How to resolve the fiscal cliff

by on December 23, 2012 at 7:16 am in Economics, Political Science | Permalink

In my latest column, I suggest another strategy, one the current Republican Party seems quite far from:

 To see how this could work, consider this script: Let’s say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount.

Given the slow economy, it is undesirable to reverse all or even most of the Bush tax cuts. A small but publicly trumpeted clawback of some of the cuts would send the right message to voters, while minimizing the macroeconomic fallout. The nice thing about symbols — single shots across the bow — is that they often can suffice.

If people already rationally expect these tax increases, this signal would do neither good nor harm, but perhaps such an approach would nudge political expectations closer to reality without draining the economy.

And this:

In the minds of many moderate and independent voters, the Republicans are currently identified with dysfunctional politics. But this proposal would let them take a credible stand against obstructionism. If the president didn’t like such a deal, he would be the naysayer, and the resulting publicity would shine a bright spotlight on the tax-and-spend mismatch. Suddenly, it would be the Republicans emphasizing the classic American line that “we are all in this together.”

Read the whole thing.

Greg G December 23, 2012 at 7:44 am

Great column. This cuts through a lot of bullshit from both parties.

Andreas Moser December 23, 2012 at 8:00 am

Americans, don’t worry about the fiscal cliff! – I have been living on the fiscal cliff for a few years, and it’s not as bad as it is made out to be.

dan1111 December 23, 2012 at 10:53 am

It’s not the ON the cliff part that you have to worry about…

Rich Berger December 23, 2012 at 8:05 am

I realize that it is necessary to paint the Republicans as the sole guilty party, not to upset the readers of the NYT. To pretend that Obama and the Democratic party haven’t sold the fantasy that the blessings of all these free goodies are available just by “asking the rich to pay a little more”, is really obtuse. This was the basis of Obama’s reelection strategy, along with the “war on women”, and the painting of Romney as a rich felon who killed people.

I know you are just trying to be reasonable, but this article is delusional.

Tyler Cowen December 23, 2012 at 8:07 am

Your understanding is exactly the opposite of what I wrote.

John Thacker December 23, 2012 at 9:59 am

Yes it is. But his understanding is closer, I think, to how moderate and independent voters would view this strategy. It would be viewed as Republicans hating the poor so much that they want to raise their taxes when Democrats don’t.

The current Republican position on taxes already is an “all in this together,” because Republicans say that if taxes on the rich are raised without cutting spending, taxes on the rest of us will have to follow. But that doesn’t mean that the Republicans want to be the ones raising the taxes. They want the Democrats to raise taxes if they want to preserve the spending.

Your position would win Republican nods for growth from the Beltway pundits, but not votes, which is what they want.

Lord December 23, 2012 at 10:37 am

Because avoidance, deception, and lies are so much more effective at getting votes? Perhaps it is among Republicans.

Engineer December 23, 2012 at 11:04 am

Your position would win Republican nods for growth from the Beltway pundits, but not votes, which is what they want.

Yes I agree.

“Symbolic” tax hikes by the Republicans would be so easy to demagogue. The idea would never get off the ground.

Frequent Reader December 23, 2012 at 12:46 pm

Oh Tyler,

You read the troll.

I’ve learned to just skip Rich Berger comments. Dude’s not interested in anything but caricature.

TheAJ December 23, 2012 at 3:49 pm

Can someone please point me to these free goodies and where I can get my nasty colored liberal hands on them? Because to my knowledge, the first in line to government freebies are the elderly and the military, who happen to vote Republican, and that line looks pretty damn long from out here in of it.

The Other Jim December 23, 2012 at 9:05 pm

The article is utterly delusional, but not for the reasons Rich cites.

The delusions are many: The idea that the GOP is the “party of obstructionism,” which is NYT-speak for “party that stands in the way of vast oceans of wonderfulness for absolutely no reason.” The idea that the GOP accepts this label, and hates it, and desperately seeks to be rid of it, and believes the way to do this is to GIVE OBAMA EVERYTHING HE EVER WANTS, including raising taxes on absolutely everyone, and then the label will be gone, and the NYT will sing their praises, and never ever say anything bad about them again.

