First, the most intractable obstacle to moving forward is now gone. That would be Republican resistance to raising tax rates on anyone, reinforced by the no-tax pledge signed by almost all GOP lawmakers. It’s no surprise that Obama’s first priority, before weighing other steps to tame the debt, would be making good on his longest-running, most central campaign promise. The fiscal cliff agreement assures that wealthy Americans will share the burden of debt reduction, so now Democrats can move on – though not without friction – to broader steps.
Obama has already signaled he would consider “chained CPI,” a new way of calculating cost of living adjustments to Social Security and other programs, which could cut spending by $145 billion through 2021. Other possibilities include lifting the cap on income subject to the payroll tax (currently it doesn’t apply to income above $113,700), or means testing Medicare benefits so that wealthier people pay more for them. Obama has said explicitly that he is open to Medicare reforms and eliminating “further unnecessary spending in government.”
On the GOP side, many Republicans have signaled they would be receptive to closing tax loopholes, limiting deductions and ending some corporate subsidies — all of this in the context of reform that simplifies the tax code and lowers the corporate rate. One of them is Pennsylvania Sen. Pat Toomey, former president of the vehemently anti-tax Club for Growth. He has supported ending subsidies for sugar and ethanol and, in a sign of the times, voted in favor of this week’s cliff agreement raising tax rates for the nation’s most affluent.