Senate Majority Leader Harry Reid delivers a press conference, December 6

Democrats and Republicans on Friday agreed to enact an omnibus spending bill to keep much of the Federal Government funded through next year but failed to deliver an extension of the payroll tax holiday and unemployment benefits.

The House of Representatives passed an omnibus measure Friday night that spends more than $900 billion for the fiscal year 2012 which started on October 1. The departments of government that are covered by the measure, which is composed of nine different spending bills, have been funded by continuing resolutions until now. $518 billion is included for defense.

With the omnibus, total discretionary spending, which excludes entitlements like Medicaid and Medicare and also unemployment compensation, will total more than $1 trillion for 2012.

Republicans have conditioned their support for extension of jobless benefits, current Medicare reimbursement rates for doctors and the payroll tax cut that was enacted last year on regulatory approval for the construction of an oil pipeline that is to run from the tar sands of Alberta, Canada to the refineries of Houston, Texas.

Conservatives and unions are unusually united in their support for the $7 billion pipeline project because it would create construction jobs. President Barack Obama, however, has delayed final approval until after next year’s presidential election because environmentalists, which tend to vote Democratic, oppose the pipeline.

House speaker John Boehner announced on Friday that if the Senate, where the Democrats are in the majority, vote to extend the payroll tax cut, his conference will amend its bill to facilitate a speedy approval of the pipeline’s construction.

The Republican leader cannot afford to cave on the issue, which his party’s presidential contenders have already turned into a campaign item, because in passing the omnibus spending measure, he broke an election promise and disappointed conservative voters.

Ahead of last year’s congressional elections, Republicans pledged not to enact bundled appropriation bills altogether. To avoid a government shutdown, they did just that on Friday night. In the process, they lost the ability to try to defund programs that are covered by specific spending bills like the Environment Protection Agency and President Obama’s health care reform law. They also lost the opportunity to try to derail the Dodd-Frank financial reform law and didn’t have a chance to debate the policies of the National Labor Relations Board on the floor of the House.

These are the very battles that Democrats would rather avoid going into an election year. The EPA, ObamaCare, Dodd-Frank and the NLRB are all cited by Republicans as institutions or laws that are too costly to businesses and discourage job creation. They blame Senate Democrats for never enacting a proper budget in this administration to begin with which has forced both parties to fund the government on the basis of continuing resolutions and botched compromises as Friday’s that do little to balance the budget because Democrats are resistant to reining in spending and Republicans won’t raise taxes.

David Gregory on NBC's Hardball, November 4

The 2012 presidential election will be decided in twelve battleground states. As Barack Obama is unpopular among white working class voters, his ability to sway the Rust Belt will be limited, imperiling his reelection prospects.

A plurality of voters now consider themselves independent. One out of four believe that the country is “on the wrong track.” Less than half approve of the president’s job performance. These are tough numbers faces an incumbent who is fighting for reelection. Americans are apparently less and less confident in President Obama’s ability to lead them out of recession. But his most structural challenge may be demographic.

As David Gregory, moderator of Meet the Press, pointed out on NBC’s Hardball last week, the Democrats “don’t just have to win” the Latino vote in the southwest, “they have to win them huge.” Although the party traditionally polls well among racial minorities, Republicans realize that if they are to attain a majority in states like Colorado, Nevada and New Mexico, they have to appeal to the same Hispanic voting bloc that tends to be more socially conservative than Asian or black Americans.

In the upper Midwest, added Gregory, Obama’s has to appeal to blue collar, typically unionized voters whose economic prospects haven’t improved under his presidency.

Especially with regard to environmental issues, where the activist left and unions collide, Obama is in a tough spot. If he reins in the Environmental Protection Agency, he risks alienating greens whereas not enough of a focus on job creation could disappoint working class voters.

