Structural changes in both political parties causing dysfunction – moderate Republicans hold the key

Posted by Shyam Moondra

Dysfunction in the federal government began during the presidency of George W. Bush whose war in Iraq based on false intelligence led to distrust in the government among politicians as well as general public. The money spent on the war in Iraq, bank bailouts necessitated by Bush's lax regulations of the financial industry, and unnecessary tax cuts given to the rich at a time when the country was fighting two wars contributed to the huge budget deficit and national debt. Bush's successor, President Barack Obama, was forced to undertake large-scale stimulus spending to thwart severe recession caused by the financial crisis left behind by Bush, which led to even bigger increases in budget deficit and debt. Obama, at the urging of his liberal supporters, pushed through Affordable Care Act (or what is now termed as Obamacare) in both the House and Senate strictly on partisan basis. That gave birth to the Tea Party movement whose extremism worsened political polarization not just between Democrats and Republicans but also within the Republican Party. In 2011, House Speaker John Boehner, under intense pressure from Tea Party aligned conservatives, led the ugly debate on increasing debt ceiling, which crashed the financial markets, slowed economic recovery, and caused the first ever downgrade of the U.S. government debt from AAA to AA+ by the rating agency Standard & Poor. Subsequently, Republicans paid a price at the ballot box in 2012 when Obama easily won re-election and Republicans lost seats in the House and Senate. One would think that Republicans learned their lesson, but here we are, two years later, with Republicans playing the same game all over again with more serious implications than before - the government is currently shut down for eight days already and we are on the verge of first-ever default by the U.S. government on its debt. The Congress now has an approval rating of only 10%, which is a historic low, but that does not seem to bother Boehner and other Congressional Republicans at all.

In terms of the legislative agenda, the current 113th Congress is termed as the most unproductive Congress of modern times. The extent to which this Congress is polarized is summed up by the statement of Boehner in which he said that the success of the Republican-led House should be judged not based on how many new Bills they pass but based on how many existing Bills they repeal. With the emergence of Tea Party faction as a strong player among the conservative ranks of the Republican Party, Boehner has been forced to adopt their extreme ideologies to keep his job as the Speaker. The extremism propagated by Tea Party has become an obstacle in getting anything done in a split government that by necessity requires compromises. As a result, the Republican Party is badly divided between conservatives and moderates. Republican moderates, who fear reprisal in the form of primary challenges inspired by Tea Party if they oppose Tea Party's extreme ideologies, have chosen to remain silent and on the side-lines while Tea Party leaders such as Sen. Ted Cruz of Texas have taken on an oversize role in shaping the direction of the Republican Party. This has irked such iconic moderates as Sen. John McCain and others who have openly criticized the tactics advocated by Cruz. Nevertheless, to preserve unity, many moderate Republicans in the House and Senate have decided to grudgingly go along with the policies formulated by Cruz and other conservatives. These moderates have clearly been marginalized in this new political shuffle. A fractured Republican Party is not well positioned to win the Senate in 2014 or the White House in 2016. Cruz and others have openly advocated shutting down the government and even defaulting on government obligations as acceptable strategies to get what they want, namely, getting rid of Obamacare, reducing tax rates for businesses, and reforming the entitlement programs to reduce spending. They have gone even further by devising an unorthodox plan to get rid of Obamacare by de-funding it. Obamacare was approved by the Congress, signed into the law by Obama, and subsequently upheld by the U.S. Supreme Court as constitutional. Boehner tried over 40 times to repeal the law but failed. Obamacare was a major issue in the 2012 presidential and Congressional elections, but Obama and Democrats prevailed. Now Boehner, at the urging of Cruz and others, has chosen to shut down the government and is prepared to let the government default on its obligations unless Obama agrees to dismantle Obamacare, his signature program. This is, of course, an extreme tactic of blackmail, which Obama cannot and will not accept. The normal procedure for getting rid of a law is to have a new revised Bill passed by both the chambers and signed into law by the president; but Republicans are trying to kill the program by withholding funding for its implementation. This is certainly a novel approach but ultimately undemocratic and it cannot be allowed to succeed. Today, it's Obamacare, but tomorrow Republicans could try to de-fund other laws that they do not like, defying the checks and balances built into the constitution. Of course, not all Republicans subscribe to this extreme tactic.

