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Opinion: Don't Hold Your Breath for a Fiscal Cliff Fix

Wednesday, November 14, 2012 - 12:50 PM

A friend of mine just asked me what I thought was going to happen on the Fiscal Cliff. I'd like to think that the positive sounding things that House Majority Leader John Boehner, Senate Majority Leader Harry Reid and President Obama have been saying, but much of their comments include worrisome hedging.

Reid ended some positive comments he made a few days ago by saying that Social Security wasn't on the table, while left wing Senator Bernie Sanders told reporters that Reid had told him "very clearly that Social Security has nothing to do with deficit reduction and should not be part of the discussion with regard to deficit reduction."

It's true that the deficits from Social Security pale in comparison to those of Medicare, but it complete and utter mythology to pretend like they aren't a major contributor to debt and deficit issues, both now and especially in the future.

John Boehner went much farther over the deep end, leaving two fat devils in the details of his comments. He's claiming that his party will compromise on raising more tax revenue if it came packaged with entitlement reforms, but he's saying that he's unwilling to raise tax rates on anyone, and isn't willing to cut military spending.

If we're lucky, a compromise will be made on this and taxes will go up on those making a half million or more, along with throwing out some tax loopholes. It's also beyond ridiculous to not look for savings from reduced military spending as we draw down from the wars in Afghanistan and Iraq.

The next, and biggest of them all, devilish detail on the GOP side is that their increased revenue plan relies on something called "dynamic scoring". Your political spin detectors should be chiming right now, as this amounts to just another version of 'voodoo economics'.

This fancy label hides the fact that Boehner really isn't open to new revenue. He's saying that we should just make the tax system more simple (hard to disagree with him there), but that doing so will magically make the economy grow quite a bit faster, and thus increase revenue dramatically. It should be no surprise to anyone that the only "economists" that support this claim happen to be on the payroll of conservative campaigns and/or think tanks.

If the past is any indicator... we shouldn't be too optimistic on any of these fronts. President Obama took a pass on pressing for these sorts of reforms when the Fiscal Commission came out with his recommendations, and has had about two years to throw his weight behind the work the Gang of Eight (formerly the Gang of Six) has been doing.

While Obama has at least given lip service to being open to cutting entitlement spending if it's part of a plan that cuts military spending and raises taxes, Harry Reid and Nancy Pelosi have been clear that they want Social Security and Medicare, the two biggest drivers of long term deficit projections as the Baby Boomers retire, off the table. On top of this, a loud minority of Democrats are even pushing for the administration to allow the country to go over the Fiscal Cliff, putting us back into recession, so the Bush tax cuts expire and military spending is cut.

The Republicans only seem more willing to sink into their right wing fairy tale land where deficits are taken away by tax cut fairies that turn lost revenue into economic boosting wingnut fairy dust.

As has been the trend for the last generation or so, the House and Senate will become even more partisan when it opens it's doors to it's newest members next year. Both parties gained members that will join the most right and left wing segments, and based their campaigns to a large degree on attacking the other party that they now need to work together with to avoid very serious problems coming down the pipe

As if it wasn't clear from what you've read here - I'm not optimistic. I'm hoping that the dire nature of the threat that the fiscal cliff poses will get enough from both sides to pass something with a passing resemblance to Simpson-Bowles, Dominici-Rivlin or other common sensical budget compromise deals... but it wouldn't surprise me at all to see the Paul Krugmans of the world win out and pop their out of touch celebratory champagne as our country lurches back into recession.

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Comments [2]

@Solomon...Hmmm...Your piece is something to think about but not all there.

"It's true that the deficits from Social Security pale in comparison to those of Medicare, but it complete and utter mythology to pretend like they aren't a major contributor to debt and deficit issues, both now and especially in the future."

Say what? Since the Greenspan Commission workers have been paying twice the amount needed to cover payments in order to build up a surplus in Social Security accounts. In my opinion, rates should go down but income subject to withholding should go up. Way up. Employee match for the self-employed should end at three or four times median income.

Social Security owns over $5T of public debt. More than enough to keep Social Security in solvency into the 2030s. The problem is that rather than being a source of funds to the Fed government, Social Security will soon be a net drain to the budget - they will need to cash in those bonds. The cost to pay back the loans comes back to all of us. Seems slightly unfair that workers that paid the payroll taxes will need to pay increased income taxes to pay back the bonds that those payroll taxes were used to purchase.

Dubya and the GOP spent a budget that was in surplus - a surplus that was projected to pay off the entire national debt by 2020 into an additional $7T by not raising taxes to pay for wars, MediCare expansion....and did nothing to cut spending when they concocted their tax cuts. I don't see why anyone would believe a word they say.

The problem - as I see it - is shrinking middle earner incomes. GDP growth has outpaced average incomes by 2 percent for the last 40 years. Can't grow the pie that much faster than the average slice and have good things happen.

Nov. 19 2012 03:12 PM

Every great threat is also a great opportunity. The last fiscal cliff had different power dynamics than the present has. Things that could have been done, and were done under the last one are no longer the same as the opportunities that the current crises presents.

The difficulty for the political elite is that they are not necessarily well equiped to understand the situation nor to have the insight, skills or competence to use the current conditions to bring about significant change. You can't really expect great understanding from mediocre minds, or innovative insights from mundane intellects. The representatives of the people may in fact be exactly that, representative of the people.

Who got us into this situation? The people, their representatives, and their parties. And not because of the greatness of thier vision, or the strength of their principles. No, our troubles are because we wish rather than know, and we expect rather than strive for the better future that we believe is the American dream.

Nov. 18 2012 08:19 PM

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