Simply coming together and hashing out an agreement in our paralyzed Congress is not going to work- if it could, we would not have the plan B that is the “fiscal cliff” in the first place. It is sort of next resort in case a solution can’t be negotiated. To turn away from this response to me seems to turn away from the resolve to confront our problems at all. That we ought to maintain this resolve in general seems clear to the point of philosophical truism.
I’m not suggesting that we have to go over the cliff without modulating it at all. From the first link:
The real debate IMHO involves the assumption that we will keep a majority of the effects of the fiscal cliff, and discuss what exceptions to make to it. I have an idea: let’s keep the payroll tax cut for people making less than $50,000 a year. This is the set that will be affected the most by small% changes in income, and also the people we’d most like to become higher-income earners, if only to benefit the economy. We ought to support the lower-income earners, since the higher (and especially the very high) income earners clearly have making ends meet (i.e. general welfare) figured out, if only for themselves…
Got any other suggestions? Don’t like my argument at all? That’s what GD is for. I say: let’s go over the fiscal cliff. If that position survives the debate, it becomes policy, k?
I think it’s important to underscore a few facts about the so-called “fiscal cliff”, which IMO is nothing more than a scare tactic being used by deficit hawks:
[ul]
[li]The CBO projections (linked in the OP) show the impact of failing to reach an agreement by the end of 2013. The model examined what would happen if we paid taxes at higher rate for a full year and also saw spending cut for the whole year.[/li][li]On the tax side, the failure to have a deal in place by the end of 2012 would mean taxpayers would see a higher witholding for as long as there was no change. If/when a deal is made, paycheck witholding would either be refunded immediately or (more likely) recalculated to take into account what would have been overpayment earlier in the year. Either way, the minimal slowdown in consumer economic activity caused by the brief increase in witholding would be offset by higher activity later in the year when the witholding was reduced.[/li][li]On the spending side, it’s important to realize that the sequester applies only to appropriations, not actual outlays. Spending on a sequestered program will not suddenly decrease on January 1st, just the future ability to borrow/withdraw funds from treasury for that program. If Congress senses a deal is in the works, spending could theoretically continue at 2012 levels for quite a while before a lack of appropriated funds would force a genuine cut.[/li][li]IMO a lot of folks are mistakenly comparing this “fiscal cliff” to the debt ceiling showdown in the summer of 2011. The effect of the sequester/taxes this time around is not at all as desperate, but recall that even during the debt ceiling crisis budget tactics allowed the administration and Congress to extend the deadline for several months before a deal was struck. [/li][/ul]
Any agreement will probably involve Romney’s tax plan without the rate-lowering part. It’s palatable enough to get through the House, maybe. So I think the starting point is figuring out which deductions to eliminate and subbing them in for some of the cuts to appropriations and the payroll tax increase.
Here too, we could simply adopt Romney’s idea of limiting the deduction you can take. If we cap it at $17,000, you really only affect the top quintile of taxpayers. That would squeeze a lot of households just keeping afloat in big cities, but the payroll tax increase would hurt too.
Of course, this also works if Romney wins, though he would have to abandon the goal of cutting the rates. But I think he could do that if he could say it was necessary to “avoid the cliff” (notwithstanding CJJ*'s coherent criticism of that falseness of that political rhetoric).
Flattering to see such smart 'dopers visiting my thread
[quote=“CJJ, post:2, topic:639874”]
I think it’s important to underscore a few facts about the so-called “fiscal cliff”, which IMO is nothing more than a scare tactic being used by deficit hawks:
[ul]
[li]The CBO projections (linked in the OP) show the impact of failing to reach an agreement by the end of 2013. The model examined what would happen if we paid taxes at higher rate for a full year and also saw spending cut for the whole year.[/li][/QUOTE]
What I am suggesting is essentially that though. Go over the ‘cliff’ (I’ve seen it described more accurately as a ‘fiscal ramp’- yeah, tax rates and spending change in a stair-step way, but it takes time for the effect to kick in. IOW, I agree with you that the terminology is a scare tactic) and for the most part stick with the effects. End the Bush tax cuts, make some defense spending cuts, all at once. I don’t have a lot of confidence we can accomplish these by another route. (edit: can’t get rid of my weird formatting!)