This is about as deep in the liberal NYT echo chamber as you can get, folks.

TheAJ December 24, 2012 at 2:48 am

What are you, stupid?

The GOP is the party where members have pledged to not raise taxes by a single dime.

On the other hand, the Democrats have something like the majority of its members insisting on “entitlement reform” aka cuts to Social Security and Medicare.

Andrew' December 24, 2012 at 3:34 am

” the Democrats have something like the majority of its members insisting on “entitlement reform” aka cuts to Social Security and Medicare.”

Finally? So, finally a nominal majority of the party who has been largely in charge for 100 years recognizes the obvious.

mulp December 25, 2012 at 9:09 pm

60 Senators and nearly every Democrat in the House voted for Obamacare which is a huge entitlement reform of the entire health care system.

As quite a few Republicans stated in the Republican primary debates, we have universal health care: Reagan mandated with EMTALA that anyone in need of care must be provided care regardless of ability to pay for the care.

Obamacare requires everyone be able to pay for any medical care they require so doctors and hospitals are not required to work for free to meet the EMTALA entitlement.

Along the way, the law stops the entitlement of the connected doctors and the medical corporations to bill ever increasing costs to the taxpayers, which are clearly bloated due to anti-competitive practices that block a market from providing competition. The medical industry has fought standardization and data interchange for the benefit of the consumer, but they seek to have the power to sell personal data for corporate profit, like the drug stores selling the prescriptions your doctor prescribes to the drug companies who then try to convince your doctor switching you to more profitable drugs.

Weiermann December 23, 2012 at 8:19 am

Brilliant.

Opponents of higher taxes should simply discard their economic views and support the left-progressive-socialist policies of Obama and his followers.

What could be easier ?

There’s no downside whatsoever, anywhere, at all.. for anybody (?)

How come nobody thought of this before ?

Anon. December 23, 2012 at 9:51 am

You would have a point if the opponents of higher taxes weren’t also opponents of lower spending.

dan1111 December 23, 2012 at 11:14 am

That was my initial response to the excerpt above. However, after reading the whole article, that is definitely not what Tyler is saying. It is not about giving up conservative views and supporting left-wing views. It is about forcing the left to admit the consequences of their own programs. If the Republicans took the position Tyler suggest, it would not sacrifice conservative principles, and in fact it would put them in a stronger position to advance conservative principles later.

However, the problem is that I don’t think they could make such a large shift without losing credibility. Their position so far has been “resist raising taxes as far as is possible”; they can’t suddenly switch to “insist on raising everyone’s taxes” without looking ridiculous.

dbp December 23, 2012 at 8:56 am

How about a small but highly symbolic cut in spending?

RPLong December 24, 2012 at 9:59 am

+1

Quite revealing that, twenty-four hours later, no one has yet bothered to reply to your comment.

idiot December 24, 2012 at 6:53 pm

It won’t work because said “symbolic” cuts in spending will actually have a massive impact on whoever was previously receiving said spending. Because the proposed pain is concentrated on that small interest group, they’d push back, or at the very least complain heavily.

mulp December 25, 2012 at 9:25 pm

Well, the small symbolic cut is about $100 billion in the sequester that Obama’s team negotiated with the Republicans and voted for bipartisan.

That is the now the subject of louder screeches of protests from Republicans, especially the “cuts” to the “defense” budget that limit the spending increase to about $5B, and the high spending not being $50B higher will result in job losses, when government spending never creates jobs.

Bill December 23, 2012 at 9:08 am

There’s a hole in your bucket, Dear Lisa, Dear Lisa,

There’s a hole in your bucket, Dear Lisa, a hole,

When you raise those taxes on the 100%, they will then do TAX REFORM using that money, and, guess which multinationals will pay lower taxes in the future, all in the name of tax reform. If you raise taxes on the top 1 or 2%, they will be less supportive of Tax Reform if it means they may be hit again in the future to fix a gap from the failure of corporate tax reform to stimulate the economy.

