cos | Repeal the "fiscal cliff"

Repeal the "fiscal cliff"

[I also posted this on Blue Mass Group]

We hear a lot about Congress and Obama working to find some elusive deal that could stave off the "fiscal cliff", and occasionally we also hear about why we should to avoid it: According to the Congressional Budget Office, allowing the "cliff" to happen is likely to send the economy back into recession in 2013, and sharply increase unemployment.

What we don't hear much about is that Congress can simply repeal the fiscal cliff, without any complicated deals.

"Sequestration" - the automatic spending cuts that start to take effect in January - is just a law passed by Congress in 2011. Congress can repeal it, and that alone would be enough to prevent a recession in 2013 according to the CBO report - even if all the Bush tax cuts expire.

Extending the payroll tax cut and unemployment benefits would double the impact. Extending the Bush tax cuts on income below $250,000 would do even more (In contrast, extending the Bush tax cuts on higher income would, according to the CBO, have very little impact). But even if we did neither of those sensible things, just repealing sequestration would be much better than doing nothing. Neither Congressional Democrats nor Republicans actually like sequestration or want it to happen. So why do we hear so little in the news about that option?

I started a petition on change.org: Congress: Repeal the "fiscal cliff".
Please sign, re-post it, and send it on to others.

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What we don't hear much about is that Congress can simply repeal the fiscal cliff, without any complicated deals.

I know you know this but I feel the need to say it anyway for other folks reading - that's not how politics works. There are ALWAYS deals. If there's a thing Side A wants and Side B is OK with it but not super thrilled Side B needs to extract something they want in order to give it to Side A because otherwise they look like pushovers and Side A looks like winners. If it's something BOTH sides want a lot they still have to play games over it and try to extract compromises to make sure they get the most credit for a popular thing. And neither side ever wants to pass up a chance to get more of the things they want so they'll pretend they might not vote for it unless they get more concessions and the other side never calls their bluff because they want concessions too.

Your point is of course 100% right in the abstract... but then it runs up against pesky reality! Some folks can get cynical about this kind of thing but I really just find it a fascinating study in the behavior of the human animal. We're strange beasties :)

I like how Chris Hayes has taken to calling it "the fiscal curb". Because the other thing that seems to be left out of a lot of the conversations around this is that if we pass the magic date they can STILL reverse all these things and even make most of it retroactive! A cliff you go over and it's end of story. A curb you go over and you can just step back up. Maybe you stepped in a puddle but it's really not all that bad.

It's not just abstract, it's basic fact. While you're right that Republicans *want* to extract a deal before they'd repeal this, the plain simple fact is that it *doesn't* require a complicated deal - it's just a very simple repeal of legislation that neither party thinks is a good idea to keep. "Politics doesn't work that way" is not an object: this point is a political point. If the public were more aware of the simple fact, and the media covered it, then Congressional Republicans would cease to be able to pretend that they need a deal to do this. Right now most people don't seem to know that they don't need a deal, they just want to extract one. So the point of politics is to shift the Congressional debate by making this into a story, and putting it out in the clear.

I definitely agree that January 1st isn't as magic as some have made it seem. We probably can still fix this in January without damage, and even in February without significant damage most likely.

I think you've got it exactly backwards - it's the less informed people who are more likely to say "why can't they just pass simple things and move forward?" and that the more informed people are the more patience they would have for deal-making and wanting to have input into that process. As someone who pays a moderate amount of attention to politics and is married to someone who pays a lot of attention I do not want my party to give up something that gives them potential leverage. I think revoking sequestration without extracting a deal on taxes is a bad idea for Democrats so I am not in favor of this. I intentionally didn't name specific parties in my example so I'm not sure where "you're right that Republicans *want* to extract a deal" came from. BOTH parties want to extract a deal. And a lot of their constituents want them to.

The Dems can get a lot of what they want simply by "going over the cliff" -- temporarily letting the spending cuts, and more importantly, Clinton tax rates, go into effect. Then they introduce the simple bill that rolls back the spending cuts, and offers a new temporary tax cut to the middle class.

Of course, you could pass this simple bill now, but the GOP refuses to ever vote for something that represents a "tax hike". (And never mind that they already passed the laws, in '01 and '03, that said taxes would go back up after a while -- they were using that "sunset" provision to try to make their tax cuts for rich people look less budget-busting than they actually intended them to be, once they got a chance to make them permanent.)

