Washington Starts To Dance Away from the Fiscal Cliff

By :: November 9th, 2012

So the dance begins. President Obama, House Speaker John Boehner (R-OH), and various other lawmakers are starting to lay down their markers as they look to back away from the fiscal cliff.

Based on their public words, at least, the parties remain far apart. Yet there are signs that both sides are looking for a deal.  Boehner says revenues are on the table as part of a long-term budget agreement, though higher tax rates for high-income households are not. Obama says he willing to compromise on nearly all elements of his own deficit reduction plan, with one exception. He will “not accept” a package  that is “not balanced.” And balanced, to the president, means tax increases on the wealthy as well as spending cuts. But note: Tax increases come in many forms, not just higher rates.

First, though, there is the matter of the cliff. Obama has called on House Republicans to pass a bill approved by the Senate last July that would extend for one year most of the 2001-2009 tax cuts, except for high-income households. Waving his pen in a televised speech this afternoon, Obama promised he’d sign that measure right away.

He should put the pen back in his pocket. The GOP controlled House isn’t going to pass the Senate bill—at least not now, and not without some quid pro quo from the Democrats on spending.

Besides, the Senate bill fell short in some important ways. For instance, while it would protect about 25 million middle- and upper-middle income households from the dreaded Alternative Minimum Tax, it would do so for 2012 only. A sensible fix would last at least through 2013.

Still, there is good news in all of this: After the election, both sides feel the need to talk about compromise. The GOP leadership is toning down the tea-party chest-thumping that characterized the aftermath of the 2010 congressional races. And Obama has put aside his rhetoric of 2008 when Republicans heard him say that “elections have consequences … and I won.” (In fairness, it is not clear Obama actually said this, but Republicans certainly believe he did).

Much of the current post-election waltz may be due to a recognition by both sides that most Americans really do want their elected officials to act like adults. Some may be the predictions of the Congressional Budget Office and others that tumbling off the cliff will throw the economy into recession, or the evident nervousness of financial markets. And some may simply be the immediacy of the fiscal cliff itself, which Congress will reach in just seven weeks.

As Samuel Johnson probably said, "When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."  Seven weeks isn’t quite a fortnight, but it will do.

The middle ground here is clear. Both sides could finesse their tax squabble by keeping rates pretty much where they are, but somehow limiting the benefits of tax preferences for high-income households.  Obama has proposed such a cap himself and, of course, Mitt Romney and some of his allies, including Martin Feldstein, raised their own versions of deduction limits.

Make no mistake, both sides have a very long way to go. But they are talking—and will do more of that since Obama has asked the congressional leadership to the White House next week. A deal won’t come easily, and between now and the New Year, Washington is sure to have more than a few Perils of Pauline moments.  But a deal to set the stage for a serious deficit agreement is surely doable.

5Comments

  1. Vivian Darkbloom  ::  9:09 am on November 10th, 2012:

    “Besides, the Senate bill fell short in some important ways.”

    You can say that again. One of the ways it “fell short” was the origination clause of Article I of the Constitution that requires revenue bills to be initiated in the House. That July Senate bill is a dead letter.

    It is interesting to note that all signs are pointing in the direction of Romney’s plan–cutting tax expenditures and lowering rates, or at least not raising them. That is the economically prudent thing to do, along with slashing spending, of course.

  2. Michael Bindner  ::  12:34 pm on November 11th, 2012:

    Obama and Boehner were close to agreement, probably closer than anyone is willing to admit. Enacting that will take some time, or maybe it won’t. When agreement is made, it can be rammed through pretty easily. Remember, Simpson Bowles rates and Romney rates were not so far apart – especially if you adopt a master tax rate for business, capital gains, dividends and high earners at somewhere between 25% and 29%.

    The biggest incentive to deal is preventing dividend tax rates of 45% or so. CEOs of all stripes get a lot of their compensation from this source – and it will be a major cut in their pay to let these automatic rate increases go through. They will be the source of last minute Republican efforts to go along with Obama and Boehner. Look at the FixtheDebt web site and you will see them listed by name, along with the luminaries from Simpson-Bowles. They are also seeing a sell-off of their stocks (hitting their own portfolios) as people sell to take capital gains before the rate goes up. Not sure they can miss that hit, but hope for them springs eternal.

  3. Tax Roundup, 11/12/2012: Ottumwa edition! « Roth & Company, P.C  ::  10:07 am on November 12th, 2012:

    […] Howard Gleckman, Washington Starts To Dance Away from the Fiscal Cliff […]

  4. KT Rae  ::  3:31 pm on November 14th, 2012:

    If there has to be a tax, isn’t it right for all to pay the same amount? Why should any citizen be exempt from paying his/her equal part of the bill?

    Many people perfectly capable of providing for their own support are not doing so. They blame many things, but the truth is they would rather not put out the effort.

    Many other people, and many less capable, are providing for their own support. These people let no circumstance get in their way and make no excuses.

    A country’s government should not provide personal support for it’s citizenry. When we embrace this as a country, then we will see reasonable spending and a reduced deficit. Until this happens, NOTHING will change.

  5. Vladislav  ::  7:06 pm on May 18th, 2013:

    I’ll complain which you have copied materials from one more source