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Tax Hikes Settled, Wary Eye Turns To Federal Spending

The fiscal cliff deal raises taxes on the rich, investments and the vast majority of American households, while doing almost nothing to rein in spending.

Now that President Obama and fellow Democrats got their way on hiking taxes on the rich, they have no excuse for not taking on runaway government spending, Republican leaders argue. But some analysts doubt that the GOP itself is ready to take a serious stand.

The New Year's Day fiscal cliff deal hikes taxes by about $700 billion from 2013-22, IBD estimates. But that only will reduce the increase in the national debt by 14% over that period.

The deal does almost nothing to cut spending. It increases spending on jobless benefits by $30 billion. It boosts Medicare spending by $10 billion in 2013 by making yet another one-year "Doc Fix" patch delaying scheduled cuts in payments to doctors.

'Wasted Opportunity'

"This was a major wasted opportunity to have spending cuts," said Alison Fraser, director of economic policy studies at the conservative Heritage Foundation. "Now that the president has locked in the tax hikes ... it's imperative that he delivers on strong spending reform.

Obama and Congress could get started by eliminating duplication. Based on a Government Accountability Report, Sen. Jeff Sessions, R-Ala., estimates more than 1,500 duplicative, fragmented and inefficient programs cost the taxpayers about $400 billion annually.

There are 47 job-training programs that cost about $18 billion annually and 160 various housing assistance programs costing $170 billion annually.

Tom Schatz, president of Citizens Against Government Waste, warns, "The overall problem that faces any legislator is the tendency to create a program to solve a problem. Until that mentality changes, spending will not be addressed.

He points out that because the U.S. scores poorly in math and science, Democrats and Republicans have created over 200 science, technology, engineering and mathematics programs — over a third in the last five years — that cost $3 billion annually.

Three Chances In 2013

However, no plan to rein in spending will tame the deficit without reforming entitlements, which are exploding in costs.

The federal government from 2013-22 will spend $8.8 trillion on Social Security and about $12 trillion on Medicare and Medicaid, the Congressional Budget Office estimates.

The GOP will have a few chances to cut spending soon.

The debt ceiling must be raised in February to prevent default. When the U.S. ran up against the debt limit in summer 2011, Republicans and Obama agreed to "sequestration," which was supposed to trigger about $984 billion in spending curbs over 10 years starting Jan. 1. They included cuts to defense and other discretionary spending as well as saving entitlements modestly.

The fiscal deal delayed the sequestration for two months. The new deadline also might give Republicans leverage on spending.

Finally, the GOP could tackle spending in March when the continuing resolution to keep the government running expires.

Now that top earners face big tax hikes, Republicans may be able to frame the debate as spending cuts vs. higher deficit.

But Seton Motley, president of the conservative Less Government, doubts the GOP wants to fight too hard to cut spending.

"What evidence do we have that the Republican leadership wants to reduce spending?" he asked. "They work tirelessly to avoid any and all spending cuts. They attack vociferously any member of their caucus who tries to help them find some."