Kimberley Strassel wrote in The Wall Street Journal that blue collar white voters can still play a decisive role despite the emphasis on minorities in the press. They helped Hillary Clinton beat Barack Obama in Pennsylvania and Ohio during the 2008 Democratic Party primary elections. “Obama would go on in the general election to lock up the college educated, the affluent, the women, the minorities, the first time voters—you name it.” But he lost the white working class by eighteen points.

Rather than court this constituency, the Obama Administration has spent three years waging war on it with activist environmental legislation that’s especially hurt the decaying industrial base of the northwest.

A Pew poll this year found an astonishing 43 percent of the white working class didn’t believe they’d be better off in ten years—the most negative views of any group polled, by far. It helps explain why, in the 2010 election, the white working class surged to give the GOP a record 63 percent of their vote, 30 points more than for Democrats.

White blue collar voters make up 40 percent of the electorate nationwide and they form an even bigger group in many of the very swing states Obama needs to win.

In 2008, the president won 359 electoral votes, including a lone elector in the state of Nebraska. Even if he loses Indiana, Iowa, Michigan, North Carolina, Ohio, Virginia and Wisconsin, where the impact of the recession has been severest, but wins the west, he would still have the 270 votes needed to win exactly. If he also lost his one vote from Nebraska, the race would be tied.

The two states that the president cannot afford to lose are Florida and Pennsylvania. The former was won by George W. Bush in both 2000 and 2004 while the latter went for the Democratic candidate in those elections. Each time, the margins of victory were slim in both states and they trended Republican during the congressional midterms of 2010. Between them, Florida and Pennsylvania wield forty-nine electoral votes.

President Barack Obama during a briefing in the Oval Office, July 11

President Barack Obama’s appeal to “shared sacrifice” from America’s wealthy carries political risk for the Democrat who was elected in 2008 in part because he managed to captivate upper middle class urban voters.

The president’s plan for deficit reduction, which he unveiled on Monday, calls for roughly $3 in tax increases for every dollar in spending that’s cut. The bulk in additional revenue would be realized through repealing tax cuts enacted during the Bush Administration in 2001 and 2003 which disproportionately benefited the rich.

Even with the Bush tax cuts, the top 10 percent of income earners pay 70 percent of federal income taxes and more than half of all federal tax revenue. By contrast, the bottom 46 percent of households pay no income tax at all.

Opposition lawmakers have characterized the president’s push to raise taxes on the wealthy as “class warfare” and do not believe that raising taxes at a time of lackluster growth is healthy for the economy to begin with. They would rather reduce the corporate tax rate from 35 to 25 percent to stir investment and job creation.

Centrist Democrats are also wary of the president’s newfound “tax the rich” rhetoric. Politico reports that the small but influential cadre of party members who are left of center fear that Obama may lead them back “to the bad old days of the 1970s and 1980s when tax hiking liberals drove the Democratic Party to the powerless margins of politics.”

“Third Way” Democrats, who led the party under Bill Clinton in the 1990s, realize that college educated, middle class voters have become a crucial part of the liberal base. They overwhelmingly voted for Obama in 2008 when he won election by a large, seven point margin over his Republican contender.

According to recent opinion polls, these centrist voters, who typically declare themselves “independent” of either major party, are defecting to the right. They do not believe that the president can lead the country back to prosperity and are disappointed with his inability to “transcend” the old partisan divides in Washington in favor of a new era of fairer and more decent political discourse.

If the president’s recent attempt at class warfare is any indication, it appears that Obama has given up hope that he can fundamentally change the character of American politics too. Instead, he is speaking to his progressive base which complained that he was too willing to meet Republican halfway on spending reductions and entitlement reform. They welcome the president’s new tone but they are a minority and cannot win a presidential election without help from the center.

As part of last week’s agreement to raise the nation’s legal debt ceiling, Democrats and Republicans in Congress will form a special committee tasked with identifying more than a trillion dollars in “cuts” to both discretionary and mandatory federal spending. The former includes all spending that is supposed to be appropriated by Congress every fiscal year, including defense, education, housing and infrastructure. Mandatory spending refers to entitlement programs like Medicaid, Medicare and Social Security which are basically on autopilot. Unless they are significantly reformed, analysts predict that these programs could go bankrupt within a matter of decades.

