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Doomsday for the Cliff Deal

December 21st, 2012 . by economistmom

mayan-calendar-rock

All over an unwillingness to convince his colleagues to let tax rates come back up (as scheduled) on (even) the very richest, any “deal” between Boehner and Obama is off –at least until after Christmas:

House Speaker John A. Boehner threw efforts to avoid the year-end “fiscal cliff” into chaos late Thursday, as he abruptly shuttered the House for the holidays after failing to win support from his fellow Republicans for a plan to let tax rates rise for millionaires.

The proposal — Boehner’s alternative to negotiating a broader package with President Obama — would have protected the vast majority of Americans from significant tax increases set to take effect next year. But because it also would have permitted tax rates to rise for about 400,000 extremely wealthy families, conservatives balked, leaving Boehner (Ohio) humiliated and his negotiating power immeasurably weakened.

The Post article goes on to quote from Boehner’s issued statement:

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Reid on legislation to avert the fiscal cliff,” the statement said, referring to Senate Majority Leader Harry M. Reid (D-Nev.).

But how will it help to leave the Senate Democrats to work with the President on a plan?  The whole problem has been the lack of bipartisanship and the willful disregard for “common ground” policies that both sides could not exactly “love” but at least come to tolerate.

Maybe over the Christmas break the politicians can sit back and ponder what their own personal roles in this impasse have been and the choices they’ve made about the battles they’ve fought.  There’s been much ado about the tax rates on the rich–should the top two brackets (affecting only those with incomes over about $250,000) be allowed to go back to pre-2001 levels, or only the top bracket (affecting those over about $400,000), or only the top rate for millionaires?  All those options would produce only a fraction of the deficit reduction required to get us back on an economically sustainable path–at best, a “downpayment” on what will have to be a grander bargain eventually (but soon).  The real money and the real (more) common ground lies in looking at the ways in which the federal government spends money (and “subsidizes” certain privileged activities) through the tax code.  In this week’s installment of his always excellent New York Times column, Bruce Bartlett reiterates the point that tax expenditures grow government (so that Republicans should be in favor of cutting tax expenditures just like they favor cutting direct spending), while he also reminds readers that extending tax cuts and deficit financing them is not cutting taxes at all–it’s raising future taxes.

As if as a society we have not been neglecting our kids’ well being enough already.  All over what seems a silly, way overblown debate over the top income tax rates going from 30-some to 30-some percent.

Dealing with the Cliff Is the Easy Part

December 7th, 2012 . by economistmom

rivlin-domenici-bpc

Just ask Alice!  Alice Rivlin and Pete Domenici have put out “Domenici-Rivlin 2.0″ as a guidebook for policymakers negotiating and still struggling with this well-hyped “fiscal cliff” issue.  The plan’s basic, eminently sensible components are the same as the 1.0 version put out by their Bipartisan Policy Center task force:  reduce the deficit over the longer term with a balanced package of both (thoughtful) spending cuts and (thoughtful) revenue increases, but don’t do it in a “cliff-like” (sudden) manner, and in fact, throw in some deficit-financed stimulus up front.  From their summary:

Now, the fiscal cliff demands that policymakers pass a law** in the coming weeks to avoid dramatic tax increases and mindless across-the-board spending cuts that would take discretionary spending to levels far below those that we recommended. CBO and other analysts have projected that if these measures take effect, they could choke off the nascent recovery, increase joblessness and send us back into recession. There is too little time remaining in the 112th Congress, however, to draft and pass legislation to fundamentally reform taxes and entitlements.

Therefore, we propose a “stepping stone” approach – a “Framework for the Grand Bargain” – that will sustain near-term support for the economy, demonstrate a commitment to deficit reduction, and set the stage for the necessary broader agreement along the lines of D-R 2.0 in the 113th Congress.

The Framework for a Grand Bargain”: D-R 2.0’s Recommendations for the Fiscal Cliff and Debt Stabilization

Pass a law in the lame duck session of Congress that does the following:

  • Avoids the fiscal cliff by extending current policies (i.e., continuing the 2001, 2003, 2009, and 2010 tax cuts; shutting off the sequester; “patching” the Alternative Minimum Tax; etc.);
  • Enacts a procedural framework, which we call “accelerated regular order,” to facilitate passage (e.g., by bypassing the filibuster) of a large deficit reduction package next year, and compel cuts in entitlement spending and tax expenditures if the 113th Congress fails to act within a time certain;
  • Contains a down payment on deficit reduction, if necessary, consisting of easily drafted and widely understood changes in current tax and entitlement law; and
  • Incorporates an income tax rebate for 2013 in order to accelerate the economy above present projected very slow growth.

** Action by the lame duck Congress to avoid the fiscal cliff must consist of a bill subsequently signed into law by the President. All elements of the fiscal cliff are current law. Only a new law can vitiate any or all of these elements.

Note that the only part that has to be done between now and the end of this year is the first bullet: avoiding the fiscal cliff just requires Congress extending current policies–temporarily.  Extending deficit-financed tax cuts or spending isn’t anything lawmakers have had any trouble with in the past; bipartisan compromise is easy when everyone gets what they want (rather than everyone having to sacrifice something they want).  The difference this time is whether in giving everyone what they want temporarily, will our politicians be able to agree on some mutual sacrifices they want each other to commit to now, that they’ll be willing to actually follow through on starting maybe next year?

So “dealing with” the “cliff”–either avoiding it or going over it (inevitably only temporarily if that happens)–is the easy part, relevant only for the next month or two.  The hard part is what to do next.

Alan Simpson Has a Message for the Young People

December 5th, 2012 . by economistmom

(I have to admit I do “instagram” some of my best meals–and I’m not even young.)