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.