(Washington D.C.) – Today, the Co-Chairs of the Joint Select Committee on Deficit Reduction, Representative Jeb Hensarling and Senator Patty Murray, released the following statement.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.

“Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve. We remain hopeful that Congress can build on this committee’s work and can find a way to tackle this issue in a way that works for the American people and our economy.

“We are deeply disappointed that we have been unable to come to a bipartisan deficit reduction agreement, but as we approach the uniquely American holiday of Thanksgiving, we want to express our appreciation to every member of this committee, each of whom came into the process committed to achieving a solution that has eluded many groups before us. Most importantly, we want to thank the American people for sharing thoughts and ideas and for providing support and good will as we worked to accomplish this difficult task.

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Despite all the talk of fixing it, California’s budget is still a mess. One of those “fixes” was implemented last summer when the state Legislature increased revenue projections by $4 billion to avoid balancing the budget. Of course, the problem with using such “phantom money” is that it often has a habit of disappearing when you need it most. And it has disappeared just when money for schools is needed. Now deep cuts are on the table. The people lose again.

Naturally the nonpartisan Legislative Analyst’s Office recently reported that the state will receive virtually none of the $4 billion in projected revenue, forcing the state to make some tough decisions in the coming weeks. On the table are major cuts to the education budget, including shortening the school year by a week, not to mention cuts to in-home healthcare programs, and programs for people with developmental disabilities.

Obviously Californian’s budget needs all the help it can get but it looks like it’s business as usual in Sacramento. For instance, an upcoming ballot measure sponsored by a career politician would baffle anyone that truly understands the mess California is in. The so-called California Cancer Research Act coming before voters in June, asks California voters to raise taxes by nearly $1 billion for a whole new perpetual bureaucracy. That is unacceptable to voters. Maddeningly this new program doesn’t even guarantee that the money will be spent in the state! Apparently former state Sen. Pro Tem Don Perata, the career politician pushing the measure, thinks Californians who already paying some of the highest taxes in the nation should reach deeper into their pockets just to potentially send that money across state lines to benefit others. And all the while the budget for the education for those same taxpayer’s kids is about to be slashed.

So, what is the “solution” proposed by Democrats in Sacramento? Raise taxes, of course.

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It would be a great tragedy if a super tax hike came out of a supercommittee compromise deal. It would do great harm to the economy — just as much harm as President Obama’s various tax-hike threats. And on the Republican side, a super tax hike would irreparably split the GOP.

Okay. Here’s the good news. In a CNBC interview this week, I asked supercommittee co-chair Jeb Hensarling about an idea of the Democrats to raise taxes by $600 billion to $800 billion. About $300 billion of that might be up-front, with $500 billion later from some tax-reform overhaul. This would be an unmitigated economic disaster.

But Hensarling was blunt: “Not going to happen, Larry.” He said no such deal has been presented to him. And if it were, he and other Republicans on the supercommittee would not support it.

Hensarling then added, “We put $250 billion of what is known as static revenue on the table, but only if we can bring down rates. We believe we can bring the top individual rate down to 28, 29, maybe at most 30 percent, and bring the corporate rate down to the median of the EU, 25 percent.” For emphasis, he said, “We have gone as far as we feel we can go.”

The Texan was referring to the Sen. Pat Toomey plan, which would lower the personal tax rate to 28 percent and head down from there, while at the same time putting limits on personal deductions (such as mortgage interest) for upper-income taxpayers. In other words, flatten the rates and broaden the base.

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From the Associated Press:

President Barack Obama on Saturday urged the US Senate to pass his jobs bill this week, boosted by a non-partisan group’s report that the plan could cut the deficit and grow much-needed employment figures.

“It is time for those who oppose the jobs act to explain why they are fighting against something that we know will improve the American economy,” Obama said in his weekly Internet and radio address.

The bill, he said, “will provide our economy with the jolt that it really needs right now.”

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The White House has denied pressuring Ford to pull its ad that criticizes competitors that took and have yet to repay taxpayer dollars from the Troubled Asset Relief Program. However, the Obama administration can’t deny a new gift it showers on General Motors and Chrysler in its package of tax hikes to pay for its so-called American Jobs Act.

For all the talk about fairness and equity with the so-called Buffett Rule, there is one sneaky loophole in the Obama revenue proposal that has largely escaped notice. In doublespeak that would make even George Orwell do a doubletake, President Obama’s “financial crisis responsibility fee” would tax banks, insurance companies and brokerage houses that have paid back their bailout money — and even some firms that never took a bailout — to pay the tab of irresponsible firms, namely the auto companies that still owe the government billions.

