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There’s a counter-intuitive truth that’s been bouncing around for much of the year, but as the super-committee process intensifies, it’s worth revisiting.
David Leonhardt put it this way in April: “A trick question: If Congress takes no action in coming years, what will happen to the budget deficit? It will shrink — and shrink a lot.” Annie Lowrey added, “[D]oing nothing allows all kinds of fiscal changes that politicians generally abhor to take effect automatically.”
It may seem unsatisfying, but if policymakers simply leave the status quo in place, and let nature take its course, taxes will return to Clinton-era rates, the Affordable Care Act will save us a lot of money, and the deficit will shrink considerably. There would still be long-term concerns related to entitlements, but for quite a while, Congress wouldn’t have to do anything — no committees, no legislation, no filibusters, no negotiations — except allow time to elapse.
E.J. Dionne Jr. moves the ball forward today, noting the combination of automatic tax increases (the return to Clinton-era rates) and automatic spending cuts (the “triggers” that get pulled when the super-committee fails) produces “a surefire way to cut $7.1 trillion from the deficit over the next decade.”
The prospect of $7.1 trillion in tax increases and some cuts that would begin taking effect in January 2013 … should hearten every deficit foe now prepared to mourn a failure by the supercommittee.
Because the bulk of the $7.1 trillion comes from automatic revenue increases, the power in future negotiations would shift toward those seeking a balance between cuts and taxes. Doing nothing is not an option when it comes to job creation. Congress still needs to act. But on the deficit, inaction now could lead to wiser action later. […]
A balanced deal would be nice but it’s now impossible — and not because of some vague congressional “dysfunction” the media like to talk about. Sane fiscal policies are blocked because one party refuses to accept the need to roll back the excesses of the 2001 and 2003 tax cuts. If Congress does nothing, those tax cuts go away. That’s why a “failure” by the supercommittee to endorse a deeply flawed deal is actually a victory for sensible deficit reduction.
I’d just add one key detail: GOP officials won’t like this, but it was their idea. It was Republicans who included a sunset clause on their irresponsible tax cuts, setting them on course to expire. It was also Republicans who demanded the spending cuts in the “trigger” over the summer.
In other words, GOP policymakers will scream bloody murder if the lower tax rates expire and Congress is required to cut $1.2 trillion, half of it from the Pentagon budget. But these are the precise consequences that Republicans themselves invited with their own policies.
The GOP voted for this. The party has nothing to whine about now.
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catclub on November 17, 2011 3:39 PM:
My understanding is that the planned deficit reduction is relative to present _expectations_ ( the tax cuts never die), not relative to present _law_ ( the tax cuts go away for everyone. Am I deluded? It would not be the first time.
DAY on November 17, 2011 3:45 PM:
Gee willikers! This is exactly what I said here, yesterday; a "do nothing" congress actually got it right, back during the Bush administration. Now, if the Democrats can screw their courage to the sticking point, and JUST DO NOTHING!
johnny canuck on November 17, 2011 3:50 PM:
If you are a deluded Republican the tax cuts are relative to Republican expectations since 2002 that the Bush tax cuts will be made permanent. If you are a deluded Democrat the tax cuts are relative to an expectation that the Republicans break down and agree to tax cuts for the middle class (less than $250,000 annual family income) but letting the tax cuts expire for anyone wealthier.
The reality is that the republicans would rather destroy the country than let taxes on the wealthy increase.
RT on November 17, 2011 3:50 PM:
Y'all know that the Republicans will spin any non-vote to extend the Bush tax cuts as a vote to raise taxes. That makes the baby Grover cry.
[Captcha: "PDistriu this"!]
Anonymous on November 17, 2011 3:52 PM:
The GOP voted for this. The party has nothing to whine about now.
And since when has THAT ever stopped them?
All benefit cuts and all tax increases will be blamed on the Democrats. They will also shriek about the Democrats not doing enough to cut the deficit (which of course would require cutting benefits and/or raising taxes). AND they will whine about how unfair the mean ol' Democrats are being, blocking progress and refusing to compromise.
Republicans don't know how to govern. They know how to campaign and how to loot the public treasury for the gain of their rich friends. This is what they do.
And the media will cooperate, since nothing attracts eyeballs like a good food-fight, along with lots of pious hand-wringing about how terrible the food fight is and how nice it would be if everybody got along. This is what THEY do.
Why on Earth should anyone expect this behavior to change? It's worked very well for both of them so far.
martin on November 17, 2011 3:56 PM:
Again, Steve, quit using the Republican talking point "entitlements" to refer to SS and Med. Especially since there aren't an real "long-term concerns" about SS.
If you feel a need to use that word, use it in reference to all of the tax breaks the one percenters feel they are "entitled" to.