The other sticking point is that the Dems do not want to give up the leverage they currently have (b/c of taxes already being scheduled to rise) without resolving the debt ceiling. Unlike the fiscal cliff, where spending a week or two "over" it is basically harmless, failing to raise the debt ceiling actually WOULD be a crisis. We could avoid defaulting on liabilities if the President manned up and either invoked the 14th Amendment to say that the existing debt ceiling rules are unconstitutional (because they call the validity of other duly passed tax, spending, and debt laws into question), or uses the coin seignorage solution (which has a more clearly established legal basis, but is politically kind of ugly). But in any event, even if we didn't outright default, bond markets would get very freaked out, in a way that could lead to a market run akin to the crash in '08. Even if we recovered from it, it wouldn't be pretty, and a whole bunch of people would lose a large chunk of their retirement savings.

So the Dems, quite rightly, are insisting that any deal include disarming the debt ceiling as a negotiating tool, at least for the entire next presidential term (e.g. by raising the debt ceiling exactly as much as would be required to fund the Ryan budget -- about six trillion dollars), or, better, forever (by simply saying that the executive has the right to raise the debt ceiling to cover the spending laws Congress has passed, unless Congress actively decides to pass a law saying it wants to default -- which, mind you, would be batshit insane, though no more-so than threatening to refuse to raise the debt limit under current law). Everybody has always grand-standed about it in the past, but until last year, nobody ever actually tried to play chicken with it -- "give us what we want, or we blow up the whole world economy." We need to end that pattern before it gets established, because if we keep playing that game, sooner or later somebody will screw up and actually blow up the economy.

On the debt ceiling, I think even the Republicans realize how badly they lost by trying that brinkmanship, and the tea party is significantly weakened when the new Congress comes in January. If it came to an up or down vote today on sequestration only, I highly doubt many Democrats would consider voting not to repeal it simply to pressure the Republicans on the debt ceiling. Besides, they already know the Republicans are crazier, so any sort of "we'll play chicken on this awful economy-damaging thing just to get you to give up playing chicken on that other even more awful economy-damaging thing" is simply not a game that makes any sense whatsoever for Democrats.

"On the debt ceiling, I think even the Republicans realize how badly they lost by trying that brinkmanship"

Then you're not paying attention. Boehner has been very clear that he wants to extract "a price" for raising the debt ceiling. McConnell has said a variety of ridiculous things about the debt ceiling as well. Tea Party members of the House have been even loopier about this. And when you add to that the fact that Democrats have learned that they can't even trust Republicans to keep their end of any bargain, the idea of being forced into bargaining over the debt ceiling again is utterly anathema.

As far as what "makes sense for Democrats": On what basis are you making that assessment? I have served in an elected office of the Democratic Party. An admittedly minor one, sure, but enough that I've discussed policy issues (mostly aroung green business, since that's my core expertise, but also general macro stuff) at length with Reps. Anna Eshoo, Jerry McNerney, Gabby Giffords, even once with Nancy Pelosi; as well as Assemblymen and State Senators (Ira Ruskin, Joe Simitian, Rich Gordon, Jerry Hill, Sally Lieber, Paul Fong). I may be missing names, those are just the folks I know best (in most cases, I worked on their campaign at some point, though in Rich's case, I actually worked for his opponent in a primary, but came to respect him and I still think he's an excellent Assemblyman). I used to run into Sally in the grocery store and chat on a fairly regular basis.

The Dems are, by and large, more inclined to compromise and more risk averse than Republicans, both at the level of the rank-and-file, and the high electeds. But the activist base and mid-level electeds are raising hell about the possibility of the Dems caving to unreasonable demands again (especially cuts to Medicare, where the Dems remember that in 2010, the Republicans campaigned against Democrats for "cutting Medicare" in the structure of Obamacare), and Obama has been clear that he wants the debt ceiling taken off the table as a negotiating tool, permanently.

Huh, I'm not sure where you got this being about "more informed" vs. "less informed" people - the problem I'm pointing to is that this element of "why not just repeal it?" is missing from the public discourse among *informed* people. Informed doesn't mean they're focusing on the right things or noticing all the possibilities. Many informed people tend to mostly notice whatever the media and political leaders focus on, and "just repeal it" is pretty much missing from the national debate.

