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Hullabaloo


Saturday, November 10, 2012

 
Dispatch from the edge of the cliff

by digby


Jared Bernstein reports from the "fiscal cliff" trenches where he just spent an entire day debating conservatives. He offers these insights as to the state of play:

It is big–HUGE–for conservatives that the President has not mentioned higher rates since Tuesday, including in his comments yesterday. His spokesperson did say that he’d veto a bill that fully extended all the cuts, but the White House has been careful not to come down on one side or the other of the rates/base question. His opposition is quite emboldened by this.

My view: I’m not saying he should say “my way or highway” but he should clearly open negotiations with them next week with the plan he ran on: rate expiration on households above $250K (the top 2%).

–I encountered two camps of Republicans on this: dynamic scorers, full stop, and partial dynamic scorers. The former are those who say: just lower the tax rates and watch the revenues flow in…problem painlessly solved! They’re very, very wrong, and thankfully most of the folks I argued with yesterday are in latter camp. In fact, this is their concession from the election: the recognition that we cannot achieve a sustainable budget path on spending cuts and dynamic scoring fairy dust alone.

–Some, though not Leader Boehner yet, are starting to make sounds about taking unearned income, like capital gains and dividends, which current enjoy favorable treatment in the tax code, off the base-broadening table. That’s exactly what the President and his negotiating team should suspect: the bait and switch of the tax reform trap–they lure you in with broader base rhetoric but once it’s over, you’re left with just the lower rates. That’s why I suspect this tactic leaves R’s with a mini-Romney math problem.

–They are not constrained by meeting the $1 trillion in revenues over 10 years we’d get from upper-income rate sunsets. Sen. John Kyl, for example, on the Larry Kudlow show, cited Sen. Toomey’s budget plan as a great place to start. That raises $250bn in new revenues, one-quarter of the top rate sunset amount.

–The President was absolutely right to begin his comments with the imperative of any deal protecting and strengthening the current recovery through additional jobs measures. My experience from yesterday: he will not find willing partners on this among Republicans.

–Yesterday, CNBC anchor Brian Sullivan made what I thought was an intuitive point that’s under-appreciated: it would be a lot simpler and cleaner to just raise the top rates than to have a battle of which loopholes to close. The point above about taking unearned income off the table underscores Sullivan point. Me, I’m a huge advocate for simplicity in the code. Once they start moving around income definitions, watch out.

The counter-argument here, which I appreciate, says: OK, then let’s just cap deductions. That’s pretty simple, clean, and progressive, but probably doesn’t yield the revenue we need without breaking the $250K barrier. There may well come a time to break that barrier. But this is not that time.

Both sides are willing to complicate the "revenue" picture in order to give themselves the ability to claim victory. The Democrats can say they got the only thing that mattered: the rich will "pay a little bit more." The Republicans can say they won because spending was slashed, likely including some spending on the so-called entitlements. The Village can hail it as a model of bipartisan comity which is all they care about.

Only one side will really have won, however. The closed loopholes or deduction will soon open up somewhere else in the tax code. The spending cuts will be forever.


Update: I'm watching Ali Velshi's show on CNN right now, and he's interviewing Amy Guttman, author of The Spirit of Compromise. She claims that the president has a responsibility to disappoint the extremists in his own party and make a deal on the fiscal cliff; if he can get a Great Compromise, he will make history. Considering the current make-up of this lame-duck congress that would mean that the Democrats should just give the Republicans everything they want and call it a day.

Bernstein obviously sees that writing on the wall here. By making tax hikes for the rich their hill to die on --- and now preemptively taking ratehikes off the table, the Dems signaled that they are pretty much willing to take any temporary, phony "revenue" in exchange for massive spending cuts. The question will be, as always, whether the Republicans are smart enough to see this for the policy win it really is.

In a sane world, we'd pass a jobs and infrastructure bill, void the stupid sequester, lift the debt limit without conditions, extend the Bush tax cuts for the middle class (adding another one to replace the expiration of the payroll tax cut) and put off all spending cuts until we see what results from a growing economy and the expiration of the Bush tax cuts on the rich. They could deal with the long term deficit by adding more cost controls on to Obamacare and they could "shore up" social security by lifting the cap on SS contributions. They could also take a good hard look at our military empire.



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