Former World Bank Chief Zoellick: Fiscal Cliff Talks Need More Focus on Spending

Monday, 10 Dec 2012 08:24 AM

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President Barack Obama’s approach to avoiding the fiscal cliff has dealt too heavily on raising taxes and other government revenues and focused too little on cutting spending, said former World Bank President Robert Zoellick.

Obama and Congressional Republicans have disagreed over the role government revenue should play in plans to avoid the fiscal cliff, a one-two punch of expiring tax breaks and inbound spending cuts due to take effect at the end of this year.

Failure to avoid the fiscal cliff could result in a recession next year, though both sides of the political aisle remain at odds over the role tax hikes on the wealthy should play in guiding the country to fiscal health — Democrats favor them, Republicans have opposed them.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Focus more on spending cuts, Zoellick wrote in a Wall Street Journal OpEd.

Few realize that proposals often don’t involve cuts to government spending in real terms, but rather cuts growth in spending.

True reform and more sustained economic expansion will come if Washington trims the fat.

“Since the election, President Obama has focused the debate about the fiscal cliff on taxes. This tactical political positioning is putting at risk the strategic objective of a pro-growth budget package to reduce U.S. debt.” Zoellick wrote.

“Unless the president pushes to slow the growth of spending, he will fail to strike a deal, undermine U.S. growth prospects and ultimately erode America’s safety-net programs. The country’s global standing would falter, too, because the president would not have led in demonstrating America’s ‘governability.’”

Social Security must undergo reforms that would raise the retirement age and index benefits according to income. In addition, healthcare costs must come down as well.

“President Obama’s signature healthcare program faces the risk of being overwhelmed by its own costs if it does not align incentives on use with its purpose of expanding coverage,” he said.

Defense spending needs slashing as well.

“A serious effort to limit government spending needs a brake on the ongoing pattern of increases, backed by disciplines that require reductions in expenditures. Federal spending has traditionally been about 18 percent to 19 percent of the U.S. economy. It has now surged to 23 percent to 24 percent,” Zoellick explained.

“Gov. Mitt Romney proposed a 20 percent limit; the Simpson-Bowles deficit commission called for 21percent. The negotiators need to agree on a ceiling — or else there will be no incentives for elected and administration officials to discipline the inevitable rise in spending.”

While Congress crafts spending plans, the president signs off on them and this time, fiscal discipline must take priority over politics.

“The president needs to represent the country, not just a party. Mistaken tactics now could lead to four years of political trench fighting, sinking other possible reforms, such as immigration,” Zoellick wrote.

“If President Obama is unable to signal a move toward real spending discipline, he will start his second term with a tragedy, not a legacy.”

Many Republicans feel Obama will get his way when it comes to raising taxes on wealthier Americans as part of a broader package to drum up fresh government revenues and narrow deficits.

“Let’s face it. He does have the upper hand on taxes. You have to pass something to keep it from happening,” Sen. Bob Corker, R-Tenn., told “FOX News Sunday.”

Others echoed similar sentiments in hopes they’ll gain concessions elsewhere.

“[W]ill I accept a tax increase as a part of a deal to actually solve our problems? Yes,” Sen. Tom Coburn, R-Okla., told ABC’s “This Week.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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