“We also ask the largest financial firms — companies saved by tax dollars during the financial crisis — to repay the American people for every dime that we spent,” President Obama proclaimed in the Rose Garden two weeks ago. But the details of this “responsibility fee” in the 80-page plan the president submitted to the Joint Committee on Taxation makes it clear that this fee will only be on firms that have already repaid the TARP funds and likely on some firms who never took a dime of taxpayer money.

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The stronger-than-expected ISM manufacturing-index reading for September might normally suggest that the economy, at least for now, has dodged a recession bullet. After zero jobs and zero real consumer spending in August, which put the stalled economy on the front end of recession, the ISM number is the first major September reading.

But economist Michael Darda says hold the applause: Inside the ISM, new orders and order backlogs either flat-lined or declined and remain below 50 — the DMZ recession marker on the index.

Darda believes weak data in the U.S., plus the ongoing European crisis, plus the China slowdown, plus widened corporate credit spreads and stressful financial conditions, all point to a declining economy and additional stock market drops.

Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) is also on the bear side. He has a falling weekly leading index that signals recession is inevitable. “It’s either just begun, or it’s right in front of us,” he told CNN Money.

Tough stuff.

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From Reuters:

Democrats want tax hikes to be the first item negotiated in “super committee” deficit-reduction talks, trying to force Republicans to confront an issue at the heart of this year’s budget fights, sources told Reuters.

The tough stance by Democratic members of the powerful 12-member congressional panel reflects the party’s wariness that Republicans might try to sideline the issue of revenue increases in the negotiations.

“They’ve raised the idea of doing taxes first,” a Republican aide involved in the discussions said on Friday on condition of anonymity.

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From The Washington Post:

The latest Obama plan “doesn’t produce any more in realistic savings than the plan they offered in April,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “They’ve filled in details, repackaged it and replaced one gimmick with another. They don’t even stabilize the debt. This is just not enough.”

The most disheartening development, MacGuineas and others said, is Obama’s decision to count $1.1 trillion in savings from the drawdown of troops in Iraq and Afghanistan toward his debt-reduction total. Because Obama has no intention of continuing war spending at last year’s elevated levels, that $1.1 trillion would never have been spent.

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Demanding higher taxes on the “wealthy” and condemning Republican plans to reform entitlements, a crowd of protesting loudly gathered in the Cannon House Office Building on Capitol Hill this afternoon.   Protesters then streamed into Representative Dave Camp’s office.

As chants of “My Medicaid matters” echoed through the typically peaceful congressional halls, police officers warned the protesters such conduct fell outside the bounds of acceptable conduct and stood guard at the congressman’s door to prevent a security problem from developing.

Who organized this group of people to engage is such poor behavior?

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From the Associated Press:

Obama’s proposal comes amid Democratic demands that Obama take a tougher stance against Republicans. And while the plan stands little chance of passing Congress, its populist pitch is one that the White House believes the public can support.

The core of the president’s plan totals just over $2 trillion in deficit reduction over 10 years. It would let Bush-era tax cuts for upper income earners expire, limit deductions for wealthier filers and close loopholes and end some corporate tax breaks. It also would cut $580 billion from mandatory programs, including $248 billion from Medicare. It also targets subsidies to farmers and benefits programs for federal employees.

Under Obama’s plan, government spending would no longer add to the national debt starting in 2017.

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In today’s New York Post:

There was once a time when trouble in foreign markets, whether in Asia or as now in Europe, would be good for US stocks.

Sure, our markets can get hammered when news like the 1997 Asian currency crisis hits. But we often make a comeback as investors digest the news and come to the conclusion that the best place to bet for future growth is on the companies at the heart of the US economy.

No longer.

And it’s not just the zero-percent job growth and 9.1 percent unemployment we’ve got now.

The mainstream business media will tell you that the problem lies in the “dysfunction of Washington.” In other words, the economic slump and all the market turbulence, including yesterday’s 100-point drop in the Dow, stem from a bipartisan cause — lawmakers and President Obama can’t manage to craft a sensible plan to grow the economy.

But talk to enough investors, and they’ll tell you this isn’t really a bipartisan problem. Rather, it largely remains at the top, meaning with Obama and his economic advisers — who, when they aren’t threatening to raise the taxes of “millionaires and billionaires” who make just $200,000 a year, are offering up the leftovers of previously failed economic policies, such as this “infrastructure bank” gimmick that the president plans to unveil in what’s being billed as a major economic speech later in the week.

