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Over the Cliff

Here’s what I think will happen with the (poorly named) “fiscal cliff”. Or at least what the Democrats should do.

  1. This assumes the Republicans refuse to compromise (or don’t even make a counter-offer to Obama’s offer).
  2. We go over the fiscal cliff. Nothing happens, at least not immediately. I think the markets are already prepared for this to happen anyway. People start to find out what across-the-board spending cuts will do, and become concerned.
  3. Just before the deadline — when it is clear that no compromise will be reached — the Democrats (should) introduce a tax cut for everyone earning under $250,000, to replace the Bush tax cuts that are expiring. And reversing the worst (most damaging to the economy) spending cuts.
  4. The Republicans have a choice: Vote against a tax cut (because it doesn’t apply to the rich), making them look really bad. Or vote for it, accepting no tax cut for the wealthy.
  5. If the Republicans vote against it, throw in some additional spending cuts. By then, people start getting really pissed off about the across-the-board spending cuts (their social security checks get smaller, people lose their jobs, the military starts making cuts).
  6. The Republicans cave, having at least put on a show of being tough for the benefit of their base.

Why do I think no compromise can be achieved before the deadline? After all, didn’t major Republicans already offer to compromise by raising revenues? No, not really. Their offer to raise revenues does not include any tax increase, only “closing of tax loopholes” — and they are unwilling to specify what loopholes they would close. Besides, closing loopholes will never be enough to balance the budget. We need at least some tax increases, and I think that will just be too difficult for too many Republicans. Once we go over the cliff, then taxes will increase automatically. At that point, Obama can propose tax cuts and spending cuts from a position of strength, and Republicans can pretend they are voting for tax cuts (which before the fiscal cliff would have been tax increases).

If you disagree, please leave a comment. But don’t just disagree, tell me what you think will happen. If I get it totally wrong and someone else gets it mostly right, maybe I’ll give a prize or something. At the very least you’ll get bragging rights. And maybe a job as a political pundit (<snark> except at Fox News, where being right could be a problem </snark>).

Extra points if you present a plausible idea of how we can get rid of the debt ceiling.

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17 Comments

  1. Arthanyel wrote:

    #3 they have already done. The Senate passed it months ago and it’s sitting in the House.

    Saturday, December 1, 2012 at 3:03 pm | Permalink
  2. Bill b wrote:

    Re: #3, I hope Pelosi can get somewhere with her idea of forcing the Senate tax cut bill directly to a vote in the full House. Requires she get some Republicans to sign the discharge petition — difficult with a solid Republican front for irrationality.

    Saturday, December 1, 2012 at 3:19 pm | Permalink
  3. Hassan wrote:

    House republicans can easily attach/modify senate version of bill (by including tax cuts for rich) and pass it and send it back to senate to vote on it. Then senate (democrats) would have to vote against it I guess?

    Saturday, December 1, 2012 at 4:13 pm | Permalink
  4. ebdoug wrote:

    The Republicans will filibuster, nothing will happen. taxes will go up for all. I’ll get to pay the extra $4000 that I should be paying on my dividends. As it is, I pay less than 1K now.

    Saturday, December 1, 2012 at 5:48 pm | Permalink
  5. Mike wrote:

    I agree that the only way out for the Republicans is to have us go over the “cliff” and then pass tax reductions for those under $250k. This is the most likely scenario UNLESS, and that’s a big UNLESS, Obama hasn’t yet outgrown his need to compromise.

    So, if there’s a deal before we go over the cliff, Obama’s given away the farm; if we go over the cliff, Obama gets pretty much what he wants.

    That said, I’d sure love to see some permanent reductions to the military budget, with the savings being spent on veterans’ care, infrastructure, education and so on; you know, things that actually help the citizens of this country.

    Saturday, December 1, 2012 at 7:46 pm | Permalink
  6. Solid Muldoon wrote:

    Clara is an 82-year-old Black woman that I see at the Piggly Wiggly about once a month. She is in a wheelchair. She buys turnip greens and hog jowls. She buys rice and potatoes and onions. She pays for them with her EBT card.

    Yes, let’s cut entitlements. Better that Clara should starve rather than a banker should have less to send to his account in the Caymans.

    Get a job, Clara. You’re a loser!

    .