[QUOTE]
[li]On the tax side, the failure to have a deal in place by the end of 2012 would mean taxpayers would see a higher witholding for as long as there was no change. If/when a deal is made, paycheck witholding would either be refunded immediately or (more likely) recalculated to take into account what would have been overpayment earlier in the year. Either way, the minimal slowdown in consumer economic activity caused by the brief increase in witholding would be offset by higher activity later in the year when the witholding was reduced.[/li][/QUOTE]
What I am proposing is that any ‘deal’ that is struck be fairly limited, such as protecting the lowest income earners and not really anybody else. The Bush tax cuts are mostly what is wrong with our budget- I am willing to get rid of them for earners who make much less than $250k. I think people will mostly do just fine even with a 3% tax hike.
[QUOTE]
[li]On the spending side, it’s important to realize that the sequester applies only to appropriations, not actual outlays. Spending on a sequestered program will not suddenly decrease on January 1st, just the future ability to borrow/withdraw funds from treasury for that program. If Congress senses a deal is in the works, spending could theoretically continue at 2012 levels for quite a while before a lack of appropriated funds would force a genuine cut.[/li][/QUOTE]
I think we should be adamant about the defense cuts, again for the reason that I don’t see any other route to cuts in defense. Leave most of the other cuts in effect in the spirit of fairness and compromise (and to cut the deficit of course), but in any case Do Not Make Any Deal before Jan 1. Go over the cliff with it’s full effect to gain the stronger negotiating position that brings. Then only allow minor changes, in exchange for real concessions.
I agree, the effects aren’t desperate, but as you and the CBO point out, by the end of the year it could amount to a contraction in GDP and an increase in unemployment (see chart #12here). That is a hardship but 1) assuming Obama wins, people grudgingly accept the down economy anyway. There will likely not be a better time to take our medicine and 2) browsing the CBO’s projections, the effects of an unchecked deficit are becoming alarming. I don’t consider myself a deficit hawk at all (I was for the stimulus, the auto bailout, unemployment insurance, food stamps, pretty much the whole she-bang aside from the treasury-to-banks giveaway), but IMHO we can’t go on like we have been indefinitely. Raise revenue from higher-income earners, cut things we don’t need so much of (like defense), prepare to help the folks at the bottom- do it and do it now.
The heart of my position really is a conviction that the next 4 years will look like the last 4 years… in Congress. There will be no agreements on these issues. No second path exists to eliminate the Bush tax cuts or to cut defense. I see our options as accepting the cliff or making no changes at all due to gridlock, i.e. not addressing our problems at all, violating the philosophical truism I referred to in post #1. I say go over the cliff and negotiate very little about it afterwards.
I’ll have to parse some more what Richard Parker is saying and come back later.
My suggestion - the Fed should purchase another couple trillion in debt. That eliminates a couple years’ worth of deficits without raising taxes or cutting spending, keeps interest rates low, and helps the economy. Once the economy has fully recovered, we can talk about raising taxes and cutting spending then.
I should probably have also stated that I don’t think current deficit spending is a real problem–or at least it isn’t a problem we can or should “solve” based on fiscal conditions projected decades in the future.
If you are arguing that “going over the fiscal cliff” is the best political route for cutting current defense spending–and that this kind of cut is worth the pain to the economy–I think there’s a decent case to be made.
But IMO a lot of folks think the fiscal cliff negotiations will be built around the need to reduce the budget deficit and hence “save us” from some future budget catastrophe. The subtle distinction is important because that reasoning could affect the contours of whatever deal gets made. For example, most folks cite future growth in Medicare and Social Security costs as a budget buster, so if you believe the budget deficit is a big problem, you’re more likely to sacrifice these programs as part of a “Grand Bargain”.
The reasons I don’t worry about the current deficit are threefold:
(1) Decades-out budget forecasts are based on CBO projections which make questionable or unrealistic assumptions. There’s a good recent article on Naked Capitalism which explains this quite well (parentheticals are mine):
(2) Even if we accept the CBO projections as Gospel truth, there is little we can do about them now that couldn’t be done just as easily once the problem becomes more imminent. Matt Yglesias of Slate had a good post on this about a month ago; one example (parentheticals are mine):
(3) Historically, deficits are an economic concern in the short term because they force interest rates to rise. This is why, for example, the elder George Bush and Bill Clinton raised taxes in 1990 and 1993; they had to get interest rates lower because that would help private sector investors jump-start economic activity (but they couldn’t just “print money” because that would also drive inflation higher). But today, both interest rates and inflation are quite low, so there is no short-term need to deal with the deficit.