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With Rep. Pelosi’s picks announced today, the SuperCongress is set. From The Associated Press:

House Minority Leader Nancy Pelosi’s appointment Thursday of three Democrats to Congress’ new debt-reduction supercommittee completes the roster of a panel whose members are already being tugged in competing directions.

Pelosi selected Reps. James E. Clyburn of South Carolina and Xavier Becerra of California, who both are members of the party’s House leadership, and Maryland’s Chris Van Hollen, the top Democrat on the Budget Committee. The choices bring racial diversity to the supercommittee because Clyburn is black and Becerra is Hispanic.

The 12-member panel, divided evenly among Democrats and Republicans, has until Thanksgiving to propose $1.5 trillion in 10-year budget savings. If it does not propose a package or if Congress doesn’t approve it, $1.2 trillion in automatic budget cuts will be triggered.

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Signs of debt crisis strain are everywhere these days.  Despite over $14 trillion in US debt, the Left is calling Republicans extreme for wanting major cuts.  On the other hand, Obama has no written plan but is acting like a born-again deficit hawk going after corporate jets.  Even better, some are touting the bonuses of hedge fund managers as a tax gold mine.  The latter sentiment is yet more proof that politicians on the Left just don’t get economics – at all – and also highlights one of America’s worst problems.

For those that have been following, it turns out that certain bonus income of money managers is taxed at a 15% rate (like dividends) instead of potentially 35% (like ordinary income).  The tax laws allow for that lower rate if they hold onto the bonuses for a certain period of time.  Non-Real World politicians and economists are crying foul – asserting it is unfair they get that break – and claiming that as much as $20.7 billion could be collected if that loophole is done away with.

Such is the state of “good enough for government” thinking.

You see, Non-Real World politicians and economists see the world like a calculator: change a tax rate and collections rise.  In the Real World, human behavior adjusts to laws that change – sometimes dramatically so when it involves taxes. Just ask American Founder and Supreme Court Justice John Marshall who stated that “the power to tax involves the power to destroy.”

Take the 1920’s for instance.  The Democrats had increased the top marginal tax rate to over 70%. That increase greatly diminished or nearly “destroyed” incentives for individuals.  Indeed, Secretary of the Treasury Andrew W. Mellon noticed that rather than taking risks with their capital, capitalists were parking their money in tax-free government bonds.

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From The Financial Times:

Barbara Mikulski, Democratic senator from Maryland, best captured the turn of events in the critical US debt talks.

After emerging from a lunch meeting on Thursday with members of her party and Jack Lew, the White House budget director, Ms Mikulski said her colleagues were feeling “volcanic” about the prospect of a $3,000bn deal to cut deficits and raise the debt ceiling that did not include any higher taxes, adding that it was “like Mount Vesuvius” in the room.

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As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.

There really are two problems here: First is raising the debt ceiling to avoid default. (That’s a real good idea.) Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S&P and Moody’s, who want roughly $4 trillion in cuts over ten years in order to keep our AAA rating.

But here’s the tricky part for me: What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.

But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only $1 trillion in so-called cuts, this “Plan B” won’t pass the S&P/Moody’s test. The number is too small.

Then there’s the grand design for President Obama’s big-picture deal. It is over $4 trillion, but it includes taxes that look to be off the table from the Republican standpoint.

But this has me thinking.

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The debt negotiations raging on in Washington have given Democrats a rare chance to do two of their favorite things at once: (1) Blame straw men for the problem, and (2) Declare class warfare and bloviate about the need for higher taxes on “the rich.”

In their desperate effort to find a way to increase revenue without having to make real spending cuts, Congressional Democrats are mining the tax code for quick fixes. Now, there are some things they could do that would make sense, like tackling federal subsidies and tax credits that involve the government picking winners and losers in the private sector, but those actions would make too much sense and could hurt them politically. So, they are regurgitating a previously failed idea that would do severe damage to the U.S. economy under the guise of “closing a loophole.”

Carried interest refers to the share of investment profits allocated to the manager of a private equity fund. Carried interest is not the manager’s primary compensation for managing the fund; rather it is an additional, investment-based sum, which the tax code classifies as a capital gain. Capital gains are taxed at a lower rate of 15 percent, as they are the fruit of risk-laden investments and not primary sources of income.

Liberals in Congress, realizing that ‘investment fund managers’ are not a very sympathetic-sounding group to the majority of Americans, have sensed an opportunity to paint a straightforward part of the tax code as a loophole benefiting the afore-mentioned evil straw men.