After the Congressional Budget Office warned earlier this year that public health support and pension programs were likely to grow at an unsustainable pace in years to come, the trustees of these decade old safety nets delivered a series of dire warnings in May which made the case for reform all the more pressing.

The Social Security trust fund is projected by its trustees to last until 2036. According to CBO estimates, it won’t be exhausted before 2040 but once the fund is depleted, the annual payroll taxes that pay for the program will only be sufficient to cover 75 percent of the retirement benefits that it is required to pay seniors.

In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, the pension program will likely spend $733 billion or one-fifth of the federal budget with a $46 billion deficit. Between today and 2085, the pension program’s trustees estimate a total shortfall of $9.1 trillion.

Some fifty-six million Americans receive Social Security benefits this year. When the program was created in 1935, the earliest retirement age was sixty-five—one year above the average life expectancy. Although Americans grow much older on average now, beneficiaries can begin collecting at sixty-two and might well live in retirement for up to two decades!

Meanwhile, the base of support from workers paying into the system has shrunk dramatically. In 1950, there were sixteen active workers paying for every retiree. Today, the ratio is three to one and there will be even fewer workers compared to seniors in years to come. Obviously, doing nothing is not an option.

The chairmen of the president’s fiscal commission proposed relatively modest changes to the pension system last year that would make it solvent for the next half century. Former Republican Senator Alan Simpson and Democrat Erskine Bowles, a former White House chief of staff, suggested to raise the retirement age by one month every two years after it reaches sixty-seven under current law to achieve up to $4 trillion in savings. The retirement age would reach sixty-eight around 2050 and sixty-nine by 2075.

They also wanted to allow retirees the choice of collecting half of their benefits early and the rest at a later age to support phased retirement options.

Dozens of Democratic lawmakers immediately urged the president to protect Social Security after Simpson and Bowles released their findings. “If any of the commission’s recommendations cut or diminish Social Security in any way, we will stand firmly against them,” they pledged. Then House Speaker Nancy Pelosi said that any deficit reduction plan “must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare.”

The Democratic leader in the Senate, Harry Reid, told NBC in January of this year that Social Security is “not in crisis. This is something that’s perpetuated by people who don’t like government,” he added. “Social Security is fine.”

Maryland Congressman Chris Van Hollen agreed. “We’re not going to balance the budget on the backs of Social Security beneficiaries,” he told CBS News in February. The president has even vowed to preserve Social Security “forever.” He denounced privatization as “an ill conceived idea that would add trillions of dollars to our budget deficit while tying [people's] benefits to the whims of Wall Street traders and the ups and downs of the stock market.”

Will increasing tax rates—by repealing the Bush era cuts for incomes over $250,000 for instance—boost revenue? Probably not.

America has tried high tax rates before. Between 1951 and 1963, the highest income tax rate was 92 percent. The top capital gains tax rate approached 40 percent in the late 1970s. Yet the ratio of individual income tax receipts to gross domestic product has always remained about 8 percent, whatever the rates.

Total tax revenue has also remained constant for the better part of the twentieth century at about 18 percent of GDP.

Democrats like to point at President Bill Clinton’s second term in office when income tax revenues reached an unprecedented 9.6 percent of GDP but this coincided with a period of rapid economic expansion and a reduction in the capital gains tax from 28 to 20 percent which encouraged a much greater realization of taxable gains through stock sales.

Simply raising the top income tax rate is unlikely to bring in much more revenue. President Obama’s “corporate jet owners” are far more likely to park their cash in some offshore bank account or fiddle the books to prevent having to pay higher taxes. That may not be particularly ethical of them but “the rich” are paying more than their fair share as it is. The top 0.1 percent of income earners in the United States pay as much as 18 percent of all federal income taxes. The top 1 percent pays 38 percent while 59 percent of total income tax revenue is provided by the top 5 percent of taxpayers. The Federal Government isn’t exactly letting them “relax and count their money” even if the president thinks otherwise.

