–President Obama Continues To Signal Desire To Reach Tax-Cut Deal
–Congressional Republicans Still Call For $4 Trillion Tax-Cut Extension
–Deficit Reduction Panel Rattles DC With $4 Trillion Deficit-Cut Plan

By John Shaw

WASHINGTON (MNI) – With Congress set to return to Washington next
week for its Lame Duck session, lawmakers will find a blizzard of
fiscal numbers on their desks.

But one should stand out: $4 trillion.

This represents the 10-year cost of renewing the so-called Bush
tax cuts.

It is also, by striking coincidence, about the cost of the
massive deficit reduction plan that the National Commission on Fiscal
Responsibility and Reform floated this week. To achieve $4 trillion in
budget savings, the panel outlines possible cuts in virtually all
areas of the federal budget as well as about $1 trillion in revenue
increases.

“Do these two things run exactly in the opposite direction? Of
course they do,” says Stan Collender, a budget expert at Qorvis
Communications.

“But it is wrong to expect rationality when it comes to the federal
budget. Some of the same people in Congress who are ready to vote for a
very costly tax cut extension continue to talk about cutting the
deficit. It is very contradictory. It’s hard to conclude they are
serious about cutting the deficit,” he adds.

On the issue of extending the Bush era tax cuts, President Obama
said Friday at a press conference in Seoul that a permanent extension of
the middle class portion of these tax cuts is his “number one priority.”

But he also hinted at a deal with congressional Republicans.

“I continue to believe that extending permanently the
upper-income tax cuts would be a mistake and that we can’t afford it.
And my hope is that somewhere in between there we can find some sort of
solution.”

The Bush tax cuts of 2001 and 2003 are set to expire at the end of
this year.

Obama has been sending multiple signals since the mid-term
elections that he is willing to back down from his long-held position
that the Bush tax cuts be extended only for those individuals making
$200,000 or less and couples making $250,000 or less.

This appears to set the stage for an agreement with Congress in
which all of the Bush tax cuts would be extended for a year or two or a
plan in which the middle class tax cuts would be extended permanently
while the tax cuts for those making more than $250,000 would be extended
for a year or two.

At a press briefing this week, incoming House Speaker John Boehner
was not giving any hint of concessions.

Boehner said that he will make the case for the permanent extension
of the Bush era tax cuts when he and other congressional leaders meet
next week with Obama.

Boehner said that it is necessary to “end the uncertainty” about
the fate of the Bush tax cuts. “You can’t invest when you don’t know
what the rules are,” he said. Boehner said the tax cut extension should
be accompanied by tight spending controls.

Boehner brushed aside several questions about whether he would
accept a compromise that extended the Bush tax cuts for a shorter period
of time by repeating his determination to renew all of them permanently.

Earlier this summer, Boehner had indicated he would be open to a
plan that all the Bush era tax cuts be extended for two years and that
discretionary spending be cut back to 2008 levels.

Remarkably, at the exact moment that momentum appears to be
building for passing a very expensive tax cut extension package,
Congress is reviewing a sweeping deficit reduction discussion draft
assembled by a presidential deficit reduction task force.

The bipartisan deficit reduction commission, chaired by former
White House chief of staff Erskine Bowles and former senator Alan
Simpson, will reconvene next week to go through the proposal by Bowles
and Simpson line-by-line. Simpson said Wednesday that future meetings
will determine if there are 14 votes on the 18 member panel to approve
the plan–or some variation of it.

Obama created the commission on Feb. 18 by executive order after an
attempt by lawmakers to create a panel by statute failed in the Senate.

The commission is charged to issue a report by Dec. 1 that would
cut the deficit to about 3% of gross domestic product by fiscal year
2015 and begin slowing the growth of debt over the long term.

In order for the panel to issue recommendations, 14 of the 18
members need to reach an agreement.

The draft budget plan Simpson and Bowles released calls for more
than $4 trillion in budget savings over a decade.

Their draft plan, which was presented to their panel Wednesday,
would bring the federal budget deficit down to 2.2% of gross domestic
product by 2015. It would reduce the nation’s debt to 60% of GDP by 2024
and to 40% of GDP by 2037.

The plan would wring deep savings out of every corner of the
federal budget, including defense and Social Security. The
Bowles-Simpson plan would put in place tough discretionary spending caps
that would help achieve about $1.4 trillion in savings. It calls for
$733 billion in entitlement savings and $751 billion in savings from
overhauling tax expenditures over a decade.

The plan calls for fiscal changes that would bring federal spending
down to about 21% of GDP and boost revenues to bring them up to 21% of
GDP. The plan would balance the federal budget by 2037.

In their draft, Bowles and Simpson call for fundamental tax reform
in which the marginal rates are reduced, the tax base is broadened, and
revenue is capped at 21% of GDP.

After the panel’s deliberations Wednesday, Senate Budget Committee
Chairman Kent Conrad, who is a member of the panel, called the draft a
“serious, credible plan.” He added: “Controversial, certainly.”

Outgoing House Speaker Nancy Pelosi called the plan “simply
unacceptable.”

Collender of Qorvis said the Bowles-Simpson draft is not “a
coherent plan but a list of deficit cutting options that you could get
from a Congressional Budget Office report.”

He said that he is puzzled that they released such a provocative
report without developing support, even within their commission, for
their ideas.

“I still have no idea what they were thinking. They’ve unleashed
the hounds of hell and don’t appear to have any strategy or process for
getting consensus for any plan,” he said.

** Market News International Washington Bureau: (202) 371-2121 **

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