The fiscal cliff-divers

On December 31, the Bush tax cuts will all expire and, by the terms of the last government-shutdown compromise, spending cuts (especially to the military) will go into effect automatically.  Such a double-whammy in the middle of an economic downturn would have dire effects, according to most experts, who are warning about the danger of this “fiscal cliff.”   But some people are saying that we should just jump off that cliff:

The very notion of a “fiscal cliff” suggests that the country is approaching a calamitous drop-off at the end of the year — and it would be tantamount to suicide to jump off.

But a contingent of policy wonks and Democrats insist that letting the Dec. 31 deadline come and go — thus triggering automatic tax increases and spending cuts — could produce the best outcome for the country. Once the tax hikes have kicked in, the reasoning goes, Republicans would be hard-pressed to roll them all back and would have to accept a deal on taming the deficit that contains more new tax revenue than GOP lawmakers want.

So some policy analysts and legislators say they are willing to go over the brink—and some are even gunning for Congress to do it.

Call them the cliff-divers.

“It will be much easier to negotiate a budget deal going over the cliff,” said William Gale, an economist at the Brookings Institute and former adviser to George H.W. Bush. “It seems to be the only way we can boost revenues.”

“The willingness to go over the cliff is a means to force a deal,” said Matt McAlvanah, a spokesman for Sen. Patty Murray, the fourth-ranking Democrat. In July, Murray said she would rather push the debt debate into next year rather than reach a deal “that throws middle class families under the bus.”

Publicly, most Democrats haven’t gone as far as Murray, continuing to stress that avoiding the fiscal cliff is their priority. But privately, some acknowledge that they’d be willing to jump if Republicans refuse to let Bush-era tax cuts on the wealthy expire. GOP leaders have vowed to preserve the Bush tax cuts for the top income brackets and everyone else.

Other prominent cliff-divers include MSNBC cable host and former Senate Finance Committee chief of staff Lawrence O’Donnell, who’s launched an “Off the Cliff” campaign to press Democrats to jump; and Robert Greenstein, president of the Center of Budget and Policy Priorities, who says going over could be the “least bad” option. ”I wouldn’t say it’s desirable, but it may be necessary,” explains former White House budget director Peter Orszag, who believes that going past the Dec. 31 could produce the best policy outcome in the face of a political stand-off.

In an ideal world, these figures would want Congress to reach a reasonable deal before the deadline. But they are skeptical that will happen, given the politics surrounding the fiscal cliff, and argue that going over the cliff would remove what they believe is the biggest stumbling block.

Since individual tax rates would go up automatically—rising from 35 to 39.6 percent for the highest-income bracket and 10 to 15 percent for the lowest—Congress would technically be voting to cut them rather than raise them. It’s a distinction that the cliff-divers believe will make all the difference. “Republicans won’t have to violate their ‘no new taxes’ pledge,” says Gale. “The politics are a lot easier and the incentives are a lot stronger.”

via Meet the fiscal cliff-divers, who think jumping off could be our best bet.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • SKPeterson

    The counter strategy is then to call for more extreme cuts in Democrat -favored programs and even deeper tax cuts across the board. Unless, of course, the Republican leadership kowtows to the inevitable calls for “reasonableness” and “bipartisanship” and does their usual half-assed muck. All the Democrats have to do is cry about defense spending and dangle the prospect of even minimal cuts to that bloated monstrosity of corporate cronyism, and it will send most of the chickenhawk Republicans to the negotiating table faster than you can say “Military-Industrial Complex” or “War on Terror.”

  • SKPeterson

    The counter strategy is then to call for more extreme cuts in Democrat -favored programs and even deeper tax cuts across the board. Unless, of course, the Republican leadership kowtows to the inevitable calls for “reasonableness” and “bipartisanship” and does their usual half-assed muck. All the Democrats have to do is cry about defense spending and dangle the prospect of even minimal cuts to that bloated monstrosity of corporate cronyism, and it will send most of the chickenhawk Republicans to the negotiating table faster than you can say “Military-Industrial Complex” or “War on Terror.”

  • http://facebook.com/mesamike Mike Westfall

    Whatever happens, it’ll be Bush’s Fault ( they are the “Bush tax cuts” after all).

  • http://facebook.com/mesamike Mike Westfall

    Whatever happens, it’ll be Bush’s Fault ( they are the “Bush tax cuts” after all).

  • Robin Fish

    Try proposing a Wealth Tax instead of an income tax, and see how eagerly the cliff-divers will jump the cliff. Take away all of the wealth of all individuals above the national norm for individual or family wealth. Let everyone be personally worth no more than $1,000,000. Then the tax would hit the people who impose them – millionaire senators and congressmen, rich Media types, those whose properties and accumulated wealth provide comfort, so they can endure a loss of income due to taxes, then let us see who screams.

