An impasse over the fiscal cliff

What happened

With less than three weeks left for lawmakers to avert a fiscal crisis, President Obama and House Speaker John Boehner traded dueling budget proposals this week, but came no closer to a compromise that would avert major tax hikes and spending cuts due to take effect Jan. 1. In direct negotiations with Boehner, Obama and aides slightly lowered their demand for new tax revenue to $1.4 trillion, and reportedly offered to consider an overhaul of the corporate tax code next year. Republicans made a counter-offer virtually identical to the one they made last week of $800 billion in new revenue, with no increase in the tax rate for the top 2 percent of wage earners. Boehner insisted that no progress was possible until the White House offered substantial cuts in Medicare and Social Security. “Where are the president’s spending cuts?” said Boehner.

Obama said he remained “optimistic” that a comprehensive deal could still be negotiated before year’s end, but said Republicans must first agree to a tax-rate increase on the wealthy. Boehner warned Congress not to make any Christmas plans, and Republicans expressed pessimism that a deal was close. “It’s getting worse, not better,” said House GOP Whip Kevin McCarthy (R-Calif.).

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What the editorials said

Obama is arrogantly demanding total Republican surrender, said The Wall Street Journal. Some GOP lawmakers spooked by the president’s blackmail appear willing to “surrender on taxes first” in order to strike a deal on modest entitlement cuts. But Obama’s demand for both higher tax rates and limits on deductions is the “worst possible deal for the economy.” Just because Mitt Romney lost the election doesn’t mean Republicans need to “repudiate their core economic principles.” They should stand up to this bully.

Republicans are right that Medicare’s “ballooning expenses” have to be addressed, said the Los Angeles Times. But Medicare’s problems “defy easy solutions,” and it would be wrong to force across-the-board cuts into a last-minute budget deal. Most of the program’s costs are caused by the soaring cost of health care, and by the health-care system’s gross inefficiency. Almost 40 percent of all Medicare spending, for example, is consumed by just 5 percent of recipients—mostly in the final weeks of life. We need true reform, not just spending cuts.

What the columnists said

Democrats should accept one Republican demand on Medicare—to raise the eligibility age from 65 to 67, said Jonathan Chait in NYMag.com. Would it save a ton of money? No. But it would give the GOP base the appearance that they’d won a round of “serious belt-tightening” in Washington. Since Democrats could extract higher tax rates and other key concessions in exchange for the reform, it seems like a “sensible bone to throw the Right.” Actually, that would be “a truly horrible policy,” said Duncan Black in USA Today. Many seniors would retire without insurance, forcing them to buy private insurance or go on Medicaid. Any money the government saved from moving back the eligibility age would be “more than offset by increased costs to individuals, employers, and state governments.”

Obama is absolutely right to insist on a tax hike for the rich, said John B. Judis in TNR.com. Not only is an increase in the top tax rate supported by the public, it would help—not hurt—the economy. A Rutgers University economist recently explained why increases in the top tax rate, like the one that preceded the Clinton boom, stimulate the economy: When the wealthy take home more money, they mostly stash it away rather than spend it. But when wealth is redistributed downward, the middle class spends it—“exactly what’s right for the economy.”

Despite all the doomsday rhetoric about the cliff, said Larry Kudlow in NationalReview.com, the stock market has actually risen over the past two weeks. Investors can see the obvious, which is that “Obama has the upper hand in this post-election battle.” It’s inevitable that Republicans will have to make “a strategic retreat” and accept an increase in the top rate—perhaps negotiating it down to 37 percent instead of 39.6 percent. “Republicans don’t want to be the party of rich people,” so it’s better to yield ground today in return for some spending cuts, and resume the battle over spending, taxes, and deficits in 2013.