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Jewish World Review Nov. 26, 2012 / 12 Kislev, 5773 It's time to cut a deal on the budget By A. Barton Hinkle http://www.JewishWorldReview.com | According to received wisdom, Washington needs to hash out a budget deal to avoid the "fiscal cliff" that is partly the result of another deal, the Budget Control Act of 2011, which imposed automatic spending cuts if the congressional supercommittee on deficit reduction could not reach its own deal. Which, as things turned out, it couldn't. Economists say letting the cliff's cuts proceed at the same time the Bush tax cuts expire would be doubleplusungood, and Beltway officialdom appears to believe them. So we will soon find out if Chili Palmer was right in "Get Shorty," when he said, "Sometimes you do your best work with a gun to your head." But first, the kabuki, in which the players stake out their initial bargaining positions. Like the opening bids at a Persian rug bazaar, those will be haggled down. What should a final deal look like? There's the utopian version, and then there's reality. The liberal utopia jacks up taxes on the dirty evil rich while leaving social-welfare spending untouched. The conservative utopia slashes spending on shiftless welfare slackers while leaving taxes unraised. But since conservatives hold the House and liberals hold the White House, neither one of these utopias will happen. Everybody will have to give something. Such as what? (1) Tax hikes. There are sound reasons to oppose higher taxes: Tax receipts have returned to an almost historic high, and higher rates will lock in a long-term source of revenue to fuel government growth. But there is also a sound reason not to: The wars in Iraq and Afghanistan were largely financed through debt. Fiscal conservatives should have insisted on pay-as-you go, but better late than never. Anyway, Democrats hold all the cards. The Bush tax cuts will expire for everyone come Jan. 1. Republicans have a choice between half a loaf - restoring the cuts for some - or no loaf at all. Seems like an easy call. They can save face by negotiating the cutoff for higher rates. Virginia Sen.-elect Tim Kaine has suggested a compromise - $500,000 instead of the president's $250,000 - which amounts to a half-trillion dollars over 10 years. Republicans should accept. (2) Defense cuts. Listening to conservatives caterwauling about defense cuts, you might get the impression they think government spending creates jobs or something. Of course, in all other instances they insist government bloat hurts the economy. Conservatives also lament the decline in defense spending relative to other budget categories - as though the Pentagon should get more money whenever social spending goes up, just to keep the ratios steady. They ignore the fact that as a proportion of world military spending, the U.S. accounts for 46 cents out of every dollar. The fiscal cliff's cuts would trim the Pentagon by 12 percent, which would whack it all the way back to the appropriation levels of … 2007. Doesn't sound too catastrophic. A cut half that size would be even less so. (3) Social-welfare cuts. In recent years social-welfare spending, already gargantuan, has exploded. It's up more than 40 percent just since President Barack Obama took office. At more than half a trillion dollars, Medicare alone approaches the size of the defense budget - and unlike defense, will see its outlays nearly double by 2020. Food-stamp enrollment also has spiked under Obama - yet as the journal National Affairs points out, "among recipients of federal food-stamp benefits, there are more people above the poverty line than below it." Ditto Medicaid: "Most … beneficiaries are over the poverty line." Starting next year, Obamacare's health-insurance subsidies will be available to those earning up to four times the federal poverty level. There's a word for countries that give ever-bigger benefits to an ever-increasing pool of recipients: bankrupt. (4) Spending cuts generally. Obama's "balanced" approach actually is tax-heavy - which gets things exactly backward. As Harvard's Alberto Alesina explains in City Journal, data from the International Monetary Fund show that "when governments reduce deficits by raising taxes, they are indeed likely to witness deep, prolonged recessions. But [reducing deficits through] cutting spending resulted in very small, short-lived - if any - recessions." That's owing to "private investment. … Private-sector capital accumulation rose after the spending-cut deficit reductions, with firms investing more in productive activities - for example, buying machinery and opening new plants. After the tax-hike deficit reductions, capital accumulation dropped." Bottom line: "Tax-based deficit reduction … is always recessionary." That point should swing a lot of weight just now, when Congress and the White House are trying to cut the deficit without cutting off the fragile recovery. There are good deals and there are bad deals. We've had quite enough of the latter for now. Every weekday JewishWorldReview.com publishes what many in in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here. A. Barton Hinkle is Deputy Editor of the Editorial Pages at Richmond Times-Dispatch Comment by clicking here. Previously: • 11/20/12: The case for a carbon tax • 11/15/12: Cue the hysterics. Reports of Democracy's Death Greatly Exaggerated • 11/07/12: The $4,000 Trash Can: We need regulation, but not this much • 10/23/12: The Ballad of Islamist Rage Boy • 10/17/12: Undermining the values that enable people in poverty to escape it? Sadly, yes • 10/11/12: How Much Is This Tax Cut Gonna Cost Me, Doc? • 10/04/12: Warrantless spying skyrockets under Obama • 08/20/12: The wrong side absolutely must not win • 08/14/12: America was not built on dirt alone • 08/02/12: Libs Discover Their Inner Cheney • 07/30/12: Feds want to help you --- whether you want help or not • 07/23/12: Barack Obama, Storyteller-in-Chief • 07/23/12: Nation's worst outsourcer? You • 07/19/12: Listen up, America: You need to knuckle under • 07/12/12: Obama, Romney: As Different as Two Peas in a Pod • 07/05/12: Are teenagers big children --- or little adults? • 06/25/12: Minorities treated as mere numbers • 06/21/12: Memo to the the Little Guy: Seemingly innocuous activity could bring the federal hammer down out of a clear blue sky • 06/19/12: We mustn't let America be buffaloed • 05/31/12: Drop and Give Uncle Sam 20 • 05/15/12: The feds would like to know if you enjoyed that video • 05/03/12: Obama inspires: 'America --- Still Not as Bad Off as Venezuela!' • 04/26/12: It's everyone's favorite time of year again • 03/29/12: GOP disillusionment is a good thing • 03/27/12: Just what America needs: more red tape • 03/20/12: Nation wondering: what happening to language? • 02/21/12: Culture warriors resort to propaganda • 02/15/12: Step away from that cookie and grab some air • 02/08/12: Lessons in heresy • 02/01/12: Do We Really Need Pickle-Flavored Potato Chips? • 01/11/12: Shut up, they explained • 12/30/11: A Modest Proposal: Let's Ban All Sports! • 12/26/11: A Christmas letter from the Obamas • 02/24/11: Will the next Watson need us? • 12/24/10: Here Are Some Good Gifts for People You Hate • 06/15/10: The Presinator • 05/26/10: More than equal • 04/08/10: Angry Right Takes a Page From Angry Left but guess who is ‘ugly’? • 02/16/10: Either Obama owes George W. Bush an apology, or he owes the rest of us a very good explanation for his about-face on wiretapping • 02/03/10: Talkin' to us 'tards • 01/27/10: I never thought I'd see the day when progressives would howl in ragebecause the Supreme Court said government should not ban books • 01/07/10: Gun-Control Advocates Play Fast and Loose • 12/31/09: Nearly everything progressives say about neoconservative interventionism abroad applies to their own preferred policies at home © 2011, A. Barton Hinkle

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