Boehner sure mastered the art of how to lower business confidence and delay robust economic recovery

Posted by Shyam Moondra

Republican Speaker of the House, John Boehner, never misses an opportunity to say something that would demolish business confidence, which, in return, would blunt economic recovery and prolong the misery of unemployed people.

The latest Wall Street Journal/NBC News opinion poll puts Congressional approval rating at record low of 12%. The Congress has been viewed very negatively by the American people for many years but this seems to have almost no effect on Republicans. It’s as if they consider this level of low rating as a badge of honor. In the last year’s election, Republicans lost seats in the Senate and House, and they also failed to win the presidency. One would then think that this might have taught them a lesson and they would behave differently, but no such luck.

Recently, Boehner said that the success of Congressional Republicans should be judged not based on how many bills they pass but based on how many bills they repeal. Next week, Republicans are planning to repeal Affordable Care Act (referred to as Obamacare by Republicans) the 40th time, but it will again be ignored by Democrat-controlled Senate. Some Republicans are even advocating a new tactic to undo the laws passed by the Congress but not favored by a majority of Republicans and that is to unfund those programs. This is a dangerous approach which amounts to making a mockery of the democratic system and is a form of political terrorism. Given the potential huge backlash from the voters just before the next year's elections, many moderate Republicans are not in favor of such an extreme precedent, which could also be exploited by Democrats when they are in control of the House.

House Republicans marvel on their failure to negotiate with the opponents on averting sequestration, which forced across-the-board spending cuts (some of which even Republicans view as harmful to economy). The Congressional Republicans are resolute in putting their rigid political ideology above what’s prudent or in the best interest of the country. Somehow, in their twisted way of thinking, they believe it’s good for their re-election, even in the face of evidence that suggests otherwise. The House Republicans are holding the country as a hostage and they are putting their countrymen through unnecessary pain and suffering by obstructing economic recovery.

Boehner also said that he would not increase the debt limit unless President Barack Obama and Congressional Democrats agreed to cut spending substantially beyond the multi-year cuts that have already been put in place. Last time, Republicans threatened to use the government shutdown as a political tactic on the question of increasing debt ceiling; that threat led to the downgrade of government bond rating from AAA+ to AAA, the first ever such downgrade in the history of the country. That ugly debate shook up the business confidence and put brakes on economic recovery. Republicans ultimately lost that debate and they were forced to give in on tax increases for the super rich. Republicans’ intransigence, however, led to their poor performance in the 2012 elections. Now they are threatening to make the same mistake again.

Recent reports show that the federal budget deficit will fall to $759 billion for the fiscal year that ends this September, a $214 billion improvement from the projection made just a few months ago. Bi-partisan agreements on spending cuts and tax increases for the rich combined with improving economy are having a positive impact on the budget deficit outlook. If these trends continue, the issue of spending cuts, strongly favored by Republicans, may lose traction among the voters. As Obama correctly articulated in his recent speech on economy, given that corporate profits have surged to the record levels and budget deficit is declining, the government focus should now be on reducing unemployment rate which is still too high. That means the government should formulate policies that foster growth rather than be obsessed with spending cuts.

Congressional Republicans should start thinking about positioning themselves for the next election cycle of 2014, which is not that far away. Below is a laundry list of what Republicans should do:

• Reform the tax code. There is sufficient bi-partisan support for simplifying the tax code (by eliminating the special-interest deductions and rebates) and bringing down the overall tax rate for businesses. A lower overall tax rate would be very conducive to economic growth.

• Revisit sequestration and come up with more balanced bi-partisan approaches to spending cuts and individual tax increases. Some of the spending cuts triggered by sequestration (e.g., defense and Head Start program) are actually harmful and should be reversed.

• Given the dire state of our bridges, tunnels, and highways, we need to spend more on infrastructure improvements. A majority of people would have no problem with a special surcharge on gasoline to pay for these infrastructure upgrades.

• Education has been on the decline for a few years now and we need to do more to stay competitive in global trade. We need to provide more funding for pre-school and technical vocational training programs as well as find ways to reduce the rate of increase in the cost of college education.

Republicans need to demonstrate that they can be trusted to govern by becoming a part of the solution rather than being identified as a part of the problem. The Washington, DC gridlock only works against Republicans. If they can work in a bi-partisan way, their position will only become stronger by the time of the 2014 election.

Sequestration – the last opportunity for Republicans to redeem themselves

Posted by Shyam Moondra

During 1995 and 1996, Congressional Republicans, under the leadership of Speaker Newt Gingrich, passed bills that would have severely cut spending in such areas as education, Medicare, environment, and public health (areas favored by Democrats) to tame the run away budget deficit caused primarily by tax cuts enacted by Republican President Ronald Reagan as part of his so-called “trickle-down” economics. Those partisan budget actions forced Democratic President Bill Clinton to veto the bills that led to government shutdowns for several weeks in the late 1995 and again in early 1996. The twin government shutdowns resulted in interruption of essential services, causing delays and hardship to the citizens. The public’s outrage led to Clinton’s victory in his re-election bid in 1996. During his second term, Clinton managed to increase taxes for the rich to reduce budget deficit in return for agreeing to reform the welfare programs and subsequently the economy took-off. The stock market set new records and the unemployment rate fell to 4.5%, which is considered as the lowest possible "full employment" rate. By the end of his second-term, Clinton not only balanced the budget but he left the office with a small budget surplus. Many historians consider the Clinton era as one of the most prosperous periods in the nation’s history. After the poor showing of Republicans in the mid-term elections of 1998, Gingrich was forced to resign as the Speaker of the House. Ultimately, Republicans lost the control of the House and Senate to Democrats.

