The ‘Fiscal Cliff’ Opportunity

[Buster]

http://economix.blogs.nytimes.com/20...f-opportunity/

Interesting idea from and 'old school' supply-side Republican.

The ‘Fiscal Cliff’ Opportunity

October 2, 2012

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take.”

With polls consistently showing a steady lead for Barack Obama in the presidential race, it’s not too soon to start thinking about what he will do the day after the election. In particular, what will be done about the looming “fiscal cliff,” which begins on Jan. 1, when previously enacted spending cuts and tax increases take effect.

These automatic tax increases and spending cuts will reduce the budget deficit by about $600 billion next year if all of them are allowed to take effect. This fiscal tightening is equal to about 4 percent of the gross domestic product, and the Congressional Budget Office estimates that it will reduce G.D.P. growth by an equal amount next year. There is evidence that the fiscal cliff is already affecting business investment spending, slowing economic growth.

Dealing with the fiscal cliff will undoubtedly be the principal item of business when Congress returns for a lame-duck session. Talks between the administration and Congressional leaders have already begun but have been hampered by questions about who will be president in January, as well as which party will control the House and Senate.

Although it appears that the Republicans will retain control of the House while Democrats’ prospects of continuing to have a Senate majority have improved, the majority margins are likely to narrow. This could be a particular problem in the House, where Representative John Boehner of Ohio, the speaker, has never had a firm hold on power because he is viewed with suspicion by the G.O.P.’s Tea Party wing.

The budget analyst Stan Collender speculates that Mr. Boehner will be on a short leash during the lame-duck session as the Tea Party tries to maintain influence after a disappointing election. This means that Mr. Boehner will have little scope to negotiate with Democrats on a compromise that would forestall the fiscal cliff, making it likely that the fiscal cliff measures will begin as scheduled.

The two primary sticking points are taxes and military spending. President Obama is insisting that the Bush tax cuts not be extended for those with incomes over $250,000. For them, the top tax rate would rise to 39.6 percent — what it was during the Clinton administration — from 35 percent. The administration would also like to raise the maximum tax rate on dividends and capital gains to 20 percent for upper-income taxpayers, from 15 percent currently.

Republicans are adamantly opposed to any increase in taxes for anyone, but especially the wealthy, whom they universally view as “job creators,” even if all they do is cash dividend checks on inherited stocks. But Republicans are even more concerned about impending cuts to military spending, which they agreed to last summer as part of the deal to raise the debt ceiling.

Both Mitt Romney and Paul D. Ryan have repeatedly denounced the programmed $600 billion cut (over nine years) in military spending that will begin next year — which the vast majority of House Republicans, including Mr. Ryan, voted for last year — saying it will endanger national security.

Curiously, they also invoke the negative effect on jobs. As Mr. Romney said in his acceptance speech at the Republican convention, military spending cuts “will eliminate hundreds of thousands of jobs.”

The reason this is curious is that Republicans routinely deny that government spending cuts raise unemployment. Indeed, their core philosophy is that reducing the size of government creates jobs by reducing its burden and freeing resources for use by the private sector. But faced with cuts in programs they favor, suddenly a key argument for preventing such cuts is the potential job loss.

Of course, the logic of the Republican argument on military spending cuts applies equally to domestic spending cuts. Just at the state and local government level, spending cuts have cost 659,000 jobs since 2009, raising the national unemployment rate by about 0.5 percent. That Republicans adamantly refuse to acknowledge this reality is an example of what psychologists call “cognitive dissonance.”

One option for dealing with the fiscal cliff is simply to kick the can down the road — that is, delay all the spending cuts and tax increases for a year while Congress and the White House theoretically negotiate something better.

But given the propensity of Republicans in the Senate to filibuster anything they don’t like, no matter how trivial, and the fact that virtually all have signed a “taxpayer protection pledge” vowing never to raise taxes for any reason, the likelihood of compromise without severe external pressure is unlikely.

A better idea, in my opinion, is to let the fiscal cliff occur as scheduled and enact a fix retroactively, as soon as possible. This is an idea that the former director of the Office of Management and Budget, Peter Orszag, and the Brookings Institution economist William Gale have been promoting for several months.

The virtue of the Orszag-Gale strategy is that it changes the political dynamics. Once taxes have risen on everyone, legislation restoring the status quo ante for all except the wealthy would be scored as a tax cut. While doing this before Dec. 31 would be a violation of the pledge, doing so after Jan. 1 would not.

Similarly, negotiating some alternative to the automatic budget sequestration on the spending side — which everyone agrees is a stupid way to reduce spending — will proceed much more easily, because Republicans will be under intense pressure to negotiate in good faith for a change and avoid filibusters.

It goes without saying that in a world without tax pledges and filibusters, it would be in everyone’s interest to negotiate a sensible alternative to the fiscal cliff in the lame-duck session; indeed, it should have been done before Congress left town.

But we don’t live in such a world. Therefore, extreme and unpleasant tactics may be necessary to do what needs to be done.

My advice to President Obama: have your staff prepare an alternative to the fiscal cliff that can be sent to Congress as soon as it reconvenes this year, prepare for Republicans to reject it and then hope to negotiate something that can be enacted as soon as possible in the next Congress.

Kicking the can down the road is unacceptable and should be rejected out of hand.