Republican House budget committee chairman Paul Ryan’s budget for fiscal year 2012 achieved more than $6 trillion in deficit reduction over the next ten years. All House Republicans voted for it in April although Democrats characterized it as “reckless” because it would effectively privatize Medicare, which finances health care for seniors, over several decades. But it would also just barely balance the books by 2021 while spending increases every single year.

In the same month Republicans enacted the Ryan budget, their study committee in the House of Representatives suggested more than $9 trillion in cuts over the same ten year period. Under this plan, the Federal Government would grow by an average of just 1.7 percent compared to 2.8 percent under Ryan’s proposal and 4.7 percent in Barack Obama’s budget which would cut spending by just $100 billion a year.

The Senate overwhelmingly rejected the president’s 2012 budget proposal. Not a single senator, Democrat or Republican, voted in favor of it.

After Republicans voted for the Ryan budget and pushed for bigger cuts, the president came out with a speech in which he championed a “balanced” approach—a combination of austerity and tax hikes. He claimed that he could save more than a trillion in domestic spending, including military spending, over the next decade and trim some $100 billion in health support expenditures. Obama rejected the Republican plan however, opining that it would lead to a “fundamentally” different country than the one he envisages.

The Republican Study Committee’s plans were matched by Oklahoma Senator Tom Coburn this month who single handedly identified $9 trillion in potential savings. He knew that Democrats would never accept all of those cuts but urged them to at least pick half. “Half of them solve our problems,” he told CBS News.

Democrats, however, didn’t even consider his proposal. Now Speaker Boehner’s plan cuts less than a trillion over the next decade—the very amount set out by the president in February. And still, it’s too much?

House Majority Leader Eric Cantor, Republican congressman of Virginia, April 7, 2011

Congress is facing an August 2 deadline for raising the nation’s debt ceiling but Democrats and Republicans are still far apart on reaching a deal that would cut future spending while expanding the government’s borrowing authority.

The Treasury Department has warned that it will run out of money to cover the country’s bills if Congress does not raise the $14.3 trillion legal debt limit by August. Some Republican legislators dispute that and have suggested that the Treasury prioritize interest payments to avert a default if negotiations have failed to produce a budget agreement by then. Talks to reach a deal in time are underway regardless.

The two major parties are understood to have agreed to raise the debt ceiling by up to $2 trillion which would suffice to keep the government running until after the 2012 presidential election. Republicans, who have a majority in the lower house of Congress, want at least a $1 cut for every $1 with which the debt ceiling is raised—over the next decade.

Between $900 billion and $1.3 trillion in cuts could come from capping the growth of future discretionary spending which includes everything from education to defense. Republicans are opposed to actually cutting military spending although there is lukewarm support for the $400 billion in savings outlined by former defense secretary Robert Gates this year.

Entitlement programs like pensions and health care support—so called mandatory spending—are mainly responsible for driving up federal expenditures in the future but no major reforms are expected to be announced between now and August 2. Lawmakers have negotiated cutbacks to the retirement benefits of federal workers and could change the way in which inflation is measured to slow the growth of general pensions which would save up to $300 billion. Also, Medicare benefits for wealthy retirees could be reduced although Democrats fear that it could lead to an erosion of public support for the program. They previously rejected a Republican plan to private Medicare and replace it with “premium support” or vouchers.

The two parties would also agree to cut farm and ethanol subsidies along with tax deductions for wealthy individuals and corporations although Republicans insist that such changes cannot amount to tax increases at a time of fragile economic recovery. They would rather reform the tax code altogether to lower rates across the board. America has the highest corporate tax rate in the world. Democrats, including President Barack Obama, have argued that the well to do should share in the burden of austerity however and perhaps be taxed specifically for owning private jets and yachts.

