If president Obama continues to stand his ground against Republicans, he'll win the battle over the "fiscal cliff."

Robert Kuttner

In response to pushback from Congress and progressive activists following a report in Thursday’s Wall Street Journal that Obama had offered to be “flexible” on tax-rate hikes for the very richest, the White House formally unveiled a tough bargaining stance: $1.6 billion in tax increases over a decade, all on the top two brackets, and no tax hikes for the bottom 98 percent.
The White House proposal included only $400 billion in spending cuts over a decade, none of which cut into Social Security or Medicare—details to be filled in later. Obama also proposed a change in the law to eliminate the obstructionist ritual of requiring a congressional vote to periodically increase the debt ceiling. (The debt increase has already been obligated by previous congressional actions, so the debt-ceiling vote is entirely redundant and nothing but an opportunity for mischief.)
The Republicans, not surprisingly, dismissed the White House position out of hand.
Two things are encouraging about Obama’s stance. First, there was no backsliding on the promise to insist on restoring the pre-Bush tax cut rates on the top two brackets. Obama proposed to get about a trillion dollars from the rate hikes, and another $600 million from changes in capital gains treatment and other reforms that affect only the top brackets.
Equally significant is the refusal to whack Social Security, Medicare, or Medicaid.
The right’s slogan in this battle has been that everything has to be on the table. But in fact, some things are on the table that should not be (hits to Medicare and Social Security) and some things that should be on the table are not.
The Republicans and the deficit-hawk center-right have proposed raising the Medicare eligibility age from 65 to 67, which would introduce real hardship to save money. Half of people on Medicare have incomes of $22,000 or less. Individual insurance for people in their mix-sixties is astronomically expensive, and the versions that will be available under Obamacare will be not as comprehensive as Medicare.
There are far better ways to save money. For instance, when President Bush sponsored legislation to add a (privatized and inefficient) drug benefit to Medicare, the law explicitly prohibited Medicare from negotiating bulk discounts with drug companies, as the VA does. This was a pure gift to the drug industry, at taxpayer expense. Allowing Medicare to negotiate volume discounts, and reverting to the pre-Bush drug rebate rules for seniors who are also on Medicaid would save $300 billion over a decade without cutting into benefits.
Another reform that should be on the table is elimination of the tax deductibility of corporate debt. This tax preference is at the heart of the over-leveraging of American finance and the leveraged buyouts that enrich hedge funds and private equity firms at the expense of the operating companies. Not to mention deep cuts in military spending and needless tax subsidies to extractive industries.
All of this should be on the table. If Obama holds the line on tax reform, Social Security, Medicare and Medicaid, he will have public opinion on his side and the only fiscal cliff will be the one that the Republicans jump off.

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