On the other side of the isle, since the election of Obama as the president in 2008 and re-election for a second term in 2012, the Democratic Party has moved to the left of the political center. Obama strongly believed that Bush's pro-rich policies, especially his generous tax-cuts to the rich, widened the gap between the rich and poor and the middle class lost a lot of ground. Obama, with the help of ultra-liberal Nancy Pelosi, who was House Speaker at the time, moved the Democratic Party to the left, which was a sharp contrast to the previous Democratic President Bill Clinton, who ruled from the right of the center. Clinton dismantled the welfare programs and moved people from welfare rolls to work rolls, but Obama has consistently favored the poor and the middle class over the rich. Under Obama, there has been a huge growth in the food stamp program, disability benefits, and Medicaid expenditures. The liberal transformation of the Democratic Party under Obama has sidelined Clintonian conservatives and moderates within the Democratic Party that would have preferred to govern from the center on most economic issues. In spite of some disagreements between liberal and conservative Democrats, they have nevertheless steadfastly remained united in their opposition to Republican extremism.

While Republican Party has been radicalized by the Tea Partiers much to the discomfort of Republican moderates, Democratic Party has moved to the left much to the discomfort of Democratic conservatives and moderates. So, what we need is a rebalancing act in which moderate Republicans join forces with conservative and moderate Democrats to form a powerful block whose support would be essential to make progress on any particular issue. At least six moderate Republicans in the Senate would have to switch their Party affiliation and become Democrats; such a move will not only give Democrats a filibuster-proof majority, it will also keep liberal Democrats in check while rendering extremist Republicans such as Cruz powerless. There are many moderate senators such as John McCain, Susan Collins, Kelly Ayotte, Tom Coburn, Jim Inhofe, John Thune, Richard Burr, Ron Johnson, Rob Portman, and Lisa Murkowski, who could possibly become a part of this balancing act with an objective to move the country forward on important issues of tax reforms, entitlement reforms, infrastructure investment, education reforms, immigration, etc. In the House, 17 Republican moderates would need to switch to Democratic Party which would give the control of the House to Democrats while at the same time dilute the power of liberals within the Democratic Party. There are 23-26 House moderate Republicans who are willing to vote for clean CR and debt ceiling bills. Many of them also favor to proceed on immigration bill and some of them are even pro-choice, so they will fit right in within the Democratic Party. Obama and Democratic Congressional Leaders would need to make the case to the target Republicans for the switch by offering them prominent committee assignments and even leadership positions within the Democrat controlled House and Senate. These movements will instantly break the gridlock in Washington, DC and the Congress would finally resume its business of legislating and solving people's problems.

Republican self-destruction, Part 2

Posted by Shyam Moondra

On Friday, under the leadership of Speaker John Boehner, the House passed the Continuing Resolution (CR) bill that will fund the government through November but, at the same time, de-fund Obamacare. The vote was largely on party lines. The Senate Majority Leader, Harry Reid, said that this CR bill is "dead, dead" in the Senate. President Barack Obama has said that even if the Senate miraculously passes this bill, he will veto it. So the question is why would House Republicans push this bill, knowing full well that it could never become the law, and unnecessarily risk a possible government shutdown in ten days. Also, the House Republicans are refusing to increase the debt ceiling unless Obama agrees to additional spending cuts, setting the stage for the government to default on its debt. Last time, when Republicans tried this approach in 2011, the government debt got downgraded from AAA to AA+. Now we are on the verge of another downgrade from AA+ to AA, which will dramatically increase the interest payments due on national debt, and thus sharply increase the budget deficit. It is clear that the House Republicans have no strategy beyond passing the CR bill or refusing to increase the debt ceiling; they have not really thought through the consequences of their actions or figured out the endgame.