The whole tax game being played here is a prelude to what comes next. Or, that’s what a corporate tax lobbyist tells me. He’s expecting a good year next year.

dan1111 December 23, 2012 at 11:04 am

I have read this many times and tried really hard to understand it, but I just have no idea what causal link you see between raising taxes on the 100% and cutting the taxes of multinational corporations.

Bill December 23, 2012 at 11:27 am

You need money to cut taxes. It’s the art of deception. The Lord taketh away, and the The Lord Giveth to Someone Else.

Chip December 23, 2012 at 9:17 am

Symbols, perceptions, sending messages to voters.

Four straight years of trillion dollar deficits and this is where we are.

Face it, nothing’s going to happen for at least another four years.

Greg G December 23, 2012 at 12:04 pm

Tyler’s point here is that, if you want meaningful progress, that has to start somewhere. Getting the symbolism right by forcing each side to give up their most cherished and pernicious myths is the right place to start.

The Democrat’s myth is that entitlements can be saved without everyone having to pay significantly more. That myth is that all we need to do to solve the problem is tax the rich more.

The Republican’s myth is that the ‘starve the beast” strategy has does anything other than make voters even more comfortable with deficits. It was Dick Cheney, not any Democrat, who said “Reagan proved deficits don’t matter,”

msgkings December 23, 2012 at 12:25 pm

Nice post

derek December 23, 2012 at 8:00 pm

The basic assumptions of Washington have yet to change. Money is the basis for power, and to take power away from a politician is akin to removing his privates, and there will be a bit of noise and fluster. This is a very small first step towards sanity.

Interestingly, the electorate reconstituted the government structure and balance of power that was successful in implementing fiscal sanity back in the ’90s. Neither of the party stalwarts on either side were particularly happy at the time. Considering the first two years of Obama and the Bush years when he had Republican congresses, and the fiscal profligacy that defined those times, maybe, just maybe the electorate was right.

Unhappy politicians across the board is a worthwhile goal.

Jan December 23, 2012 at 9:52 am

It is curious that spending commitments aren’t more directly linked to taxes, and revenue generally. Do people know of other countries where the lawmaking process explicitly requires the two to be addressed at the same time?

Rich Berger December 23, 2012 at 9:58 am

In the US, they are called “states”. But even in these “states”, the governments have found ways to evade these requirements through borrowing and retirement programs for government employees.

byomtov December 23, 2012 at 10:25 am

State budgeting is not comparable to federal budgeting at all.

Despite all the blather about states balancing their budgets they typically have separate capital budgets which are funded by borrowing.

El Gipper December 23, 2012 at 10:50 am

Yes, but States don’t have a Federal Reserve to buy their bonds.

Yancey Ward December 23, 2012 at 11:54 am

Thus the extrememely loose definition of capital.

Jan December 23, 2012 at 9:12 pm

*countries*
Thanks, I understand the situation of U.S. states, and I do think they are a good comparison.

derek December 24, 2012 at 10:54 am

There was a period in Canada where governments lost elections if they ran deficits.

jdm December 23, 2012 at 9:56 am

That’s a good set of proposals. Unfortunately, because they are sensible, they are unlikely to be adopted.

We should also a gradually increasing carbon tax or carbon tax + dividend to the mix. The tax could offset employment and income taxes and could be made non-regressive. To avoid international tax arbitrage, we could add a carbon tariff on imports from countries that do not impose a similar tax, and give US exporters a carbon rebate on their exports to these countries.

mulp December 25, 2012 at 9:28 pm

Obama proposed a carbon tax or equivalent to make up for reduced income taxes, because conservatives were pushing consumption taxes as a substitute for income taxes. Until Obama proposed it, and Pelosi got it quickly passed in the House.

celestus December 23, 2012 at 10:06 am

“Given the slow economy…”

No, that’s not given, particularly if you are a Stagnationist who thinks that US growth rates will be historically low for the near to medium term future. Q3 was 3.1% annualized!

