax rates for one year so that we had time to overhaul our tax code. And it is why I outlined a responsible path forward, where we can replace the spending cuts and extend the current rates, paving the way for entitlement reform as well as tax reform with lower tax rates.

    "2013 should be the year we begin to solve our debt through tax reform and entitlement reform. I'm proposing that we avert the fiscal cliff together in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us. This will bring jobs home, result in a stronger, healthier economy. And a stronger, healthier economy means more Americans working and more revenues – which is what the president is seeking."

    Access the full text of the President's speech (click here). Access the CBO report (click here). Access the statement from Sen. McConnell (click here). Access the statement and video from Speaker Boehner (click here). [#All]