The Republican approach is so wrong at so many different levels:

• First, they want to reduce the budget deficit, but their actions would actually put upward pressure on interest rates and thus lead to higher deficit because of increased interest payments on debt. 

• Second, de-funding a program, which was approved by the Congress, signed into law by the president, and subsequently upheld by the USSC, is not the proper way to get rid of that program. If they really think that Obamacare is a bad idea, then the correct way to get rid off it is to offer amendments or an alternative health care proposal, get it passed in the House and Senate, and have the president sign it. That's how democracy works. You cannot threaten to shut down the government (which means military personnel fighting in Afghanistan will not get their paychecks and elderly people will be denied their monthly Social Security checks) unless you get what you want. Republicans cannot use blackmail as a tool to achieve their political goals. If this blackmail worked, could Republicans use it again to de-fund other programs such as Medicaid, Medicare, or any other program that they didn't like? What we will have then is not democracy but chaos.

• Third, the Congressional Republicans have an approval rating of only 12% compared with Obama's 45%; so the question is why would Republicans threaten to shut down the government and end up paying a huge price at the ballot box? Last time, when Republicans played this game in 2011, they failed to win the presidency and lost seats in House and Senate in the 2012 election - so why would Republicans play the same game and hope to achieve a different outcome in the 2014 election? The chances are that they will actually lose the control of the House in 2014.

• Fourth, in 2011, Republicans' threat to shut down government crashed the stock markets and reduced business confidence, which led to corporations putting their capital expansion plans on hold. These ramifications led to reduced job prospects and slower economic growth. If Republicans shut down government this time, the people, with their decimated 401(K) and IRA accounts, will again blame the Republicans for their losses.

On the question of increasing the debt ceiling, Obama is right in saying that Congress passed the spending appropriation bills and they alone are responsible for making sure that the United States does not become a dead beat on its debt. The Congress must pass a clean bill increasing the debt ceiling so the government does not default on its debt and become a laughing stock around the world. However, in the long-term, reducing budget deficit and debt is of paramount importance to preserve and enhance our prosperity for the future generations. Therefore, Democrats and Republicans must urgently work together to address the dislocations caused by unwise across-the-board cuts under sequestration and hammer out a balanced plan that would increase revenues via tax reforms and also cut spending through meaningful reforms of the entitlement programs. The voters desperately want the Congress and Obama to work together and reach a compromise on the issues of budget deficit and national debt.

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.

Republicans are digging their own grave

Posted by Shyam Moondra

In 2011, Congressional Republicans led the ugly debate on debt ceiling which resulted in the downgrade of U.S. securities and eventually they ended up losing the 2012 election. One would think that Republicans probably learned their lesson; however, for whatever inexplicable reasons, they are making the same mistakes all over again. In essence, Republicans are continuing to self-destruct.

The country is on the verge of going over the "fiscal cliff" (automatic tax increases and across-the-board spending cuts on January 1, 2013) and voters overwhelmingly blame Republicans for putting the country through unnecessary unpredictable times. Another downgrade of government securities by the rating agencies may very well be inevitable. For a while, negotiations between President Barack Obama and the House Speaker John Boehner on "fiscal cliff" appeared to be headed to a successful conclusion, but then came a strange unilateral move by Boehner to pursue "Plan B" (making the Bush tax cuts for families earning less than $1 million a year permanent while letting the tax cuts for millionaires expire), which, as it turned out to Boehner's embarrassment, didn't even have the support of his own party caucus. The "Plan B" was never brought to a vote but this futile exercise derailed the negotiations between Obama and Boehner. So now what we have is nothing and we are only a few days away from the "fiscal cliff." A few weeks ago, Senate Minority Leader Mitch McConnell (R-KY) introduced a bill to let Obama raise the debt ceiling to demonstrate that even Democrats wouldn't support it. However, when Senate Majority Leader Harry Reid (D-NV) decided to put that bill up for a vote and it appeared that the bill could actually pass, McConnell was forced to filibuster his own bill. The current Republican leaders in the House and Senate seem to be bent on showing off that they can do the weirdest things and look incompetent or as the British would say "nutters."