At Downsizing Government, the libertarian Cato Institute’s Tad DeHaven puts the $2 trillion spending cut over the next ten years in perspective and concludes that it’s far from massive. The Congressional Budget Office estimates that federal spending will reach nearly $46 trillion over the same period. “Even with the cuts, federal spending would still increase by $1.8 trillion” between now and 2021, writes DeHaven.

Democrats could increase spending even more as they have proposed additional stimulus measures to boost employment. Nearly one of ten Americans is out of work. Several senators support additional infrastructure spending and subsidies for “clean energy” but Republicans are adamantly opposed to it. They say that government spending is part of the problem, not the solution to the nation’s lackluster economic performance.

In an effort to curtail future spending growth, several fiscal conservatives have teamed up to champion a balanced budget amendment to the Constitution that would prohibit future Congresses from running deficits except during times of crisis. Democrats, who control the Senate, hardly favor subjecting the nation to the time consuming process of amending the highest law in the land although their support would be crucial for initiating the process. Republicans say that now may be the only time for them to persuade Democrats to vote for a balanced budget amendment. Some of them have threatened to vote against raising the debt ceiling unless such an amendment is part of the deal.

After a two year investigation by the Senate Foreign Relations Committee staff, including field reports, interviews and budget assessments, the committee has released its own assessment of the effectiveness of American civilian aid programs in the Afghan conflict. Although the the report was a long fifty-one pages, one needs only to read the executive summary to determine that the administration’s civilian strategy in Afghanistan, according to Democratic staff members, is not having much of an effect on the country’s overall progression. In the words of the report, “the evidence that stabilization programs promote stability in Afghanistan is limited.”

Such a public rebuke may not be earth shattering when taking into account Afghanistan’s war ravaged society. Afghans have been living their lives the best they can in the middle of a war zone for the past thirty years, first with the Soviet invasion and occupation in the 1980s, the Afghan civil war of the 1990s and finally the US/NATO international coalition in the 2000s. It is difficult to support your family when bullets fly above your head on a near daily basis. And while the Afghan economy has been growing since the Taliban regime was overthrown in 2001, many in Washington expected that productivity to be higher than it is today.

The Obama Administration says that the Afghan economy has grown by 10 percent annually over the past few years, but most of that growth has been kicked off by donations from the United States and the international community. Most Afghans live not in Kabul but in the countryside where farming is the predominate mode of earning. Scientists only recently discovered a large supply of minerals and until they are extracted and the violence subsides to a tolerable level, investors will have a difficult time convincing themselves that they should be putting money in an unstable area.

The report is significant not for its findings, which most analysts on the ground have written about for years, but for its criticism of a Democratic government by a Democratic majority staff on one of Congress’ most powerful committees. If it were Republicans conducting the investigation, the results of the report could be tainted by the White House as a partisan attack on a Democratic president seeking to wind down America’s military commitment in the Afghan war. Yet it was the president’s own party that did all of the legwork over the last two years, making the conclusions even more disturbing for the president’s Afghanistan team. In fact, the report was so dispiriting that the authors explicitly questioned the merits of counterinsurgency, the very strategy that the military is relying on to conduct the war.

The criticism is significant not only because President Barack Obama depends on the counterinsurgency doctrine for his current policy, but because the entire military command has used the past five years to weld the “hearts and minds” approach into its strategic playbook. The Army and Marine Corps in particular place far more of an emphasis on protecting the population and winning the trust of locals than on traditional war fighting. Pouring money into American aid agencies, building indigenous governing capacity at the local, provincial and national levels and enrolling war weary civilians into schools is 50 percent of the work. While the report only concentrates on Afghanistan, its language challenges the entire population centric, or COIN, notion of war.

