Week In Politics: Climbing Down From The Fiscal Cliff

Robert Siegel talks to regular political commentators, E.J. Dionne of The Washington Post and Brookings Institution, and David Brooks of The New York Times. They discuss the climb down from the fiscal cliff.

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ROBERT SIEGEL, HOST:

And now our Friday political observers, columnists E.J. Dionne of The Washington Post and the Brookings Institution, and David Brooks of the New York Times. Happy New Year to both of you.

E.J. DIONNE: Happy New Year to you.

DAVID BROOKS: Happy New Year.

SIEGEL: Let's revisit the nation's climb down from the cliff this week. Here's a cynical view of what happened in the waning hours of the 112th Congress. Faced with a self-imposed deadline to address a projected long-term imbalance between federal spending and revenue, after much breast-beating, the Congress and the administration bit the bullet and gave 98 percent of Americans a permanent tax cut and kicked a can the size of Wyoming down the road for two or three months.

David Brooks, two cheers for Washington, one cheer?

BROOKS: That view is not cynical enough. This was a complete failure. You know, we could have had a balanced approach, which was what the president offered, which was some tax increases and some spending cuts. We didn't get that. We got no spending cuts. We could've taken care of our long-term debt problem. We did almost nothing for that. We could've had a short-term stimulus. We did almost nothing for that.

We could've cleared the decks of all this budget fighting and gotten on to immigration and gun control, the other stuff. Instead, we guaranteed several more months of more and more budget fighting. So I'd say this deal was a complete failure. And I actually don't blame Washington. I blame the American people. For the last couple generations, American voters want to spend money on themselves and take money from future generations and this continues the trend.

SIEGEL: And yet, E.J., you've managed to write optimistically about this very same deal. Tell us what you see full in the glass here.

DIONNE: What I see in the glass is that for the first time in over two decades, a whole - a significant number of Republicans in Congress were willing to say we need more revenue. They raised the top tax rate back up to where it was under Bill Clinton, and they did some other things in this deal that will - are just one more step down the road toward fiscal balance. And I think that's very important.

Are there shortcomings in this? Sure there are. There are certain taxes I think should be higher. It should've had stimulus. I don't disagree with that critique of it. The question is, what do you think it's going to have next - what is going to happen next? I think the biggest shortcoming is that this bill didn't take the debt ceiling off the table. President Obama is counting on pressure from the business community and others to push the Republicans to say, we're not going to risk wrecking the economy in order to win a few more spending cuts.

What he doesn't - it's not clear what his strategy to prevent that is.

SIEGEL: Well, let's look ahead then to what is going to be the next round in this battle over the budget. Who came out of round one strengthened or at least with a clear position, David?

BROOKS: Well, I mean, the president had the - this was his high-water mark. He had the prospect of big middle-class tax increase, the prospect of recession. This was his high-water mark. Next time we'll - I assume we'll have the same kind of fight we had this time. Why should we assume it'll be different? The politics are essentially the same. Somehow we'll punt. I really don't think we're going to be doing any entitlement reform.

I doubt there'll be much more spending - tax increases. There's just not much more room on the rich. For Democrats, it's - for Republicans, it's a short-term problem. For Democrats, it's a long-term problem. They need more tax revenue to pay for their programs. What's essentially happened, Obama asked for 1.6 trillion, Boehner offered 800 billion, they ended up with 600 billion. There's going to be no money to pay for Democratic programs, and domestic discretionary spending under the Obama budget is shrinking more than under the Paul Ryan budget.

SIEGEL: E.J.?

DIONNE: I think if you look at what Obama put on the table and I quite agree, that would have been better than this. What he proposed at the end was about a trillion-two in revenue and a trillion-two in cuts. What we have left to do if we want to get on a sustainable fiscal path for the next ten years, we need about a trillion-two more plus the interest savings you get from that.

In principle, we ought to be able to split that, 600 billion in cuts, 600 billion in new revenues from tax reform. I'd like a carbon tax or a tax on financial transactions. That's not going to happen. But you can get the money you need out of tax reform. But what I worry about is that we won't take that rational path. We're going to have a ridiculous fight over the debt ceiling, which we really have never done before except in 2011.

And we won't be able to pursue it. But it is a way in which we could put these problems behind us and we could view this deal as half the job done and do the other half in the next couple of months.

SIEGEL: Well, let me ask you about one thing that I think fits the Republican definition of entitlement reform. At one point, President Obama offered and then as the deal shrunk, he withdrew, the offer to change the way we calculate the cost of living from the current CPI to a changed CPI. It would reduce the way we describe inflation by about two-tenths of one percent per year and it wasn't very popular among Democrats.

By proposing that even briefly, has the president signaled this is a card that he's prepared to play at some point down the road as a spending cut?

DIONNE: I think the president is willing to do a little bit more than most Democrats or liberals would like done. The changed CPI proposal that you refer to, there were a fair number of liberals who don't like it, but if it included some protections for lower-income seniors down the road, I think that's the most legitimate fear.

I think something like that could end up in a deal someday. But the president put together some cuts in health care programs that are very doable and that I think could win support across the board, and we'll see if he tries them again.

BROOKS: Yeah, but this is trivial. By 2025, entitlement programs and interest on the debt will take up every single cent of federal revenue. There have to be gigantic cuts. According to the IMF, if we act today, we have to cut all benefits by a third, all federal benefits, and we have to raise all federal taxes by a third. This is a gigantic problem. The CPI, the changing of the CPI is a teeny, tiny step they couldn't even get through this time.

And the Republican problem is they want to cut spending, they want to reform entitlements, but they know these things are so unpopular they can't even ask for the things they want to do.

DIONNE: And what I want to say is we don't have to solve all the problems of 2025 now. If we can solve it for 10 years and try to deal with other problems like job creation, education, gun violence, we'd be much better off.

SIEGEL: E.J. Dionne, David Brooks, thanks to both of you.

DIONNE: Thank you.

BROOKS: Thank you.

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