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Pull Back the Curtain

To understand fiscal and monetary policy.

12:00 AM, Mar 30, 2013 • By IRWIN M. STELZER
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There is a great tendency both here and abroad to concentrate on the entertaining features of American politics:

The Federal Reserve

The Federal Reserve

Dan Smith

·     A president who decides to launch a charm offensive, by which he means making himself available to a few Republican congressmen for a timed dinner and mingling with politicians he has studiously ignored for four years;

·     A Tea Party that finds multiple ways of saying “no new taxes,” while nevertheless considering “revenue enhancements”;

·     Republican politicians jousting for their party’s nomination to take on Hillary Clinton in 2016;

·     A leader of the Democrats in the Senate who refuses to allow a vote that would redirect funds from the purchase of new uniforms for airport security personnel to preventing the closure of several airport control towers; and

·     A White House that churlishly responds to spending cuts by ending school kids’ tours of the White House while funding a presidential trip for a round of golf with a resurgent Tiger Woods.

Dig beneath such reports and a different, more serious and more promising, picture emerges, at least on the fiscal front. For the first time in four years Senate Democrats have produced a budget. It differs substantially from the House Republicans’ version, which eschews the trillion or so in new taxes called for in the Democrats’ version, concentrating instead on spending cuts, but it sets the stage for a negotiation that just might—only might—succeed. Republicans, in the Paul Ryan version, have agreed to allow spending to rise at an annual rate of 3-4 percent (close to Obama’s current 5 percent), and to cap military spending, which pleases the president, and the president says he is willing to curtail the cost of the long-term health care and pension entitlements that Republicans fear will convert America into another Greece ere long. Whether he follows through with specific proposals to accomplish this reduction in the escalation of entitlement spending we will find out on April 10, when he submits his own budget to the Congress.

And before scampering back to commune with their constituents during the Easter recess, both parties agreed to include the $1 trillion, ten-year cut forced on them by the “sequester,” in the bill funding the government for the next year.

Both parties agree that some of the loopholes in the tax code—a loophole is a provision denying the Treasury money to which it and non-beneficiaries feel it is entitled—must be eliminated, but differ as to whether the enhanced revenues should be spent or used for deficit reduction. Charles Krauthammer, a Pulitzer Prize winning columnist, suggests that the funds from tax reform be divided evenly between deficit reduction and new spending, an unsurprisingly Solomonic solution that could find its way into a “grand bargain” if the president puts his muscle behind it, even though that would mean adopting the suggestion of a conservative columnist. The road to what might in the end prove to be the chimerical “grand bargain” remains rutted, but it might be passable, especially if the president retains his newly discovered conciliatory tone and succeeds in wooing Republicans unafraid of the primary battles they might face if accused of the crime of compromise.

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