Chris D December 23, 2012 at 10:19 am

It’s a good idea, but it’s set in a counterfactual universe where Republicans care about governance and reducing the deficit, rather than protecting the wealthy and reducing services to the poor.

Steve December 23, 2012 at 11:46 am

I was thinking the same thing as I was reading through these comments. I see people complaining about not reducing the deficit fast enough – if the Republicans were actually fiscal conservatives they would be welcoming the fiscal cliff.

Mos December 23, 2012 at 12:56 pm

+1.

Though does that make me a Republican? Or whatever the opposite of a RINO is, maybe? God I hope not.

I personally think we’re going to glide gracefully off this cliff, get downgraded, and it still won’t matter because Fitch is useless anyways, and our currency is still very much in demand, as we have the worlds strongest economy, and all. Call it a fiscal ha-ha (http://en.wikipedia.org/wiki/Ha-ha), perhaps. Some god-awful reform will get passed early next year to re-assert us on a fiscally unsustainable path, and que sera sera.

Steve December 23, 2012 at 2:48 pm

So Fitch is threatening us with a downgrade if we don’t make a deal on the fiscal cliff? Seems like the threat should be a downgrade if we do make a deal. But must say it is hard to call for significant cuts in government spending considering the supposedly innovative companies are sitting on hoards of cash. What is the case for companies like Apple/Google being worried about “uncertainty” at this point? I’ve always thought the uncertainty argument was a red herring for everything but the small businesses that will have significant impact from Obamacare. For these big so called leaders of industry it appears the reality is there are no new products behind the curtain.

derek December 23, 2012 at 10:37 am

The US needs about 6 of these fiscal cliffs to get anywhere near fiscal sanity, the one with both tax increases and spending cuts. The next one will cut more spending in government departments without a huge effect, the third forward will be entitlements.This tax increase will not bring in anywhere near the revenue expected.

Almost all the discussion on these issues is how the political parties strategically place themselves. Neither are facing the reality that the electorate is facing. They will be getting less government benefit and it will cost them quite a bit more.

David Wright December 23, 2012 at 2:31 pm

+1

Count me me as one who welcomes the fiscal cliff.

Steve December 23, 2012 at 3:02 pm

One part of me agrees with you but another part has come to regard the welfare state as an inevitability that should be planned for rather than fought against. People seem to forget that welfare provides a very valuable service – it limits the interactions of the productive people with the unproductive. People cling to the idea that humans are not replaceable the way other worker animals like horses were. Just like we prefer to deal with a tractor rather than a horse we also prefer to deal with an ATM over a bank teller. It may take some time for this idea to take hold but my belief is eventually those of us that pay the taxes will view welfare as a service as valuable as defense.

Thor December 23, 2012 at 4:36 pm

“Pay me, or I will riot and/or mug you”?

Steve December 23, 2012 at 6:26 pm

That is one way to look at it. Another way to look at it is from the “what are you expecting these people to be doing?” perspective. For example I would much rather deal with an automated system when ordering just about anything. The chance of an order entry person being knowledgeable enough to help me in any significant way on a purchase seems slim. In general I view the presence of humans in any commodity workflow just as an inefficiency. There are plenty of places where people can be very useful… but enough places to keep 100% of the working age population employed? If you look at it from the perspective of something like IQ it seems more clear. I think we’d all agree there is some level of IQ below which we do not expect people to work. My point is only that the level of IQ necessary to be useful is getting higher.

Cliff December 24, 2012 at 12:32 am

So the solution is to subsidize idiocy instead of hard work?

jmo December 24, 2012 at 3:24 pm

So the solution is to subsidize idiocy instead of hard work?