Only those defecit hawks who are not also defense hawks.
My guess is that many Libertarians would love to go over the fiscal cliff, several times. Repeat as needed until not just the deficit, but even the debt, is cancelled.
That ought to make you a good person with whom to have this discussion. I see the scale of the thing as qualifying it as a problem. It is around 100% of GDP, and currently still growing. That isn’t to label it a crisis atm, I don’t think it is that. But I think such a burden can set us up for big problems down the road. Interest rates will go up for whatever reason long-term, they always do. Suddenly we’d be faced with rolling it over or paying it off at an inconvenient rate to avoid massive interest payments. Why doesn’t this bother you?
I’ll grant you that we can’t have accurate predictions about the economy and so on decades into the future. But the CBO projections I cite only go out about 10 years. And if we aren’t paying it down, I think it is safe to predict that the debt will be there regardless of what else happens.
Well thanks. It seems like the negotiating was all done when they designed the thing in the first place. It seems like the closest thing to a real solution, and I don’t think the pubs ever really believe they’d be held to it. New negotiations will probably only degrade the fiscal cliff- it sounds exactly like the point of the new negotiations.
I am only now able to read your articles so I’ll have to come back, but on this one:
One thing we can’t do if there is a serious debt-related problem 15 years from now is have been addressing the problem for the past 15 years. If anyone was truly serious about actually eliminating the debt, I bet it’d take 40 years or more. Wait decades and it starts looking impossible to ever really be rid of it.
One more thing for now: the cliff looks a lot like an austerity program. If this isn’t a 5 alarm crisis right now, we don’t have to act like it. For example, if the cliff is going to increase unemployment, we can afford to get a little spendy with a jobs bill to address the issue. We may want to change other things, but what is the hurry? The pubs haven’t compromised for 4 years. They can wait 2 more months.
The Sequester Transparency Act goes into effect on 02 January 2013, unless the lame duck Congress does something and convinces Obama. According to a 400-page report (PDF warning), “senior administration officials call highly preliminary estimates of the potential effects cuts would have on more than 1,200 budget accounts and ‘makes clear that sequestration would have a devastating impact on important defense and nondefense programs.’ A senior Obama administration official could not estimate how many job losses or agency furloughs would occur if governmentwide spending cuts are triggered, but said federal employees would feel the effects of sequestration: ‘Clearly, if a sequester would occur, this would have a significant impact on the federal workforce.’” (Report confirms feds would feel the effects of sequestration - Government Executive)
Already the rumor mill at work has started that if STA goes into effect, the effects will be immediate (on the order of days) when tens of thousands of federal contractors and federal employees will be furloughed.
I wouldn’t consider this to be a scare tactic when many federal agencies are right now in the early preliminary stages of preparing for the furloughs and a partial government shutdown. What remains to be seen is when will the media turn its attention to this.
Meh, we can look at deductions and loopholes, there is work to do there. But we already have a law in place. No need to ignore that to pursue the losing candidate’s agenda.
Let’s forget the Romney plan and go over the fiscal cliff instead.
Going over the cliff without modification will probably cause a rescession. Even if you don’t believe the analysis that’s being put out about the GDP consequences of the changes, there is definitely a perception in the business community that no change means everyone should sit on their money–so the analysis is self-fulfilling.
I’m having flashbacks here: “Oh, let the banks fail. What’s the worst that can happen if the global economy crashes?” “Oh, let’s just give up on the deficit ceiling. What’s the worst that can happen if the U.S. tells its creditors it doesn’t plan to pay its debts?”
The Fiscal Cliff is a self-inflicted wound that Congress resorted to when they refused to craft a grand bargain for deficit reduction that included revenue increases. Congress can repeal the law that created the Fiscal Cliff any time they decide to act like adults and do the responsible thing: raise taxes by $1 for every $4 of spending cuts.
The fiscal cliff is a self-inflicted wound, but it may also be the only realistic opportunity to do what must be done: reduce long-term healthcare spending; cut defense spending; and get ourselves to a sustainable tax policy that doesn’t throw us back into recession.
I doubt Congress can accomplish anything on any of those fronts even in the face of the fiscal cliff, but I’m absolutely certain that Congress won’t accomplish them in any other circumstances.
Pretend you could cut the entire DOD budget…that still wouldn’t bring our deficit spending back into line. Better keep that chainsaw handy, and hope you are willing to take it to other places than the Pentagon…
