Well, isnt this another fine mess? Weve gotten to the point that hard-liners on both sides are starting to say, Jump! let the fiscal cliff happen. You wonder what theyre thinking.
Heres a guess. People on the left are thinking finally, an end to the hated Bush tax cuts. They forget the Bush tax cuts werent tax cuts for the rich. They were tax cuts for everyone. Everyone, low-income families on up, would take a hit.
Hardliners on the right are thinking, finally some real spending cuts, because a big part of the fiscal cliff deal is across-the-board spending cuts.
Medicare payments to doctors would drop. A big chunk of emergency jobless benefits would vanish. The Pentagon would be hit especially hard, undermining national security.
Cliff jumpers in both parties arent thinking clearly, at least by my lights.
Maybe the assumption is that if we go over the cliff, the same players who cant come to agreement now will quickly fix things. Not likely. Youll get no argument from this corner that solving our fiscal problems will require more revenue and serious spending cuts, but the sudden shock of smaller paychecks for millions and a dropoff in federal spending would probably jolt the economy back into recession.
After five years of what this country has been through, that would be demoralizing in the extreme. Former Federal Reserve vice chairman Alan Blinder pointed out in The Wall Street Journal that in a typical recession the jobless rate rises by about 3 percentage points.
So based on where we are now, youre looking at around 11 percent unemployment and everything that goes with it headlines screaming about mass layoffs, falling consumption, shrinking college and retirement funds, and companies on the edge thrown into insolvency.
I wonder whether President Barack Obama ever thinks back a couple of years, when the Simpson-Bowles commission issued its report. This was the plan that, amazingly, drew buy-in from key liberals and conservatives in Congress. The concept was the same as the 1986 tax reform broaden the base and lower the rates but unlike 86, it would not have been revenue-neutral. It would have produced more money for the Treasury, which is essential.
Yet you had deficit hawks and liberals alike signing on. No, it wasnt perfect, and it would not have been easy to decide how to close the loopholes needed to bring the top rates down. But here was a chance. People on both sides were signaling they were willing to try. All they needed was a big push from the president.
Youd have more revenue to lower the deficit, lower marginal rates to encourage more growth and entrepreneurship and an end to much of the maddening uncertainty that has dogged the economy for so long. All that money bottled up in corporate coffers? A lot of it would have flowed out as investment in new endeavors, adding more jobs.
This was Obamas moment, his opportunity to do something big and bipartisan. Perhaps if hed grabbed it then we wouldnt be in the spot were in today. After all, the current fiscal-cliff melodrama grew from the debt-ceiling fiasco of last year, which occurred when it did because of Washingtons failure to grapple earlier with the exploding deficits.
But apparently Obama couldnt buy the lower the rates part of Bowles-Simpson because hes obsessed with raising the top rates. I spent last week reading articles by people trying to figure this out because it doesnt make much sense given that many of the people he wants to whack the rich dont have any ordinary income to be taxed at the higher rates. They live off their capital.
Never mind, Obama wants higher rates and hell get them. Republicans know they have a weak hand and they know that if we go over the cliff it will become weaker. The Democrats will push to restore the Bush tax cuts for everyone but the top 2 percent. And if Republicans balk, theyd be seen as denying tax cuts for 98 percent to protect the top 2.
Which is why many Republicans are talking about caving on higher rates and fighting for serious entitlement reform, or caving now and fighting over spending in the next debt-ceiling crisis, due early next year. Its worth considering that the fiscal picture might be a lot healthier today had Obama recognized his moment his historic opportunity when he saw it.
To reach E. Thomas McClanahan send email to firstname.lastname@example.org. Follow him at Twitter.com/ETomKCStar.