In this economy it’s really not about working hard, it’s about working smart. The problem is that we have the left side of the bell cure to deal with. The reality is that even the worlds hardest working ditch digger will never beat a Bobcat.

derek December 23, 2012 at 8:52 pm

If Canada’s experience is any guide, it won’t work out that way. We had the experience locally where a tax paying, up to date on health care dues, had to wait a long time for access to care, while the local government funded drug addiction group would deliver a needle within 15 minutes with a phone call. Guess what got more funding, and what got quite a bit less.

Welfare rates in most Canadian provinces are extremely low. Homeless people started being apparent with the cuts, but not much was done until the fiscal situation improved with the economy. Some of the stories of the time are quite interesting; one province had lower welfare payment rates than the neighboring, and as a strategy to reduce their numbers further would buy Greyhound tickets for the recipients accompanied by encouragement to move along. Had a stimulative effect on the dentistry industry in the destination province, much gnashing of teeth. The response was a 3 month waiting period for those coming into the province to qualify for welfare.

I suspect you will see similar things in the US in coming years. When the middle class entitlements start diminishing along with increased tax bills, the desire to give to those the least bit undeserving diminishes as well. We didn’t see a dramatic increase in the crime rates as a result.

Steve December 23, 2012 at 10:42 pm

You are under the assumption there will be some sort of useful work available for the least bit undeserving to do. My premise is that it is going to be much harder for humans to outperform machines in the future and the welfare state is unavoidable. And I am not sure why people want everyone to be working anyway.

derek December 23, 2012 at 11:44 pm

Oddly enough the chronic high unemployment that characterized the canadian economy went away with fiscal sanity. When we had generous unemployment benefits we had high unemployment. I suspect the same thing would occur in the US.

mulp December 25, 2012 at 9:33 pm

If it were true, unemployment in the US would be drastically lower than in Canada because even the best states provide less unemployment payments than Canada.

john personna December 23, 2012 at 11:01 am

Someone proposed a half-cliff solution a while back. This seems similar. I’m fine with it. I really think we need Clinton era taxes for the services which voters will not, in fact, give up. A half-step and then full return would be less of a shock than all at once. But you know, the bottom line is that despite 30 years of rhetoric on government downsizing … the liberal half of the country still wants to feed the poor, and the conservative half still wants more ships in the navy.

Engineer December 23, 2012 at 11:17 am

I really think we need Clinton era taxes for the services which voters will not, in fact, give up.

That would be a defensible position if the math worked. It sounds so reasonable. After all who wouldn’t want a 90s-style economy?

Unfortunately the math does not work.

Joe Smith December 23, 2012 at 3:01 pm

Unfortunately the math does not work.

The math is close enough for government work and a lot closer than anything the Republicans (or the Libertarians) are proposing.

maguro December 23, 2012 at 10:51 pm

Close enough for government work. LOL.

Cliff December 24, 2012 at 12:35 am

If the services were for the poor we would have no problem. Sadly, they are for the rich (and old). Imagine a universal catastrophic policy + medicaid and a small cash stipend for the truly poor. It would be peanuts.

mulp December 25, 2012 at 9:39 pm

The number of rich people getting Social Security and Medicare is so small that it wouldn’t make a difference if the existing means testing were increased to tax them at 200% of their Social Security and Medicate benefit entitlement.

Unless you define rich as over $30,000 a year in income, or assets totaling over $500,000 for a couple.

El Gipper December 23, 2012 at 11:02 am

The problem with this idea is that federal expenditures are the problem, not taxation. Deficits today, from insufficient tax collections, are simply taxes levied on the future. The better policy for Republicans to support would be to make any increases in tax revenue collections as a % of GDP a dependent variable based on the reduction in federal expenditures as a % of GDP. For example:

Tax Revenue % of GDP in 201X = 40% – (federal expenditures as a % of GDP from July 1 201X-2 through June 30 201X-1)

If federal expenditures were 24% of GDP from 7/1/2012 – 6/30/2013, then select the tax rate schedule that the CBO projects will raise 16% of GDP in tax revenues during 2014. Tax payers get 6 months notice of their tax rates. Repeat this calculation every year. To execute this plan, Republicans offer a series of tax rate schedules projected to raise 15, 16, 17, 18, 19, 20, 21% of GDP revenues that will be implemented once this calculation is made.

