Tag Archives: fiscal cliff

The fiscal cliff is just Act 2 of a 3-Act Play

2 Jan

I’m still mulling over the fiscal cliff deal that’s just been ratified by Congress.

My one thought so far is that part of the reason some progressives are saying it’s not so bad is that the deal, for the most part, focuses on taxes. And while the deal has the unfortunate element of making permanent a great many of Bush’s tax cuts, which were temporary, and not raising nearly the amount of revenue that might have been raised if the tax cuts had simply been allowed to expire ($3.9 trillion over a ten-year period), it does have the benefit that it raises about $600 billion in revenues, eliminates some tax benefits for the rich (though not nearly to extent that allowing the Bush cuts to expire would have), extends unemployment insurance for a year and protects the earned income tax credit for the poor.

But we have to remember that the deal is really only the second act of what seems to be shaping up as a three-act drama.  Act 1 was last summer, when Obama and the Republicans agreed to nearly $1 trillion in non-defense spending cuts over a ten-year period.  That set of cuts is now in place, promising, as the White House said last summer, to “reduce Domestic Discretionary Spending to the Lowest Level Since Eisenhower.”

Act 2 is the fiscal cliff deal. As I say above, it focuses mostly on taxes, and because it didn’t touch things like Social Security or Medicare, which Obama had been pushing for, some progressives feel relief. But it’s Act 2, as I said. If we keep in mind Act 1, what we have so far is $1 trillion in non-defense cuts and $600 billion in tax increases.

Which brings me to Act 3: the debt ceiling and delayed sequester negotiations that are set to begin in late February/early March. Unlike the negotiations over the fiscal cliff, where Obama simply could take away the Republicans’ tax cuts by waiting them out, the debt ceiling negotiations will put the GOP in a much stronger position. Obama wants something, and only the Republicans can give it to him. So now they’ll say to him: all the movement has to be on the spending side. And aside from the issue of cuts to the Pentagon, he’ll have very little to negotiate with.

Ed Kilgore describes the upcoming confrontation over the debt ceiling/sequester thus:

So the supposed moment of bipartisan satori that supposedly culminated with the House’s action last night has increased the already formidable sentiment within both parties to make the upcoming confrontation One for the Ages. I would guess that by sundown today about 95% of the Republicans in both Houses who voted for the “cliff” bill will have made public statements swearing bloody vengeance on the Welfare State in exchange for an increase in the debt limit. And even before the deal was sealed in the Senate, the president was already vowing not to make the concessions Republicans will demand.

When it comes to intransigence, whom are you going to believe? The Republicans or Obama. That’s why liberals, even those who aren’t that ruffled by the specifics of the fiscal cliff deal, are nervous.

Regardless of whom you believe, all of the action is going to happen on the spending side. So when the play’s over, what we’ll have is $600 billion in tax increases, and some number of trillions in spending cuts. Some of those cuts will come from the Pentagon, which is good, but…well, you see where I’m going.

Update (noon)

Here’s a good roundup of reactions to the deal.

Update (3 pm)

Digby has a must-read. She also makes an important point in her conclusion:

So you see what a bind we’ve been put it with this ridiculous austerity fetish? We’re going to be arguing about cutting even larger chucks of the budget at a time when we desperately need to be adding to it.

(Oh, and by the way, it’s not as if the tax hikes they just voted for could be used for any of that. Every penny of it is slated to pay down debt incurred during the time when the Republicans starved the beast and spent like sailors. What a racket.)

I didn’t deal with the whole austerity question here, though I have in the past. In a bad economy, tax hikes are always austerity measures. But the one hope is that the monies they provide will go to funding programs. In this case, the money is solely to pay down the debt. And if history is any guide, as soon as the GOP is a position to wreak their havoc, they’ll just run up the debt again. Unless someone finally makes the case for taxes as something other than a way of reducing debt and deficits, we’ll be stuck where we are.

Will Obama not only take us over the fiscal cliff but also keep us there?

9 Nov

Is it feasible/plausible that Obama will not only take us to the fiscal cliff, but also push us over it and then keep us there? That is, not negotiate any kind of deal with the Republicans at all, not before or after January 1? Unless you assume Obama doesn’t want cuts to entitlements — which I don’t assume; I believe he’s an austerian of Reactionary Keynesianism — think about what he gets if he allows the sequester to go through: higher tax rates, cuts to entitlements, and cuts to defense. That seems like classic New Democrat/Clinton goals. I recognize it would put the economy in danger of recession but Obama’s not up for reelection and modern Democratic presidents have shown remarkably little interest in the fate of congressional Democrats, particularly at mid-term election time, and in party-building more generally. So, I ask: will he take us over the cliff and then keep us there?

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