[AlbanyJet]

Quiz:

1. What personality type is Mitt Romney? A or B?

2. What personality type is Barack Obama? A or B?

3. Which Presidential candidate is easily suited to be an effective leader of any organization?

4. Which Presidential candidate is a complete train wreck, better suited to counting pigeons in a Washington, DC park - thus, in absolutely NO position of leadership where he would cause irrepairable harm?

You have one minute to complete the quiz.

[Sharrow]

Originally Posted by AlbanyJet

Quiz:

1. What personality type is Mitt Romney? A or B?

2. What personality type is Barack Obama? A or B?

3. Which Presidential candidate is easily suited to be an effective leader of any organization?

4. Which Presidential candidate is a complete train wreck, better suited to counting pigeons in a Washington, DC park - thus, in absolutely NO position of leadership where he would cause irrepairable harm?

You have one minute to complete the quiz.

I tried to complete the quiz, but the minute was up before the video got to what type B people are like.

[Winstonbiggs]

The answer is obvious all the President had to do and has to do is get the Democrats to get behind Simpson Bowles as is. The tax cuts should expire for everyone as intended. The President embracing the Bush tax cuts for 99% of Americans should be embarrassing to every liberal democrat.

[Jetdawgg]

[Buster]

BUMP


If the national debt is the one problem that must be solved.

Then this is the way to force the GOP to cut a deal.

If the GOP is unwilling to move then let this occur.

[Warfish]

As posted elsewhere, but apt for this thread too:

But I'll be honest, HERE Is where I WOULD "compromise". Whatever tax rate (D) wants to set on those making over 1 million per year, I'd give it to them. Whatever tax rate they want to set on Capital Gains, I'd give THAT to them as well. And whatever cuts they want to make to the millitary, I'd ok that too (we always have the nukes for actual defense).

As a party, I'd simply no vote (i.e. abstain) and let them pass without a yes/no vote from (R). The (D) can own it.

And however it turns out, it turns out. If it works, (R) is proven conclusivelt wrong anyway, and it was the rght choice. If it fails, it's owned wholesale by (D).

[Winstonbiggs]

There is no fiscal cliff. We took on debt in the past which has to be paid in the future. The debt wasn't used productively to get a sufficient pay back to justify taking it on. We are going to be collectively poorer going forward because of that.

Demand will be lower, taxes will be higher and budgets will have to be leaner.

[AlbanyJet]

Update:

I was completely wrong about Barack Obama being a personality type "B". He's not that at all.

Barack Obama is a complete, stupid fool. George Soros' fool. Now I understand.

The Tipping Point:

I was watching C-SPAN coverage of the election returns. The program host, Charlie Cook, commented that President Lyndon Johnson (whom I previously posted to be a personality type "A") would be rolling over in his grave if he knew how little time Barack Obama spent with Democrats in the House.

Then it occurred to me, Barack Obama doesn't need to spend any time with Democrats in the House. He just takes his orders from George Soros and reads them off of a teleprompter.

We. Are. Screwed!

[Jungle Shift Jet]

Originally Posted by Winstonbiggs

There is no fiscal cliff. We took on debt in the past which has to be paid in the future. The debt wasn't used productively to get a sufficient pay back to justify taking it on. We are going to be collectively poorer going forward because of that.

Demand will be lower, taxes will be higher and budgets will have to be leaner.

Sure, with no (D) Federal budget necessary the baseline of spend has been already jacked up to unsustainable amounts and no (D) is talking about that or reduction. Just how intransigent (R) is to rolling over.

Thank God parasitic (D) states and cities can't undo control of the House.

[cedk]

Republicans are screwed.

Obama can just say raise taxes on the rich or else everybody's taxes goes up something he should have done in the first place (political)
Even some tea partiers (me) would agree that its time to address the deficit the lefts way. they won.!

cut defense now and if Obama wants to also cut some other government departments during his second term he could become a great President.

I'm pulling for him.But if he just wants to spend and spend I'll hate such ignorance.

[DDNYjets]

Originally Posted by cedk

Republicans are screwed.

Obama can just say raise taxes on the rich or else everybody's taxes goes up something he should have done in the first place (political)
Even some tea partiers (me) would agree that its time to address the deficit the lefts way. they won.!

cut defense now and if Obama wants to also cut some other government departments during his second term he could become a great President.

I'm pulling for him.But if he just wants to spend and spend I'll hate such ignorance.

Hard to do when he has an election to purchase for Hillary. Need to keep the constituents on the nipple. Not to mention those expensive Rust Belt votes.

[cedk]

Originally Posted by DDNYjets

Hard to do when he has an election to purchase for Hillary. Need to keep the constituents on the nipple. Not to mention those expensive Rust Belt votes.

Its all about his legacy now and will history view him as a competent president with the challenges he and the country have.
Its up to him I think, even though at times it seemed he had bad advisers with bad info.
Will the lefties be responsible lefties or incompetent and irresponsible? We will find out soon.
It will be very unfortunate if you’re right.

[Jungle Shift Jet]

Originally Posted by cedk

Its all about his legacy now and will history view him as a competent president with the challenges he and the country have.
Its up to him I think, even though at times it seemed he had bad advisers with bad info.
Will the lefties be responsible lefties or incompetent and irresponsible? We will find out soon.
It will be very unfortunate if you’re right.

Only historians will, and they need to revise history to do it.
You don't purposely destroy America unwittingly or unintentionally.
No such thing as a "responsible" lefty. No rules, just wrong.