FISCAL CLIFF

Mel Martinez on higher taxes: ‘Republicans are going to have to swallow the pill’

 

Former Florida Sen. Mel Martinez also says Democrats need to tackle the “elephant in the room:” Medicare, Medicaid and Social Security.

mcaputo@MiamiHerald.com

Florida’s former senator and one-time head of the national Republican Party, Mel Martinez, said Thursday that members of his own party need to get ready to go along with higher taxes.

“Republicans are going to have to swallow the pill they don’t want to swallow,” Martinez said on a conference call with reporters about the effects of the so-called “fiscal cliff” debt talks in Washington.

But, Martinez said, Democrats also need to “confront the most-ardent of their supporters” as well. They need to help tackle the “elephant in the room” — entitlement programs such as Medicare, Medicaid and Social Security.

If there’s no debt deal between Republicans and Democrats in Washington, Martinez warned, tax increases will rise on everyone, federal programs will be cut, recession could ensue and, according to a defense-industry study, Florida could lose 80,000 jobs.

Dire warnings about the need for Congress and President Barack Obama to act are nothing new, but what makes Martinez’s statements stand out is his pedigree: a former top Washington Republican leader and a current banking industry executive with the firm JP Morgan Chase.

Martinez’s remarks, made on behalf of the Florida branch of a national group called the Campaign to Fix the Debt, is another sign that business leaders are growing increasingly nervous with the brinksmanship in Washington.

“What I think is doable is not to make a grand bargain by the end of the year,” said Martinez, who gave no specifics but called for a relatively small “good-faith” deal to raise some taxes and cut some spending – but not in the large amounts of the $500 billion in tax increases $109 billion in spending reductions slated for next year.

But that doesn’t mean an agreement will be reached.

Most nonpartisan studies indicate that debt reduction now could hurt the fragile economy, which is fueled by cheap credit, and consumer and government spending.

Then there’s the matter of partisanship.

Republicans want to hold the line on all tax rates. Democrats want to see rates rise on the wealthy, those individuals or couples earning more than $200,000 or $250,000, respectively.

Also, a number of high-ranking Democrats and influential liberal groups are calling on President Obama to resist changes to Medicare, Medicaid and Social Security.

The Campaign to Fix the Debt has come under fire from a liberal group, Institute for Policy Studies, which produced a study showing that many of the campaign’s businessmen calling for entitlement reforms have huge nest eggs but lead companies that have retirement-fund pension problems.

“The corporations leading this campaign are contributing to Americans’ retirement insecurity by funneling enormous sums into their CEO retirement accounts while underfunding their employee pension funds,” the report said.

Martinez said it’s false to assume the group is a Trojan horse to undermine entitlement programs.

“One of the very strong purposes of this group is raising revenues,” Martinez said. “Everyone on this group is very clear — whether it’s raising tax rates or eliminating loopholes or deductions — more revenues is an integral part of whatever we do.”

Still, he said, Congress needs to slow the rate of growth of Medicare, Medicaid and Social Security as more Americans retire and put pressure on these New Deal and Great Society programs.

Those details would have to be worked out at a later date. It’s too close to the deadline — the beginning of the year — to change those mammoth and important programs now.

Most of the debate in Washington has revolved around taxes, which form the bulk of the deficit reduction. Tax rates will automatically increase back to their 2000 levels after the first of the year when the Bush-era tax cuts to Clinton-era rates expire.

That technically means lawmakers don’t have to vote to raise taxes because the rates will automatically increase anyway. At that point, lawmakers, specifically Republicans, could then vote to cut taxes again and increase defense spending — and score political points for doing it.

But Martinez said that’s a bad idea because it might spook the financial markets, which is expecting some type of deal this month.

The head of the Florida Legislature’s economic-research agency, Amy Baker, said state economists think a deal will be struck. But, she said, if there’s no agreement by March, they estimate it could weaken consumer confidence to such a degree that Florida’s budget could ultimately lose upward of $375 million.

House Speaker John Boehner has called on the president to publicly offer up proposed entitlement cuts. But Obama and Democrats are hesitant to do so, having been bashed by the GOP over the past two elections for trimming back future Medicare expenses to help pay for Obamacare. So they want Republicans, whom they attacked for trying to "voucherize" Medicare, to go first.

Martinez, who left Congress after serving from 2005-2009, said partisanship is probably worse now than when he served and watched an immigration-reform bill killed, largely by members of his own party.

But there’s a stronger motivator in the Capitol that could lead to a short-term solution on taxes and spending.

“One of the strongest instincts in many Washington people is political survival,” Martinez said. “And I think that is now tied to getting something done.”

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