  • Robin Fish

    Try proposing a Wealth Tax instead of an income tax, and see how eagerly the cliff-divers will jump the cliff. Take away all of the wealth of all individuals above the national norm for individual or family wealth. Let everyone be personally worth no more than $1,000,000. Then the tax would hit the people who impose them – millionaire senators and congressmen, rich Media types, those whose properties and accumulated wealth provide comfort, so they can endure a loss of income due to taxes, then let us see who screams.

  • Jon

    But Obama said, unequivocally, in the last debate that the sequestration “is not going to happen.”

    And now, in his stump speech in the place where he used to brag about how “Al Quaida is on the run,” he’s replaced that part with “come on, you know you can trust me to do what I say I’m going to do.”

    So, with that guarantee that the sequestration is not going to happen, you can all rest assured when he is re-elected that it is not going to happen.

    I know I feel better about it, anyway.

  • Jon

    But Obama said, unequivocally, in the last debate that the sequestration “is not going to happen.”

    And now, in his stump speech in the place where he used to brag about how “Al Quaida is on the run,” he’s replaced that part with “come on, you know you can trust me to do what I say I’m going to do.”

    So, with that guarantee that the sequestration is not going to happen, you can all rest assured when he is re-elected that it is not going to happen.

    I know I feel better about it, anyway.

  • WisdomLover

    “Try proposing a Wealth Tax instead of an income tax, and see how eagerly the cliff-divers will jump the cliff.”

    I’m not sure what this means. Who will propose this? You just did and no one is jumping. But if you mean that some lawmaker should propose it…to what end? It has zero chance of being adopted and is political suicide.

    Even if it could be put in by philosophical fiat…it would be an unmitigated disaster (that’s why no one will ever propose it). The Great Depression would be a Sunday picnic in comparison to the economic devastation such a plan would cause.

    Do you mean that some lawmaker or group of lawmakers should propose it as a kind of legislative bluff?

    Since the plan would be disastrous both economically and to any lawmaker’s career, I’m pretty sure that any such bluff would simply be called.

    Or are you saying that the impending fiscal cliff is such a wealth tax? And that if lawmakers simply saw that, they might be more impelled to act?

    If that’s it, you may have a point, though, the effect of the fiscal cliff will not be so dramatic as to reduce everyone’s wealth to $1,000,000 or less.

  • WisdomLover

    “Try proposing a Wealth Tax instead of an income tax, and see how eagerly the cliff-divers will jump the cliff.”

    I’m not sure what this means. Who will propose this? You just did and no one is jumping. But if you mean that some lawmaker should propose it…to what end? It has zero chance of being adopted and is political suicide.

    Even if it could be put in by philosophical fiat…it would be an unmitigated disaster (that’s why no one will ever propose it). The Great Depression would be a Sunday picnic in comparison to the economic devastation such a plan would cause.

    Do you mean that some lawmaker or group of lawmakers should propose it as a kind of legislative bluff?

    Since the plan would be disastrous both economically and to any lawmaker’s career, I’m pretty sure that any such bluff would simply be called.

    Or are you saying that the impending fiscal cliff is such a wealth tax? And that if lawmakers simply saw that, they might be more impelled to act?

    If that’s it, you may have a point, though, the effect of the fiscal cliff will not be so dramatic as to reduce everyone’s wealth to $1,000,000 or less.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    A wealth tax is a property tax. For most people that is on their home. Say you own a $200k house in Texas, and you owe $150k on the mortgage. Your property tax is about $6k per year. That is pretty high considering that you only own $50k of that house. Also, notice that the tax is regressive because if you own all $200k of the house, you still pay $6k. In New York, tax on the same value is about $2k, but New York has income tax which is more fair because it only taxes money you have. It is also less regressive. It doesn’t really matter how you divy up taxes because smart rich people will get around them. You just have to make it optimal, that is high enough that you get enough to provide services, but not so high that you get evasion. The beauty of property tax on real estate is that you always get paid, far less evasion. It also taxes people on something stable. People will pay more to live in certain places. Taxing authorities shoot themselves in the foot when they sabotage neighborhoods with housing projects because they devalue the tax base.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    A wealth tax is a property tax. For most people that is on their home. Say you own a $200k house in Texas, and you owe $150k on the mortgage. Your property tax is about $6k per year. That is pretty high considering that you only own $50k of that house. Also, notice that the tax is regressive because if you own all $200k of the house, you still pay $6k. In New York, tax on the same value is about $2k, but New York has income tax which is more fair because it only taxes money you have. It is also less regressive. It doesn’t really matter how you divy up taxes because smart rich people will get around them. You just have to make it optimal, that is high enough that you get enough to provide services, but not so high that you get evasion. The beauty of property tax on real estate is that you always get paid, far less evasion. It also taxes people on something stable. People will pay more to live in certain places. Taxing authorities shoot themselves in the foot when they sabotage neighborhoods with housing projects because they devalue the tax base.


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