Tuesday, December 4, 2012

Why the fiscal cliff impasse doesn't matter - so far

Any discussion about the “fiscal cliff” back-and-forth between Democrats and Republicans needs to be put in this frame: It’s Dec. 4. There’s almost three weeks to go before Congress heads home for the holidays. It’s too early for outrage about the White House proposal last week that was designed to appeal to Democrats. It’s too early for scorn at the Republican proposal Monday that did the same for the GOP base.

What’s happening now is what happens with most negotiations. Each side is in the wish list phase, declaring the items they want most and drawing the lines they say they won’t cross. This serves to both publicly reafffirm a philosophy and, more importantly, to provide a place at which both sides might later point and show how much they were willing to compromise.

For Republicans on Monday, that again involved defiant declarations about not raising tax rates – although most everyone expects GOP leadership to bend some, given the election results and the fact that tax rates will go up, anyway, if a deal isn’t struck this month. Democrats, meanwhile, are scoffing at any semi-specific suggestions of social spending reform.

“That’s just a kabuki theater,” debt guru Erskine Bowles told PBS NewsHour on Monday. “If they got to agreement – the way Washington is – too quickly, their own side would just kill them because they wouldn’t think they had negotiated hard enough. They got to go through this exchange.”

But beneath all the posturing, a framework of a serious deal might emerge. With their proposals on Social Security and Medicare, Republicans are laying the groundwork for social spending reform – not merely trims around the periphery that solve little long-term. In return, they will have to give on tax rates on the rich going up – at least a little – but that also would be accompanied by an examination of tax deductions and loopholes. Those are the baby steps of the tax reform we need.

One thing we do know about both proposals thus far: Neither comes close to the kind of savings we need to make a real dent in the deficit. Bowles has long said that the $4 trillion the Simpson-Bowles plan saves over 10 years is about the minimum the country needs to do. The most recent Democrat and Republican proposals are hovering near the $2 trillion mark.

That’s not nearly enough, and three weeks won’t likely get us much more in the way of deficit reduction. But the foundation might be built for something more, so long as neither side decides that a win is more important than a compromise.

Peter St. Onge       


Anonymous said...

"...so long as neither side decides that a win is more important than a compromise."

And there's the problem. Most of these key players are MUCH more interested in winning. I think BHO is as arrogant as he is narcisistic. In his world, winning an election with 51% is a sign that everyone in the country agrees with all of his policies and ideas. Boehner is at least willing to negotiate, although his approach of closing loopholes and deductions indicates he is just as concerned about getting voted out of office in favor of a Tea Party candidate as he is in actually avoiding the cliff. That's what will happen to all these GOP cats in '14; Tea Party candidates will run against them in the primaries on the platform of "they're not real Republicans; they agreed to tax increases!"

But at least Boehner is putting something out there that has a legitimate concession in it. BHO is not budging an inch. He's counting on not moving, then being able to blame Republicans when we go over the cliff and into depression (yes, depression - we're already in recession, as the '07 recession never ended, I don't care what the GDP numbers say). I think he's mistaken. Republicans are going to be able to say, "BHO won on a campaign of tax increases. We offered a plan that increased the tax burden on the wealthy. He rejected it and we went over the cliff." The 12% unemployment rate and additional decrease in median household income that will come as a result of the depression will anger enough people to make sweeping changes in who goes to Washington, just like the depression of the '30s. The party in power will get the blame.