To be able to govern, a party must first win election, and to win election it must pursue policies that are supported by a majority of the electorate. An overwhelming majority (including the rich people) support higher tax rates for those who make $250,000 or more to help reduce budget deficit. In a democracy, how can a party go against the wishes of the people and still expect to prevail? Republicans can't impose a minority view on a majority and get away with that. The same thing is true on other issues such as abortion, immigration, and gun control, where Republicans are pursuing their extreme policy agenda which is not supported by the majority of the people.

The U.S. demographics are changing; this year, for the first time ever, more non-white babies were born than white babies and that means the Obama coalition (Hispanics, Blacks, Asians, middle class whites, students, women, and veterans) will only get stronger in the future. Therefore, continuing to cling to rigid conservative ideologies that are not supported by the emerging electorate is a sure prescription for losing elections going forward.

Republicans' iron-cast ideology of "no new taxes, ever" is not only impractical but it's also damaging to the economic well-being of the country. President George W. Bush cut taxes for the rich (at a time when we were fighting two wars and spending like crazy) and, as a result, the rich people benefited the most during the last decade (which explains the widening gap between the rich and poor). So there is nothing wrong if rich people are asked to contribute more now to help reduce the deficit and debt.

Republicans will eventually lose on their right-wing ideologies (because of the changing demographics) and thereby become irrelevant. Recent opinion polls clearly show that the people are generally fed up with the Republican intransigence; in 2014, it's very likely that Democrats will win filibuster-proof majority in the Senate and they will also win the House, paving the way for gridlock to finally come to an end.

Republicans are digging their own grave and in 2014 they will finally get to RIP.

“Fiscal Cliff” will push the Republican Party over the cliff

Posted by Shyam Moondra

Since Ben Bernanke, the FED Chairman, first coined the term “fiscal cliff” last February, it has taken its own life and is now being used universally by the media and investors around the world. The term “fiscal cliff” refers to the convergence of the expiration of a variety of tax cuts (e.g., the so-called Bush income tax cuts, temporary payroll tax cuts, estate tax cuts, and investment tax cuts) and across-the-board spending cuts (equally divided between defense and non-defense discretionary expenditures) on January 1, 2013. At that time, additional health care taxes related to the Patient Protection and Affordable Care Act of 2010 would also go into effect. These automatic tax increases and spending cuts (known as “sequestrations” in the Budget Control Act of 2011), if carried out in full, could reduce budget deficit/debt by as much as $7 trillion over ten years. Bernanke has warned that these precipitous tax increases and spending cuts at a time when economy is still recovering at a tepid pace could push us into another nasty recession. The investors are very skittish about the impending catastrophe and they are reacting to every word uttered by Republicans or Democrats on the status of negotiations to save the country from falling off the “fiscal cliff.” Most corporations have put their plans for capital investment and hiring on hold until there is more clarity on if there is political will on the part of Republicans and Democrats to compromise and come up with a more modest deficit reduction plan of the order of $1.2 trillion over ten years (as required by the Budget Control Act to avoid automatic tax increases and spending cuts) before the end of the year (actually, within the next three weeks before the Congress adjourns for the Christmas holidays).

