Repeal the "fiscal cliff"

[cos]

[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.

Comments

[auros]

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.

[cos]

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.

[auros]

"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.