With Robert Gates, a prominent COIN supporter, retiring from his post as defense secretary and Leon Panetta replacing him, the “whole of government” approach that the Obama White House has been following in Afghanistan may be at the beginning of being reevaluated. The report’s release, mere days before the president is set to announce his decision about how many troops to withdraw, should not be seen as a coincidence. Congress is tired of funding the war ($100 billion a year in military spending alone) and it is sending a loud message to the president that the withdrawal should be substantial.

Despite Democrats’ demonization of Paul Ryan, and some Republicans’ unwillingness to stand by him, his plan is currently the only one written by any politician that would save Medicare from bankruptcy.

Last week Medicare’s trustees warned that the program will run out of money in 2024—five years earlier than they projected last year.

Once the main trust fund is depleted, revenues from Medicare taxes will initially be enough to cover 90 percent of expenses but that share will decline to 75 percent by mid century, then rise to 88 percent by 2085.

Under these latest figures, a total worth of unfunded obligations of $24.6 trillion over the next seventy-five years is projected; a $2 trillion increase compared to last year’s estimate. In reality, the shortfall could be even bigger as official projections assume $575 billion in savings achieved under President Barack Obama’s health reform law and a 29 percent reduction in physician reimbursements in 2012. That is unlikely to happen. Time and again, Congress has overwritten payment reductions and it’s almost certain to do so again, especially during an election year.

Ryan’s plan, which the Republican majority in the House of Representatives approved last month, would end Medicare as it exists for anyone under the age of fifty-five and provide “premium support” to future retirees—a subsidy or voucher with which they could buy insurance on the private market. This, Ryan argues, would enable competition and restrain the increase in insurance costs while forcing insurers and health care providers alike to improve the quality of their services.

Democrats don’t think so. Senate Majority Leader Harry Reid said that Ryan would “turn over seniors’ health to profit hungry insurance companies” and “let bureaucrats decide what tests and treatments seniors get.” In fact, that is the president’s approach. He has suggested to restrain ballooning health care costs by allowing a panel of fifteen unelected and “independent” advisors “review,” i.e., ration care.

Other than that, the Democratic plan, according to House Minority Leader Nancy Pelosi, “is called Medicare”—which will be bankrupt before the next generation retires.

48 percent of those over the age of sixty-five favor the Wisconsin congressman’s approach that would privatize the program and entitle people to “premium support” or vouchers with which to buy health insurance on the private market. 42 percent support Barack Obama who has promised that he will not leave seniors “at the mercy of the insurance industry.”

You wouldn’t know it listening to Democrats though. They say the Ryan plan “ends Medicare as we know it” and claim that more seniors would “suffer and die” as a result of it.

In al local newspaper, New Jersey Congressman Steve Rothman forecast “suffering, pain and terror” for tens of millions of seniors this week. “Where would they turn?” he wondered. “Charity? Family members? Early death? And why?”

Rothman acknowledged that the country faces an unprecedented fiscal crisis and believes that “all options should be on the table”—except reforming Medicare.

He notes that under the Republican plan, “the average senior would see their out of pocket health care costs double to $12,150 per year, $6,400 more than today,” which is real money but far from condemning them to early death.

“Medicare is an essential and successful American program that has worked extremely well for the past forty-six years,” according to Rothman but it won’t anymore. The Congressional Budget Office predicts that before the end of this decade, Medicare will have bankrupted itself unless significant reforms are enacted.

In the demonization of Paul Ryan, Democrats won’t let facts stand in the way of scoring political points. They are trying to convince retirees that Republicans intend to take their health care away even though the Ryan plan wouldn’t change a thing for people over the age of 55. They are pretending that America won’t need to rein in entitlement spending even as the explosive growth of Medicare and Social Security is utterly unsustainable, if only because Americans live longer than they did half a century ago when these programs were created.

Paul Ryan’s plan has its shortcomings and doesn’t even attempt pension reform yet. For all the Democrats’ demagoguery, nearly half of all seniors fortunately realize that it may be the only way to preserve health support for the elderly well into the future.