Republicans go on record as being willing to raise tax revenues, but only AFTER expenditures are reduced. Ball goes into Democrats’ court to come up with spending cuts. This policy is counter-cyclical to account for need to run deficits during recessions when expenditures should increase as % of GDP. But Republicans need to adopt the mantra that “It’s the Spending, Stupid!” if they are going to realize the wisdom of this approach.

The y-intercept of the equation determines the long-run balanced budget target as a % of GDP. A 40% y-intercept implies a 20% of GDP balanced budget target. Political negotiation is about setting this balanced budget target.

mulp December 25, 2012 at 9:45 pm

But if we go back to 2001 through 2007, Republicans cut taxes and increased spending because Reagan proved deficits don’t matter.

Only after Clinton hiked taxes did Republicans agree to spending cuts in hopes of getting a balanced budget so they could cut taxes. Clinton vetoed everything but the pump and dump asset inflation incentive tax cut on capital gains, and Republicans keep pointing out it generated more tax revenue by helping promote a huge NASDAQ bubble. A bubble in the trillions of dollars, The asset churn at those inflating prices generated capital gains tax revenue, but the gains weren’t real.

Tyler Cowen December 23, 2012 at 11:14 am

Natasha’s point, by the way, is that imposing symbolic tax increases on the lower income classes will induce them to demand higher government benefits, not lower government spending.

Ray Lopez December 23, 2012 at 11:31 am

Who’s “Natasha”? Where did Paul Krugman’s comment go from earlier? Censored? Why are you blue now, not on the road anymore? So many questions…

Tyler Cowen December 23, 2012 at 12:10 pm

It wasn’t from the real Paul Krugman, so I wished to avoid any possible misrepresentation…

Yancey Ward December 23, 2012 at 12:23 pm

Neither side is serious, so proposals to be serious are fairly unserious. It will take a fiscal crisis to induce meaningful action.

Yancey Ward December 23, 2012 at 12:27 pm

As for the cliff, the Bush tax cuts will expire, then be resurrected for those under whatever Obama’s last offer is (400K at the moment) so that everyone gets to vote for tax cuts, but no tax increases.

I still think the Republicans are looking at this the wrong way- expiration of all the tax cuts will move money out of blue states and into red ones on net, but I guess they do have some principles after all.

Thomas December 23, 2012 at 1:01 pm

It’s hard for me to take seriously a proposal that doesn’t wrestle with the central fact here, which is that the president has proposed a tax increase and has also proposed additional fiscal stimulus, apparently to offset the drag from that tax increase. Additional tax increases will mean (we need) yet more fiscal stimulus; since there’s no controversy about the president’s proposal, we’ll see more of the same.

Joe Smith December 23, 2012 at 3:48 pm

Your proposal is a mere gimmick which completely ignores the core problem. The problem is magical thinking in the Republican Party. The Republicans want to gut entitlement spending so taxes can be lower but they refuse to say so (they are lying or they are delusional when they put forward their platform – take your pick).

It would be insanity on Obama’s part to enter into a strategy which allows the Republicans to continue to call for lower taxes while publicly opposing cuts to Medicare.

Engineer December 23, 2012 at 4:56 pm

Oh come on

If we’re going to be conspiratorial it’s much more reasonable to say that Obama has been goosing govt spending and debt so that he can raise taxes and create a redistributive state.

Joe Smith December 23, 2012 at 7:06 pm

It is the Republicans who want to radically cut current spending.

Andrew' December 24, 2012 at 5:24 am

The Republicans shouldn’t say anything.

As I’ve said, they are fairly reasonable to oppose cuts to current medicare beneficiaries because it is future medicare costs that need to be cut. It will be reality gutting them, and hopefully at that point it will fall in the Democrats lap.

