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The Four Questions

12:00 AM, Apr 13, 2013 • By IRWIN M. STELZER
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It is more difficult to guess whether the president’s efforts to charm the Republican opponents whose motives he has maligned for over four years will result in the “grand bargain” over fiscal policy that has so far eluded the warring politicians. Obama has belatedly put on the table his budget—all 2,500 pages of it. That makes three versions up for consideration: proposals by the president, the Democratic Senate, and the Republican House. The best brief summary is that the Republican version alone brings the budget into balance a decade hence with no increase in taxes, but with politically difficult if not impossible-to-obtain changes in entitlement programs, while the other two proposals rely heavily on tax increases to bring deficit spending down to around 2 percent of GDP in 2013. The distinguishing feature of the Obama version is his agreement to reduce future health care and social security spending by changing the inflation escalator that is applied to those entitlements, a move that affects tax breaks in a way that raises taxes on the middle class. The proposed reduction in the growth rate of entitlements has antagonized many of the president’s lefter supporters: It is designed to induce Republicans to abandon their “no new taxes” pledge in favor of the president’s plan for rather massive tax increases on wealthier Americans, whose tax rates would rise and deductions would fall. As David Malpass, a Treasury official in the Reagan administration points out, Obama wants to increase spending by 60 percent in the next decade. Like the Senate and House budgets, the president’s is based on unrealistic forecasts of growth, interest rates and a host of other variables, but that is par for the budgeting course. And many of Obama’s spending cuts are not quite what they seem: they merely replace the across-the-board cuts already in force due to the sequester.

Although some are predicting an outbreak of bipartisanship, it seems unlikely that Democrats and Republicans can come up with some sort of “grand bargain” to put our fiscal house in order before serious campaigning for the 2014 congressional elections begins. Republicans who acquiesce in tax increases will face serious challenges from Tea Party candidates who want to replace them as the party’s standard bearers, and Democrats who agree to the president’s reduction in the rate of growth of entitlements face a sulky stay-at-home strategy from their left-leaning constituents. As for the president, by making any concession on entitlements contingent on Republican willingness to sign on to a new round of tax-and-spend, he appears less interested in a deal than having a stick with which to beat Republicans in 2014 so that his party can gain control of the House and free him to push through his spending plans.

There you have it: a jobs market that is difficult to understand; a Fed that is likely to keep interest rates low and share and house prices high; a political class trying to choose between a bit of bipartisan deal-making and continued dysfunction.

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