President Barack Obama has proposed a budget plan which would increase taxes by $1.6 trillion (the Bush tax-cuts for the middle class would be made permanent while tax-cuts for the rich would be eliminated along with investment and estate tax cuts) and reduce spending by $600 billion over ten years for Medicare, Medicaid, farm subsidies, and other programs ( these spending cuts are over and above $1 trillion of spending cuts that the president and Congress committed to last year for the coming decade and a reduction of $800 billion in projected war spending, reflecting the winding down of the U.S. combat operations in Afghanistan and Iraq). House Speaker, John Boehner, has called Obama’s plan as not “serious.” Republicans don’t want to increase tax rates for the rich (although they are open to reducing deductions to have a net increase in tax revenues by a smaller amount than what Obama wants); they want to rely primarily on deep spending cuts in the entitlement programs to balance the budget, which is vehemently opposed by Democrats. So, lines have been drawn in sand by both sides; they are miles apart and very little time is left to bridge the gap before the country goes over the “fiscal cliff” in less than a month.

Implications of “fiscal cliff”

Below are some observations on where things stand in the aftermath of the November elections and what “fiscal cliff” means to both Democrats and Republicans:

• Obama fought the election based on his vision of reducing budget deficit/debt by increasing tax rates for the rich (those making at least $250,000 a year) while preserving the lower tax rates for the middle-class. Not only Obama got re-elected, but his policy platform also brought net gains for Democrats in the Senate and House. Democrats view these election results as a mandate on their tax and spending policies. The post-election polls also show that voters overwhelmingly support Obama’s vision of balancing the budget by increasing taxes and closing loopholes for the rich. Republicans are clearly in a much weaker position now than they were before the election.

• Republicans believe that higher taxes on the rich will negatively affect economic growth and hamper job creation. The historical data, however, doesn’t support these assertions. Trickle-down economics was enacted by Republican Presidents Ronald Reagan and George W. Bush, and both times we ended up with recessions and high unemployment rates. On the other hand, when Democratic President Bill Clinton raised the income tax rates for the rich to the highest levels in modern history, he not only achieved a budget surplus but his policies brought sustained prosperity for people from all walks of life for a decade (with unemployment rate falling down to as low as 4.5%, which economists consider as “full employment” level). Therefore, the pro-rich agenda of the Republican Party doesn’t resonant with the electorate.

• Obama wants the top individual tax rate to go up from the present 35% to 39.6%. However, the fact of the matter is that very few rich individuals pay the highest rate because of all kinds of income exclusions and deductions that have been added to the tax code over the years, mostly by Republicans who favor the rich (rich individuals reciprocate by showering Republican candidates with lavish amounts of campaign contributions). The problem is illustrated by Mitt Romney, who earned tens of millions of dollars a year but paid as little as 13% in federal taxes during the last ten years, thanks to his aggressive use of income exclusions and deductions. Increasing the top marginal rate by itself is not going to do much good unless, at the same time, the tax code is simplified and most income exclusions and deductions are weeded out.

• Obama won the election because his vision enabled him to put together a winning coalition consisting of women, Blacks, Hispanics, young voters, veterans, and middle-class white voters. Due to demographic changes, the continuing growth in the Obama coalition will only make it harder for the Republicans to win elections in the future, if they continue to stick to their philosophy of unproven trickle-down economics. That means Republicans are better off to negotiate the best deal they can get now.

• If Republicans choose to let the country fall off the “fiscal cliff” (let all tax cuts expire and automatic spending cuts go in to effect), most economists believe that economic growth will decline, pushing us back into recession with unemployment rate rising again. The automatic tax increases would, however, technically not count as Republicans’ violating their pledge to not increase taxes (because they wouldn’t really vote for tax increases). And then in 2013, when the next Congress convenes, Republicans could vote for a tax cut for the middle-class, which doesn’t violate their tax pledge either. However, higher unemployment rate, crashing financial markets, and possible downgrade of the rating of the U.S. government securities by rating agencies could lead to a backlash against Republicans in the Congressional elections of 2014. The voters could give Democrats a filibuster-proof majority in the Senate and the control of the House. With Democrats in charge of the presidency, Senate, and House, Obama could then swiftly move to implement his agenda in the last two years of his second term. An increasing number of Congressional Republicans are beginning to realize that their firm posture on extending Bush tax-cuts for the rich may not only push the country off the “fiscal cliff,” but it may in fact push the Republican Party off the cliff. In a post-election survey concerning the “fiscal cliff” conducted by Pew Research Center, about half of respondents believed Congress will fail to reach an agreement to reduce the country's budget deficit compared to only 38% who said a deal will be met. If the two sides fail to find common ground on reducing the deficit, 53% said congressional Republicans will be to blame while 29% said the responsibility will fall on Obama.