    Saturday, December 1, 2012 at 8:48 pm | Permalink
  7. Arthanyel wrote:

    As I have said on other threads, I think a lot of Republicans want to go over the cliff so they can let taxes go up on the rich on a little and not have to vote for it.

    The flip side as some Republicans have obviously noticed is that they lose some leverage every day they don’t get a deal. Giving Obama a grand bargain of some kind right now is likely their best chance to get the MOST concessions. The longer they wait, the less they can extort because public pressure (and behind the scenes pressure) will build to stop the recessionary forces because the Republicans are going to be more blamed for the obstruction and it will cost them the whole enchilada in 2014 if they do nothing.

    Saturday, December 1, 2012 at 10:26 pm | Permalink
  8. Iron Knee wrote:

    That’s a good point, Arthanyel, but I think that’s what the Republicans were (poorly) trying to do when they announced that they would “compromise” by rejecting Norquist’s pledge. Except that they only rejected the (batshit insane) part of Norquist’s pledge that said that closing a loophole was the same as raising taxes. They still won’t vote for raising the tax rate (so much for rejecting Norquist), so I think they will have to wait until after the cliff to avoid angering their base.

    Too little, too late.

    Saturday, December 1, 2012 at 10:58 pm | Permalink
  9. JRG wrote:

    Methinks the Republicans, facing no chance of coming together to even consider tax increases, will allow us to go off the “cliff” in Jan. They will then be forced to accept an increase in tax rates for the rich, to show they are allowing tax decreases for the under-$250K crowd. The real issue is where we go next……

    Sunday, December 2, 2012 at 7:17 am | Permalink
  10. sui generis wrote:

    The Congressmen clamoring for closing loopholes in the tax code do so knowing full well that they will soon get to be bribed to restore them.

    Sunday, December 2, 2012 at 7:55 am | Permalink
  11. Duckman wrote:

    I shall be the bold one here and say, deal gets made, we don’t go over the cliff.

    Sunday, December 2, 2012 at 8:54 am | Permalink
  12. You need to either stick to the easy irony or take a bit of time to learn about the major alternative to neo-classical/free market faux economics. For an easy start try the interview Harry Shearer did (on his “Le Show” website) with Stephanie Kelton from the UMKC economics department on Oct. 30th. She is the top person there in presenting to general audiences. There is no “fiscal cliff” except what the Rethugs and Demogogues(DLC) concoct to serve their Wall Street masters. BHO like the rest of the DLC pack are economically illiterate, except for the contributions to their political campaign funds. Harry Shearer put together the questions so her responses are not quite as polished as she has done in prepared presentations, though it is good and it should be very accessible. After that I can either answer your questions or refer you to people who can. The macro economic and fiscal viewpoint she represents is the variety of post-Keynesian economics that is in part represent. As to the humor of the context, it is mostly dark at this point and people need to see the ridiculous political BS for what it is, fraud stacked upon more fraud.

    Sunday, December 2, 2012 at 9:59 am | Permalink
  13. oops I left a grammatical error in the prior text, which should read “..that in part represent(s) the economics that established the Glass-Steagal acts and the WPA et al, post Keynesianism aka Modern Monetary Theory/Functional Finance.

    Sunday, December 2, 2012 at 10:04 am | Permalink
  14. rk wrote:

    I see no evidence that the Republicans are really ready to change their stance. They will not agree to a budget, and the default raises will happen. The Republicans will then claim this is evidence that government doesn’t work, and will renew their move toward a smaller government. It will backfire on them, and they won’t understand why.

    There, that’s my prediction. You heard it here, first.

    Sunday, December 2, 2012 at 8:07 pm | Permalink
  15. Don in Huaco wrote:

    Over the cliff, enormous bluster (which might actually shut up the BENGAZI!!!!! screamers), blame casting, then shut down the government in February with the debt ceiling. Cynical I know.

    Tuesday, December 4, 2012 at 5:00 pm | Permalink
  16. hieronymus wrote:

    Obama’s central campaign message was on raising taxes for the rich. The people voted in agreement a month ago. End of story.

    Wednesday, December 5, 2012 at 7:54 am | Permalink
  17. Bert wrote:

    You guys are off.

    The world will end on Dec. 22, so there’s nothing to be concerned about. It isn’t going to matter.

    Don’t worry, be happy!

    And Merry Christmas that won’t come around!

    Friday, December 7, 2012 at 3:35 pm | Permalink

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