One would think that Republicans learned their lesson and would not make the same mistake again. But, a decade later, Republicans’ extreme tactics on budget issues are backfiring on them, once again. In 2011, Republicans waged an ugly debate on extending the debt limit which resulted in the historic downgrade by rating agencies of the U.S. government securities from AAA to AA+. Then came the “fiscal cliff” (convergence of expiration of Bush tax-cuts and mandated spending cuts), which was avoided only when Republicans, at the last minute, blinked and agreed to tax rate increases for the rich (those making more than $500,000 a year) to seal a deal with Democratic President Barack Obama. The public’s disapproval of Republican tactics led to the re-election of Obama in 2012 and a net loss of seats for Republicans in the Senate and House. Now, Republicans are again engaged in extreme budget tactics via sequestration that are highly unlikely to produce any better results for them than last time.

Sequestration, agreed to by both Democrats and Republicans in 2012 as a way to avoid making hard compromises on tax and spending issues during the election season, involves across-the-board cuts in discretionary federal spending (entitlement programs such as Social Security, Medicare, and Medicaid are unaffected) amounting to $85 billion between March 1 and September 30 of this year (if these cuts are continued over a period of ten years, they would reduce the budget deficit by over $1 trillion). Both Republicans and Democrats have mixed feelings about these automatic cuts – Republicans are happy that sequestration would finally force the government to slim-down but they are also unhappy that these cuts would hit the Defense Department the severest, thereby negatively affecting national security, and that the entitlement programs are off-limit; Democrats are happy that sequestration would reduce the bloated budget for the Pentagon that they have been trying to cut down for years, but they are also unhappy that these automatic cuts would negatively affect many of their favorite programs such as Head Start. At the time when sequestration was agreed to, it was thought that both sides would find parts of these automatic cuts so drastic that they would never dare to carry out these cuts and perhaps be more amenable to compromises.

Sequestration may not produce hardship to the citizens immediately, but over the coming months as these cuts start biting, the people would begin to feel the pain (reduced federal services, canceled contracts, military base closings, and job furloughs and layoffs). The government has estimated that as many as 700,000 jobs would be lost and these cuts would reduce the GDP growth by at least 0.5%. When that happens, as the recent polls show, Republicans would face the wreath of public anger over their intransigence. With the 2014 mid-term election season beginning soon, it’s smart politics for Republicans to back off from their uncompromising positions. Unless Republicans soften their rigid ideology of “no new taxes” and they embrace a balanced approach to spending cuts and new tax revenues, as Obama and Congressional Democrats are advocating, they may end up repeating history and losing the control of the House in 2014. Then Obama and Congressional Democrats, with a firm control of the White House, Senate, and House, would be free to aggressively pursue their agenda on fiscal matters in the last two years of Obama’s second term.

The deficit is too big (caused by Bush's two costly wars, unnecessary tax cuts to the rich, and bank bailouts that became necessary because of lax regulations under Bush) to be remedied by spending cuts alone; new tax revenues would have to be part of the solution. When special deductions and exclusions enable rich people like Mitt Romney and billionaire Warren Buffett to pay only 13-20% in taxes, it raises the question of fairness. When tax loopholes, added to the tax code over the years at the behest of lobbyists of special interest groups, enable rich companies like GE, Google, Apple and Goldman Sachs to pay only 0 -10% in taxes, that’s a problem. Clearly, rich individuals and corporations are not paying their fair share of taxes. Closing tax loopholes and eliminating tax giveaways is not the same thing as increasing taxes. This is more about cutting tax expenditures that we can’t afford.

If Republicans work cooperatively with Obama and Congressional Democrats in resolving the sequestration, they might improve their chances of winning the 2014 Congressional elections as well as the next presidential election in 2016. The sequestration, which no one likes, is the last opportunity for Republicans to repair their shattered image caused by their serial manufactured fiscal crises. Obama has already offered to put on the table entitlement reforms (that Republicans want) in return for higher tax revenues via tax reforms (that Democrats want). Several bipartisan groups, including the commission on deficit and debt led by Erskine B. Bowles and Alan K. Simpson, have called for one dollar of tax increase for every $2-3 of spending cuts. If Republicans and Democrats work together over the next few weeks and come up with a grand plan which would replace sequestration with a more balanced mix of spending cuts in discretionary as well as entitlement programs and fair tax reforms with a net increase in tax revenues, the country would be set for a sustained recovery for the long-term with millions of new jobs created. This is what an overwhelming majority of people want and this is what will restore the good image of the Grand Old Party.

If Republicans fail to seize this last opportunity that sequestration has presented to them for redeeming themselves, the consolation prize for the people would be that if the “fiscal cliff” and sequestration agreements on spending cuts and tax increases are carried out in full, the budget deficit would be reduced by about $4 trillion over ten years. This level of austerity would certainly cause some hardship in the near-term, but it would also be a big leap in improving the long-term fiscal health of the country. Of course, a grand plan, which includes entitlement reforms and tax revenues, would put us on a path of stronger recovery sooner and everybody would win, including the Republicans.