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The President’s Rope-A-Dope strategy has failed.  President Obama tried to convince the Republican House Leadership that a fair deal would be to trade a reduction in spending, which given the nation’s burgeoning debt and deficit, should be the country’s first order of business, for increases in taxes, which, given the nation’s current economic malaise, should be the country’s last-resort order of business.  President Obama knows the Speaker genuinely wants to reach a bi-partisan solution to the impending debt-ceiling crisis.  Boehner, however, wasn’t buying the President’s offer to reduce future spending if only he would agree to more increases in taxes.  That’s the “balanced approach” the President is selling and which Boehner, so far, sees through.  It reminds us of the rope-a-dope strategy made famous by Muhammad Ali in the 1974 Rumble in the Jungle with George Foreman.  Foreman was the big loser then and Boehner, had he yielded to White House pressure, would be the big loser now (and so would the country).

We are not anti-tax dogmatists. We simply believe tax policy can only be wisely considered in the context of a strong national pro-growth agenda.  All of the Administration’s most positive projections for reducing the deficit and the national debt have been predicated on Pollyannaish growth projections that are meaningless (and worthless) to everyone in Washington with the apparent sole exception of the President’s speechwriters.

It’s a clever sleight of hand (or, perhaps, we should say sleight of tongue). The President talks about the need to raise revenue (who can argue with that) and demands an increase in tax rates (on higher earners) to achieve that goal, and if no one is paying attention, presto!  He gets to increase taxes.  What is so obviously needed is a substantial increase in economic growth, which would, of course, produce increased tax revenue. Fortunately, it seems Speaker Boehner was paying attention.

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From the Associated Press:

With the clock ticking toward an Aug. 2 deadline, congressional leaders return to the White House Monday for another round of budget bargaining with President Barack Obama, who has warned top lawmakers he will call daily meetings until they break their partisan stalemate.

Monday’s discussion will focus on formalizing the tentative agreements lawmakers reached in talks led by Vice President Joe Biden. Republicans say the Biden group identified more than $2 trillion in cuts, but Democrats put the true figure significantly lower—in large part because many of their concessions on spending cuts relied on the assumption Republicans would accept some new tax revenues.

The two sides appear to be no closer to a deal to stave off a potentially disastrous first-ever default on U.S. obligations than they were when the Biden talks hit an impasse last week on the tax issue.

Obama will give his take on the status of negotiations during a news conference at the White House Monday morning.

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From The Washington Post:

House Speaker John A. Boehner abandoned efforts Saturday night to cut a far-reaching debt-reduction deal, telling President Obama that a more modest package offers the only politically realistic path to avoiding a default on the mounting national debt.

On the eve of a critical White House summit on the debt issue, Boehner (R-Ohio) told Obama that their plan to “go big,” in the speaker’s words, and forge a compromise that would save more than $4 trillion over the next decade, was crumbling under Obama’s insistence on significant new tax revenue.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes,” Boehner said in a statement released less than 24 hours before the White House meeting was scheduled to begin. “I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.”

Boehner’s decision leaves negotiators reexamining a less-ambitious framework — aimed at saving roughly $2.4 trillion over the next decade — that had been under discussion between Vice President Biden and a bipartisan group of lawmakers. But that framework is hardly complete; the group broke up last month when Republicans walked out over the tax issue.

The sweeping deal Obama and Boehner had been discussing would have required both parties to take a bold leap into the political abyss. Democrats were demanding more than $800 billion in new tax revenue, causing heartburn among the hard-line fiscal conservatives who dominate the House Republican caucus. Republicans, meanwhile, were demanding sharp cuts to Medicare and Social Security, popular safety net programs that congressional Democrats have vowed to protect.

Read the whole thing here.

This Friday, Vermont’s cigarette tax goes up by 38 cents to $2.62 a pack, a move that backers hope will bring in an additional $4 million a year in revenue.

But there might be some bad news in store for residents of the Green Mountain State hoping the hike would help boost state coffers.  Just as Vermont’s tax is set to go up, its neighbor, Live-Free-Or-Die New Hampshire is cutting its cigarette tax by 10 cents a pack.

The dual moves could prove a boon for New Hampshire businesses, which already do a steady trade in selling goods taxed heavily by other states to residents of neighboring states who drive across the border to stock up.  Now, Vermonters may have an added reason to do so, and New Hampshire grocery and convenience stores hope to clean up.

Via NH Journal:

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