However, you're also giving a very good example of how informed people, such as yourself, can misunderstand and be mistaken. As, I believe, is the case with a majority of informed people today regarding this issue. You're totally mistaken about taxes vs. sequestration. Democrats do not need to extract a tax deal to repeal sequestration - repealing it is pure win for Democrats, nothing lost whatsoever. If Republicans won't do a deal on taxes, then all the Bush tax cuts expire at the end of the month, at which point Democrats can again propose legislation to re-cut taxes on income below $250K, exactly what they're proposing now. Republicans would be in an even worse position then, because they'd be trying to oppose a tax cut for everyone, simply in order to try to extract a bigger tax cut just for high income people. But the basic point here is that all of the pressure for a tax deal comes from the fact that if nothing is done, all the Bush tax cuts automatically expire at the end of this month. Repealing or not repealing sequestration has no effect on that one way or the other.

Republicans are the only ones who gain any leverage from not repealing sequestration, because even though they don't want sequestration to happen, they know the Democrats don't want it either, and they hope to hold it hostage to get Democrats to agree to high income tax cuts or social security cuts or something. There's no reason whatsoever for Democrats to use sequestration as a hostage maneuver.

However, as I noted, Republicans can't credibly use this maneuver either if it's widely exposed, and widely exposed that there's such a simple solution: repeal it, and have your argument about taxes separately. That's why it'd be extremely politically valuable to push "just repeal it" into the public debate.

However, you're also giving a very good example of how informed people, such as yourself, can misunderstand and be mistaken.

You seem to be operating under the "if people knew what I know they'd all agree with me" assumption. It doesn't work like that. There's nothing in your following paragraph that is new information to me - I simply disagree with you.

Upvoted.

...and I hate having to point this out to

cos, a man that has worked on really important political campaigns in Cambridge.

You know what, I've just realized that part of the problem here is that you think the Republicans want to repeal the sequester. You're wrong about that. They only want to repeal the defense part of the sequester -- and transfer those cuts to the discretionary non-defense part of the budget. (How do I know? It doesn't require mind-reading. They passed legislation in the House doing exactly that!)

And your point that Democratic leverage becomes stronger after the Bush tax cuts are expired is, um, kind of making our side of the argument. Democrats are in a much better position to insist that Republicans roll back the NDD part of the sequester, replace the defense part with smarter cuts, kill the debt ceiling, etc. The Dems simply propose a bill that offers a middle-class tax cut, with appropriate riders, and dare the Repubs to vote against it. The fact that Democratic leverage improves after Jan 1 is why I have been calling and emailing my House and Senate representation and asking them to stop trying to get the Republicans to give in on an extension of the middle class tax rates now. (Which is the version of the idea of "simply repealing the cliff" that is, unfortunately, in wide circulation.)

Going over the "cliff" will do minimal harm to the economy if it's resolved even within a month (especially if the ultimate resolution retroactively credits back the extra middle class taxes collected during that time), and doing so will mean we end up with a deal that's better both politically (and while in normal times I'd consider that a minor point, given that the modern GOP has made itself a threat to democratic governance, I consider it a key goal for the good of the country to politically discredit them so utterly that either a moderate faction can take back over the party, or a new party can rise to take their place) and substantively (in terms of the macroeconomic policy that would be best for the country).

You also seem to be suggesting that "repealing the fiscal cliff" means only repealing the sequester, when in fact the common understanding of "the fiscal cliff" is the combination of the spending cuts and tax hikes. So a repeal of just the sequester would not be a repeal of the fiscal cliff (or curb, or speed bump, or whatever).

In any case, I would expect there would not be more than two or three House Republicans willing to vote for a full repeal of the sequester with no replacement spending cuts, right now, even if Dems felt like taking the bargaining chip of the defense cuts off their side of the table in exchange for the NDD cuts. Which they don't.

PS: Here's John Boehner, today, saying that he wants to hold the debt ceiling hostage again.

"Neither Congressional Democrats nor Republicans actually like sequestration or want it to happen." So, why is that? Wouldn't politicians WANT spending cuts to be repealed so they could do what they want and spend what they want?

So I guess my question is, "Why don't they want sequestration repealed?" (Also, why would repealing *spending cuts* make our financial situation better? Wouldn't that make things worse, spending more money we don't have? I think I'm not understanding something here.)

I'm not sure I understand your first question, because you seem to be asking two opposite things as if they were the same thing. "Neither Congressional Democrats nor Republicans actually like sequestration or want it to happen" means they don't actually want this package of spending cuts to happen. But you ask, "Wouldn't politicians WANT spending cuts to be repealed" - which, yes, is what I said they want. "spending cuts repealed" = "sequestration doesn't happen". So what are you asking in this part, can you clarify?