• In a strange way, if there is no compromise between the Democrats and Republicans over the “fiscal cliff” before the end of the year, some investors might think of this as a positive development. While “fiscal cliff” would cause reduced consumer spending and economic slowdown in the near-term, the budget deficit and debt situation would be greatly improved in the long-term. If the automatic tax increases and spending cuts of January 1, 2013 are carried out in full, they will reduce deficit (or avoid debt) by $7 trillion over ten years. This will go a long way towards putting our national financial house in order, which will be very positive for the long-term economic growth. Therefore, in the short-term, the stock market may decline, but the chances are that it will bounce back rather quickly. In 2013, Republicans and Democrats may hammer out a $4.5 trillion plan, as originally envisioned by Obama and Boehner last year, which incorporates higher taxes for the rich and lower taxes for the middle-class and meaningful reforms of the entitlement programs. Such a breakthrough plan could push the financial markets to record high levels.

Possible Comprehensive Deficit/Debt Reduction Plan

The following could form a basis on which to work out a comprehensive plan to reduce deficit and debt:

1. Taxes:

o Make Bush tax cuts for the middle-class (family income less than $250,000 per year) and small businesses permanent.

o For high-income earners, let the Bush tax-cuts expire and also limit income exclusions and deductions to $35,000 (as suggested by Romney). As an alternative, impose AMT of say 25% of gross income, so all rich people will pay a minimum of 25% in taxes. When Romney pays only 13% or Warren Buffett pays only 20% in federal taxes, it's just morally wrong.

o Capital Gains/Dividend Taxes: These Bush tax breaks encourage saving and investment, and they also benefit the middle-class. Therefore, they must be made permanent.

o Estate Taxes: These taxes should be increased, but not by as much as what liberals want. Republicans and Democrats should find a compromise.

o Corporate tax loopholes must be closed. It's wrong when GE pays 0% and Google and Goldman Sachs pay only 10% in federal taxes. Our corporate tax rate may be high, but the reality is that most companies don't pay anywhere near the top rate. We need a plan that would make corporations pay a lot more in taxes than they are paying now - we need to close down all the loopholes that companies use to reduce their tax liabilities.

2. Health Care: Revisit the Obamacare and make some adjustments to provide relief to small businesses.

3. Entitlements:

o Medicaid: Medicaid is the worst program ever created by the federal government. There is so much potential for fraud that this program, in its current form, can't be sustained by the taxpayers. Many poor people are using Medicaid fraudulently to put some cash in their pockets. They visit doctors and undergo unnecessary treatments and, in return, some doctors and other service providers share part of their fee paid by Medicaid with the patients. Medicaid was intended to provide health care for the poor people, but some of them are using it as a cash-cow. No amount of enforcement will ever catch this kind of fraud. As the health care costs continue to go up and health care becomes unaffordable, more and more people would end up in Medicaid. Therefore, there is simply no way this program can be viable in its current form for the long-term. The federal government should give a fixed grant to the States (increased over time to keep up with the general inflation rate) and let individual States administer health care for the poor.

o Medicare: There should be no change in retirement age. We could increase the deductible and the Medicare tax rate and make benefits a function of income (rich people get minimum Medicare benefits or no benefits at all). There should be increased funding for fraud prevention. There is no support for the Republican idea to convert Medicare into a voucher program.

o Social Security: There should be no change in the age requirement or COLA calculations. We could increase the income limit which is subject to social security tax and we could make benefits a function of income (rich people get reduced benefits or no benefits at all). There is zero support for Republican idea to privatize Social Security.