Arlington BigFish on November 17, 2011 4:03 PM:
Agreed, Martin. SS & Medicare should always be called "Old folks' insurance programs." Which is actually what they are. Which is good.
kevo on November 17, 2011 4:11 PM:
Can we begin to print, in mass, the new relevant bumper stickers:
I prospered under the Clinton tax rates!
Return to prosperity - raise rich people's taxes by 4.6%!
Stop upper class socialism - return to Clinton's tax rates!
Help Rich Folk become more American - raise their taxes!
Help your rich friends understand shared sacrafice, raise their taxes!
Think of any more? Make them, apply to your bumper, and get out there and show them off! -Kevo
Ken D. on November 17, 2011 4:19 PM:
All nifty keen, except that right now we need to be running cyclical DEFICITS to get the economy going. Our entire national economic debate is focused on how best to do the wrong thing.
Brenna on November 17, 2011 4:20 PM:
If Obama wins a second term, he should just let them ALL expire. It won't that much of a dent to middle class payers income.
T2 on November 17, 2011 4:22 PM:
realizing it would assign a certain intelligence to Republicans (I'd call it deviousness), I don't think the GOP had any intent of letting the Bush cuts expire. They'd get to that point and then just make them permanent (as they are trying to do) and if the Dems protested, the GOPers would play the "Tax and Spend Liberals" game (as they are doing).
Sasha on November 17, 2011 4:27 PM:
Strictly speaking, it wasn't really the GOP who included the sunset clause, but Senator Robert Byrd, whose Byrd Rule obligated the Repubs to include the clause in order to pass their fiscally irresponsible cuts with a simple majority (via reconciliation). The modern Republican Party would never act even so modestly responsible on their own.
SW on November 17, 2011 5:22 PM:
All that it will take are Democrats with balls in the Congress and in the White House to save the country. Again. In the past I would have bet on it. Jack Kennedy. Harry Truman. Mike Mansfield. Hell Bill Clinton would have the guts to put the national interest above the village chatter about what the middle class will or will not tolerate on taxes. All of these people may have considered the input of political consultants but they also considered themselves first and for most, when the chips were down public servants. When we are talking about existential issues, they all had the courage to tell the consultants to take a flying fuck.
This issue is so clear and the test of the current crop of Democrats so clear that it is actually heartbreaking to realize that it is an open question as to whether or not they are fundamentally made of the same stuff. There should be no ambiguity. The ambiguity is their weakness. It turns an overwhelming advantage into a draw regarding the negotiations. It is inexplicable.
SW on November 17, 2011 5:37 PM:
Since the enlightenment we profess to be a people that are governed by reason. As such we are supposed to base our actions on the results of experience. Data. If you are concerned about debt, then there are two considerations regarding tax rates. You need to strike a balance in rates so that you bring in enough revenue without stifling economic growth.
Those on the right who represent great wealth will always claim that lower taxes on great wealth will 'stimulate them' into investing in the economy and thus increase economic growth. This is their argument for lower taxes on wealth. They claim that if taxes are too high it discourages economic growth. So there will be some tax rate at which growth is inhibited.
Fortunately we have data. It is called history. We have done the experiments. We have a vast array of tax rates that we can look at over time. And we can see what sort of impact these tax rates had on economic growth and the ability of government to live within the means generated by the resulting revenue.
You don't have to look very hard at the data to see what the tax rates were the last time the federal budget was balanced. So, clearly, if you are an Empiricist. And you believe in data, and you care about the debt you should be praying that we return to the Clinton era tax rates. On everyone. Because that is what worked. They allowed us to balance the budget. Yet they clearly were not so high as to inhibit economic growth. Those who argued otherwise at the time were proven to be wrong. They were wrong then and they would be wrong again next year.
square1 on November 17, 2011 6:58 PM:
Gosh, its almost as if the Democrats refuse to use the sunset provisions as a weapon against the GOP's bad faith negotiating style.
Doug on November 17, 2011 7:26 PM:
square1, it isn't the Democrats we need to worry about. It's how vicious the Republicans will be in their fight to get the Bush tax cuts made permanent. At this point, I expect Republicans to try and link the Bush tax cuts to an extension of UI benefits.
Massive tax breaks for the 1% in exchange for allowing unemployed people to eat - Republicans idea of a perfect deal...
bob h on November 18, 2011 7:49 AM:
"It was Republicans who included a sunset clause on their irresponsible tax cuts, setting them on course to expire."
That's because the cuts were enacted using reconciliation, right?
SW on November 18, 2011 9:10 AM:
Oh they will be so vicious? Do you mean that they will murder us? Just how deep does our patriotism lie?