I remain optimistic that the fiscal cliff will be averted. But I am dismayed that both parties are displaying shortsighted thinking as they debate fiscal cliff solutions.
With the election over, neither side has the political power to get everything they want. But having promised so much, they are finding it difficult to give up anything. Politicians are defending too much of their political turf with insufficient political power. Their actions are actually harmful to their own supporters.
TAKE THE left aligned AARP and their zealous defense of the consumer price index, which determines annual Social Security cost-of-living adjustment increases. Reducing the CPI slightly, thereby causing a slightly lower COLA increase, is an option to cut entitlement costs. AARP reacted by labeling this a “dangerous proposal.”
AARP complained in a letter to the Congress that changing the CPI would result in a two-tenths-percent cut in the COLA. Based on its letter, if the lower CPI had been used for 2013, the average COLA increase would have been cut by $3.70 per month. A dangerous proposal?
The impact over time is greater because the reduction is cumulative, and estimates show that over 10 years the change could reduce annual benefits by 4 percent.
Few seniors would welcome a smaller raise each year in our Social Security payments, but we seniors can, and should, help solve the nation’s fiscal imbalance. Small Social Security benefit cuts are an acceptable way for us to help fix the deficit.
This is where AARP’s leadership reveals shortsighted thinking. The biggest issue for seniors is not Social Security, but making Medicare affordable and stable for years to come. AARP should agree to the slight reductions in future Social Security raises, and focus their political capital on Medicare.
PRESIDENT OBAMA agreed to a reduced CPI for Social Security COLAs in the 2011 debt ceiling negotiations. He needs to do the same thing again.
Shifting to the political right, shortsighted thinking is evident in the insistence that revenue increases must not include rate hikes for upper brackets. Instead, House Speaker John Boehner has proposed revenue increases of $800 billion over 10 years by reducing still unidentified tax deductions.
The largest deductions in the tax code – tax-deferred retirement plans; mortgage interest; deductible state and local taxes; nontaxable Social Security benefits; and charitable donations, for example – are very popular and have a heavy impact on the middle class. After the targeted deductions are identified, Republican legislators will come under huge pressure to preserve them.
Additionally, Republicans have not made a convincing case that $800 billion in increased revenue is better coming from eliminating tax deduction than from increasing tax rates on the upper brackets.
Finally, President Obama has put more ideological value on those rate increases than is mathematically justified. Boehner should exchange them for entitlements cuts while their trading value is high. Then let the Democrats explain why the deficits continue unabated after they got the rate increases they wanted.
Mr. Speaker: Let go of tax-rate ideology and make the deal.
COMPROMISING TO avoid the fiscal cliff is only the beginning of America’s need to put its fiscal house in order. We are in a marathon, not a sprint, and more spending cuts and tax increases are ahead. Long-term strategic thinking by leaders from both the left and the right will better serve their followers.
(The writer is a retired U.S. Navy officer. He lives and writes in Savannah.)