4. Provide increased funding for Education. The U.S. students are sliding down fast in test scores compared to other countries which will negatively affect our competitiveness in the future.

5. Our infrastructures are crumbling (bridges, highways, roads) - during the recent Hurricane Sandy, we saw how antiquated our power grid and telephone infrastructure are. The government and corporations need to step up and modernize the infrastructure. We could impose a special tax on gasoline to pay for increased investment in our infrastructure.

Time of reckoning has come for Republicans – either do what the electorate wants or become irrelevant

Posted by Shyam Moondra

Republicans campaigned based on trickle-down economics and lost. Not only they failed to win the presidency, they also lost seats in the Senate and House of Representatives. Republicans pursued a policy agenda that defied voter preferences (e.g., voters overwhelmingly want rich people to pay higher taxes) and they paid a price. Now the “fiscal cliff” is looming on the horizon, which has the potential to crash the financial markets and decimate people’s 401(K) and IRA savings a second time in less than five years. If Republicans don’t change their strategy, they would lose big time in the 2014 Congressional elections. In 2014, Democrats will most likely control both the Senate and House, and President Barack Obama will be free to execute his agenda on taxes, deficit/debt, education, immigration, energy, health care, and entitlement programs in the final two years of his second-term. In a nutshell, Republican Party will become irrelevant. That means, Republicans are better off to negotiate the best deal they can get now. Obama won, so he deserves to have some leeway in executing his policies; that's what the voters said loudly in the election.

Republicans’ trickle-down economics favoring the rich is inconsistent with the evolving mix of the electorate in which non-whites, most of whom are low-income and middle-class families, are growing the fastest and have a big say in the final outcomes of democratic elections. Clearly, the Republicans need to be more inclusive, if they want to win elections; and that means, they need to modify their agenda and move away from the unproven assertions that what’s good for the rich is good for the country or that rich people are the job creators. The Republicans need to start becoming part of solutions rather than continue to boil the pot based on extreme ideologies that are not supported by the electorate. House Speaker John Boehner must work with Obama and Congressional Democrats to form a winning coalition of moderate Republicans and Democrats - that's the only viable way forward.

Effective January 1, 2013, all Bush tax cuts will expire, so will temporary payroll tax cuts that were advocated by Obama as a stimulus to the sagging economy, and there will be significant across-the-board spending cuts. These tax increases and spending cuts at a time when the economy is still trying to recover from the 2008 recession would decimate the economy and push it back into recession with unemployment rising to double-digits, again. This, so-called “fiscal cliff,” will crash the financial markets, wiping out the wealth created in the last few years. Also, if the country is pushed over the cliff, the debt rating of the U.S. government securities will be downgraded for the second time in a short period of two years, which will put the upward pressure on interest rates. Higher interest rates will increase the interest expense for the government, thereby widening the budget deficit even more. The costs of a “fiscal cliff” are too high to contemplate and both Republicans and Democrats owe it to the people to reach a compromise and avoid the catastrophe. Given that Republicans lost the election, they have the primary responsibility for reaching out to the Democrats and making the necessary compromises (especially on increasing revenues by making rich people pay higher taxes) well before the end of the year. The Democrats also bear the responsibility for reaching out to the Republicans in carving out compromises on reforming the entitlement programs.

The continuation of the present gridlock in Washington, DC would be very damaging to the people and to the national security. Obama and Congressional leaders need to resurrect Obama-Boehner’s grand plan of reducing the deficit by $4.5 trillion over ten years; they could use that as a starting point and make the necessary modifications to reflect today's political reality in the aftermath of the 2012 elections and get it passed by the Congress as soon as possible, preferably before the end of the year.