> Also, why would repealing *spending cuts* make our financial situation better? Wouldn't that make things worse, spending more money we don't have? <

I really should write a much longer post about this, but the short version is that you along with a LOT of the country have been fooled by all this talk of deficit and debt into believing that deficit and debt is our economy's problem, when it in no way is. While there are some possible longer term problems that can be caused by *growing* budget deficits (which we don't have - ours has now shrunk four years in a row), poor performance of an under-capacity economy is not one of them. It's just the opposite: the only good way to get *out* of a weak under-capacity economy is by spending more. Spending more is in fact exactly what we need to do now.

Money we most certainly do have. It is impossible for the US government to run out of money; it has as much money as the Federal Reserve wants it to. Making more money does devalue all money of the same currency, but that's not much of an issue when it comes to the US and dollars (something I'd explain better in a longer post) and it's *certainly* not a short term problem, or something bad for the economy. More money would be great for our economy right now, and decrease unemployment, so in fact that's just what the Federal Reserve has been doing for several years in a row: vastly expanding the amount of money available. However, the most effective use for all that money would be direct government spending, and thanks to the Republicans, our government is not spending nearly enough. That's why the recovery is so slow.

As the CBO report I linked to makes very clear, repealing the spending cuts would be a big help to the economy in 2013 (an alternate way of saying that letting these cuts happen would be a big blow to the economy in 2013).

You really need to understand the core insight of John Maynard Keynes, which is that it's impossible for everybody to save at once, unless we also all agree to invest at once. When Aggregate Demand falls sharply, the government has to step in as the investor of last resort.

Every dollar spent is a dollar of income for somebody else. If we all, simultaneously, decide we're feeling poorer (or are actually made relatively poorer, e.g. by a sudden spike in the cost of an imported resource like oil), and we all decide to spend less and save more (whether putting money under the mattress, or reducing net debt positions), something has to give. In a perfect world, the increased savings can be passed through a healthy financial system and transformed into investment. But the world is not, in fact, perfect. The reality is that sometimes reduction in spending / increase in saving simply causes the economy to tank. Resources that could be productively deployed sit idle. For instance, despite what you may've heard about an excess of housing, the reality is that we have a shortage of the right kind of housing (rental units for younger people and new families); and yet, we have millions of skilled construction workers sitting idle on the sidelines, and piles of cash sitting on corporate balance sheets, or being "invested" simply in negative-yield inflation-indexed bonds. (IOW: People were so freaked out by the '08 crisis and subsequent recession and slow recovery that four years later they're still willing to pay the US government to hang onto their money for a while, rather than trusting it to the private financial system.) Timber and cement prices also cratered during the worst of the recession -- I was just looking at timber prices today. (I work for a financial advisory firm, and we had a meeting with an ecological forest management fund that's looking to raise money from people like our clients.) We have crumbling bridges and roads and power lines, which we could rebuild using some of the idle construction labor and materials, paying a lower-than-usual price, using money that people are paying us to take off their hands. The fact that we don't have something like the Works Progress Administration in place is financial lunacy.

Call me a schmuck, but I am in favor of sequestration taking effect.

Upper class tax cuts go away, and the Defense budget gets the cuts that the military brass support. Where's the problem?

Where's the cliff? Cliff Richard? Someone needs to give Clif bars to cranky, hangry (hungry to the point of anger) senators? There isn't a cliff.

This isn't about the debt ceiling -- that's due in February.

Not a schmuck, just apparently very mistaken or uninformed.

> Upper class tax cuts go away

That happens regardless of what's done with sequestration. The sunset on the Bush tax cats is separate legislation. So, irrelevant to this point.

> the Defense budget gets the cuts that the military brass support.

No, it gets much much more than that. Which honestly wouldn't be a problem if that spending were shifted to better things, but it won't be: it'll just be cut entirely. Not only that, but many of those better things would also be cut. Science, education, public health, public safety, nature, all sorts of valuable stuff would get cuts.

But even if that better stuff weren't being cut, just the military, making such huge spending cuts during a weak economy (as opposed to shifting that spending to more worthwhile uses, which would be a good thing) would increase unemployment and weaken the economy and that would hurt all of us.

> There isn't a cliff.

Whether it's a "cliff" or not is a separate matter, I'm just using the common term for it. A whole bunch of changes go into effect on January 1st, but it's certainly possible for Congress to undo some or all of those changes in January before there's much damage, and probably even in February. By March it seems likely too late to avoid a 2013 recession if Congress doesn't undo some of these changes. So January 1st isn't the "do it by then or it's too late" date that some people make it out to be, but it is a pretty rapid timeline. Whether you want to call that a "cliff" or not is up to you.