You are blind to the electioneering of your side. All Obama is doing by pushing us over the cliff to get his 15% revenue increase on the high earners is designed to put Tea Party Republicans in office.

Good luck with that.

Colin December 24, 2012 at 8:05 am

“Radically” cut spending? Really? If that’s true, then why does pretty much every single proposed budget on the table feature more spending in future years than currently? The only thing being discussed are cuts in the rate of increase, which goes a long way towards explaining why we have consistent deficits over $1 trillion.

SK December 23, 2012 at 4:56 pm

Tyler, I’m not so sure I see the same sequence of events playing out in that (well-devised) scenario.

As I see it, the following would happen:
GOP makes the proposal.
Democrats counter that the GOP wants to raise taxes on “the poorest of Americans”, and refuse to go along (both due to reelection calculations and the belief that they are in a superior negotiating spot). The proposal dies and we possibly “go off the cliff.”
The public, already predisposed to blame the GOP for the inability to act, blames the GOP not only for the fall off the cliff but also for something along the lines of “wanting to place the burden on poor American families.”

The Democrats see themselves as being in a gains frame–essentially a win-win. Go off the cliff? We gain through the relatively more severe losses of the GOP. Avoid the cliff? If it works our way, sure. But my guess is that any significant level of compromise on their part would quickly make the outcome less desirable than the cliff. And the House GOP doesn’t look willing to compromise on anything, anyway, so they won’t get the chance.

I don’t see a way out on this one. Our system is too dysfunctional and too polarized, and the public has unrealistic expectations.

Allan Walstad December 23, 2012 at 8:45 pm

“The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount. ”
>>There is no “unless.”

“It could also be agreed that taxes could come back down in the future, but only if politicians found matching spending cuts. ”
>>Puh-lease. Such political agreements mean precisely zero.

Politicians will spend additonal revenue and run up as big a deficit as they dare. If it wasn’t already obvious that we have a one-party system and that D vs R political tiffs are no more real than pro wrestling, Boehner’s kicking of fiscal adults off committees to grease the skids for a deal with Obama should deliver the message. The House needs to pass an extension of the tax cuts (excepting the absurd SS payroll tax cut) and simply leave it to the Senate and Pres if they want to be the tax raisers.

Floccina December 23, 2012 at 10:29 pm

IMHO defense spending could be cut 50% and not endanger the defense of the country, SS could be cut 36% without hurting the needy elderly and healthcare spending could be cut a good 20% without hurting health, and the tax system is a mess. So why should we let them take more money.

TheAj December 24, 2012 at 2:52 am

Wow, 36% eh? please tell us in your infinite wisdom why 35% wouldn’t be enough. Surely there’s some analysis behind the conclusions that these X% cuts would have no affect on anyone.

Are you sure what you mean isn’t that you’d like to see the aforementioned cuts and you don’t really care what the consequences would be?

Brian Donohue December 24, 2012 at 1:21 pm

Great article Tyler.

Obamacare ain’t being repealed, Democrats narrative has a huge hole in it, ‘starve the beast’ means ‘free government’ to many, Republicans need to reposition, this points the way.

I still think the cliff, whole hog, is better policy.

steve December 24, 2012 at 4:46 pm

I hope the two parties will find a solution to the fiscal cliff as soon as possible. I have been following the news connected to the fiscal cliff and I’m worried about what’s gonna happen next. As a Canadian investor working in real estate I’ve been analyzing the possible risks in this particular sector and the outlook for 2013 is quite optimistic as far as the real estate market in Canada is concerned. However, there are certain threats that could put a halt to that positive development, one of them being inflation pressures out of the US. The mutual interconnection between the two countries is very strong so I hope the US government will do its utmost to prevent the worst from happening.

a December 24, 2012 at 5:12 pm

Won’t preventing the “fiscal cliff” deficit reduction carry a high risk of causing a debt crisis?

I mean, if the U.S. isn’t willing to reduce their deficit even when they just need to do nothing to achieve that, it seems to me that they never will, and thus U.S. debt will grow until default.

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