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November 12, 2012 2:29 PM “Fiscal Staircase” Explained

By Ed Kilgore

If you’ve been longing for a simple but thorough explanation of the fiscal-you-know-what, Kevin Drum obliged today, complete with EZ charts on CBO estimates of the impact of various current-policy items on economic growth assuming they stay in place for a significant period of time. Here is Kevin’s conclusion on what is likely to happen:

1. January 1 is not a drop dead date. Nothing much will happen unless all the spending cuts and tax increases drag on for weeks or months.
2. If no deal is made, economic growth will slow down a lot and unemployment will increase a lot.
3. Therefore, a deal will probably be made. On taxes, everyone wants to extend the Bush tax cuts for the middle class, and the only question is how long Republicans will refuse to extend them unless the Bush tax cuts for the rich are also extended. Probably not too long. Likewise, no one is really all that excited about the spending cuts either, so probably some kludge will be worked out that either eliminates or postpones most of them.
4. It’s possible that the whole thing will be solved with a grand bargain, which would produce trillions of dollars of deficit reduction via spending cuts and tax increases in the future. However, this will only happen if House Republicans are willing to accept tax increases. Right now, that doesn’t seem likely.

Earlier Kevin notes that a deal might be reached that enables Republicans to keep their “no tax rate increase” pledge with some sort of “loophole closing” measure (though King Norquist has always made it clear “base-broadening” was only acceptable if the proceeds were used to lower rates); that’s the option John Boehner has been hinting at, and also what the president has conspicuously declined to rule out. At this point, such talk is about as concrete as Mitt Romney’s tax plan was during the campaign.

My favorite part of Kevin’s article is the name he supplies to the multiple events in question: “the fiscal staircase,” which is much catchier than the “fiscal landscape-shift” I tossed out the other day. I’ll use it henceforth until such time as someone comes up with a better and more accurate substitute for “cliff.” Let’s save “cliff” for Wile E. Coyote and the divers of Acapulco.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on November 12, 2012 3:01 PM:

    Why is it that whenever I hear the term "Grand Bargain,"
    I don't think it'll be any sort of a "bargain" for the poor and middle classes?

  • David in NY on November 12, 2012 3:18 PM:

    Let me just note that between Kevin's 1 and 3, all hell may break out in at least some parts of the federal government, including the judiciary and other important departnments. Layoffs, inability and delay in doing stuff people want done, etc. Now this may be no big deal. But it might be. I think the small part of the judiciary that I know best is making some plans along the above lines, but damned if I know what exactly will happen.

  • Gandalf on November 12, 2012 3:19 PM:

    cund gulag that's because as we all know more often than not grand bargain usually means great big giant dildo stuck up our rear ends.

  • c u n d gulag on November 12, 2012 3:35 PM:

    Gandalf,
    I could probably deal with that, if they didn't put barbed-wire, fish-hooks, and broken glass, on it, and then rubbed hot sauce and battery acid on everything before they shove it up there.

  • T2 on November 12, 2012 3:37 PM:

    Obama needs to use this situation to dump Norquist. If he forces GOPers to raise taxes on the rich, they will de facto be jumping off Norquist's bandwagon. Once he is sent packing, all sorts of things are on the table.

  • estamm on November 12, 2012 3:39 PM:

    ANY deal should include automatic debt-limit raises. We cannot be held hostage to that bit of nonsense ever again.

  • Equal Opportunity Cynic on November 12, 2012 4:15 PM:

    King Norquist? King Grover!

  • Mimikatz on November 12, 2012 4:19 PM:

    Eliminate the 15% rate for dividends and carried interest. Raise capital gains rate to 1/2 of ordinary income rates. Give the Pentagon authority to decide how to administer the 500 bil cuts. Allow Medicare to bargain fir reduced drug prices. Leave all the rest to next Congress in the context of tax reform.

    I think a 1986-type tax reform deal that eliminates all Mitt Romney's tax dodges and splits e differ demon the top two tax rates could bring in enough money.

    But let's stop talking about entitlement reform. If we raise the top rate enough, it will take back some of top earners' SS. That's all we need to do. The rest of what we need is in health care and we need to take the profit out, or at least curb all the incentives to overtreat. And keep dfense down. It isn't a jobs and welfare program.

  • Frank Wilhoit on November 12, 2012 4:43 PM:

    "2. If no deal is made, economic growth will slow down a lot and unemployment will increase a lot."

    These outcomes are what Republicans want; therefore, they have no incentive to make a deal and no deal will be made.

  • majun on November 12, 2012 4:48 PM:

    The top tax rate will go up permanently (or, more correctly, the middle class rates will go back to Bush era levels) before the end of January. Kristol has already given the faux deficit hawks the cover they need. Why go to bat for a bunch of hyper-liberal billionaires living the good life in Beverly Hills? They don't create jobs anyway, all they do is make pictures. The rest will fall into line over the next few months.

  • Doug on November 12, 2012 5:19 PM:

    gulag, I still firmly believe that the horrible "Grand Bargain" achieved by President Obama and Speaker Boehner was, at least on the part of the President, undertaken in the firm belief that, a) Speaker Boehner was incapable of getting a majority of his caucus behind it and, b) Boehner wasn't going to risk his Speakership having to rely on Democratic votes. In other words, President Obama made Boehner an offer that met almost everything demanded of the president - except for raising taxes on the wealthy and the Republicans in Congress turned it down.
    I sense the fine hand of former-Speaker Pelosi in all this in that I think SHE provided the information about the state of the Republican caucus and Boehner's control, or lack thereof, over it. It would only be fitting that the Republicans may very well have only themselves to blame for President Obama's re-election; something that would NOT have occurred had the "Grand Bargain" been accepted.
    Personally, I doubt there will be a "Grand Bargain" in this session of Congress. The Republicans desperately need one, but haven't any leverage that won't destroy the economy while simultaneously shining a big spotlight on them. I don't know if they're THAT stupid.
    Neither the President nor Democrats in Congress have anything to gain from a bargain that includes cuts to the safety net. The DoD could easily manage an annual cut of $100 billion, possibly more. As long as economy improves, there may not be much need for anything else.

  • punaise on November 12, 2012 7:22 PM:

    Led Zeppelin: Fiscal Graffiti / Stairway to Kevin

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