Edited 2012-12-13 03:25 (UTC)

Just because I disagree with you does not mean I am misinformed. I studied the facts, and I'm going with with the six-inch cliff.

Even if I would prefer no cuts to any programs, I see raising taxes as vital to the resumption of America the Well-Paved, Pretty Sweet Place To Live. I'm big into roads and mass transit, each of which require tax outlay. In return we get cool stuff cheap and get back to our individual projects.

I'm going with anything that forces Republicans to stop being racists. Their entire plan for two years was to make sure the President had only one term. "The nation? Screw the place. We've got a billionaire addiction and we hate that mulatto. Let's relive the glory days of 1851."

They've filibustered 387 votes in six years, all without actually giving long speeches. McConnell even filibustered his own proposal because Democrats would have voted for it. Does he think running the largest government in the Western hemisphere is a game? To use their terminology, why does he hate America?

The Tea Party is like the Bloc Quebecois. Their goal is to shrink government (Quebec leaving Canada would shrink Canada's government), but any actual success would cost them those cushy government jobs. The Pequistes in the MNA actually have more work to do if they succeed, but the guys in Ottawa would have to get days jobs in Gatineau.

The Tea Party are terrorists. It's our national policy not to negotiate with terrorists, because you don't negotiate with toddlers. When they're ready to drop the threats of physical violence and resume reading primary sources, we'll resume capitulation to prevent fighting. Oh wait, why do we liberals do that again?

They agreed to the six-inch cliff two years ago because they assumed they could weasel out of it. Nope, that's not how legislation should work. Screw these Copperheads.

Krugman puts it more concisely than either of us:

This is not a negotiation in the normal sense, in which each side makes proposals and they dicker over the details; instead, Republicans are demanding that Obama read their minds and produce a proposal they’ll like. And Obama won’t do that, for good reason: he knows that they’ll just pronounce themselves unsatisfied with whatever he comes up with, and are indeed very likely to campaign in 2014 attacking him for whatever cuts take place.

Pushing the Republicans to make a deal now is foolhardy -- their base prefers intransigence over compromise as the default choice, and every time they get to reject something from Dems, that helps maintain the base's interest and support -- and yet, weirdly, if they did take an offer, that would actually improve their bargaining position after 1/1/13, so even if they did get pushed into taking a simple deal, that would be bad in the long run. Better to just shut up, go home for the holidays, and then make an offer that they can't refuse, because it's so obviously in line with their claimed values (tax cuts for the middle class!) that even low-information voters will notice it if they try to reject it.

Thank you for the link and the feedback!

I've concluded as well that, since the Democrats will get a 'no!' no matter what they (we) propose, let's propose crazier things:

"We want the tax rate for the rich back to LBJ-era levels, funding for maglev trains all over the place, a Federal database that alerts dog catchers to neighborhood folks looking for a new dog, and a free sixer of Laguanitas IPA for every head of household that files taxes before March 15th."

"No! Dirty socialists."

"So, you hate puppies? You hate beer? Fascists."

I'm going to assume you're being somewhat extreme for effect, but I think I agree with you in principle. I wouldn't want to propose something so extreme that it would actually look strange or wasteful to the median voter, but I absolutely would like to see the Dems making proposals that start them out at a position where they have more chips to bargain away. Like, propose authorizing up to $800B in stimulus through a new Works Progress Administration, to be spent over the next 5 years (which would on its economic merits be a clearly good thing -- we have crumbling infrastructure, and the capital, labor, and materials to fix it are available on the cheap). Acela for the west coast (not necessarily maglev, but something) would be a great item to include.

Precisely: we take their crappy tactics and get a compromise point that we like.

"We demand maglevs!"

"Uh, no."

"Then compromise -- fast trains from San Diego to San Francisco, with ads all over the place. Cushy chairs. Make it nicer than flying. Oh, and we'll sell the good fruit and jerky on the train."

"Well, yeah... cushy... and are we talkin' that peppered jerky from the guys that advertise with Sasquatch?"

"Yup. Sounds like a plan. Next topic: kitty! We have a video here..."

the sunset on the Bush tax cats

G and I want to scritch the Bush tax cats. I hear they have very soft fur.

Are they related to the Fat Cats in Sacramento?

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