The fiscal scold lobby has raised $35 million and counting to warn America that Democrats and Republicans must come together to solve the deficit before the “fiscal cliff” occurs and … the deficit goes away on its own. Today, Erskine Bowles warns in an op-ed that the price of waiting will be terrible:
Going over the fiscal cliff would mean allowing a massive and immediate cut to nearly every major government agency and activity, including those vital to our national security or economic growth. It would mean a large and immediate tax increase on nearly all Americans, not just the highest earners.
That is totally false.
Going over the fiscal cliff and then doing nothing for another year would mean a huge tax hike and spending cut. But waiting until January would mean extremely gradual tax increases and spending cuts, ones that would not even begin to take place immediately, because Obama has the ability to delay their implementation. And even after they're implemented, the effect would be gradual, and could subsequently be canceled out. It’s like saying if you go three weeks without food you’ll die so if dinner isn’t on the table at 6 o'clock sharp terrible consequences will follow.
The reason many liberals want to wait until January is that it would make a deal much easier to strike, and ensure that the result is on more liberal terms. Once the entire Bush tax cuts have expired, President Obama would no longer have to pry revenue out of tax-hating Republicans. He’ll have all the revenue he wants and more. He could offer them a tax cut. He’ll likewise have huge defense cuts to bargain away.
Bowles proceeds to argue that both sides think that waiting until January would increase their leverage.
... many partisans on both sides seem to think they have the upper hand in the negotiation. Democrats see the threat of large defense cuts and massive tax increases as a way to force tax increases for the rich. Republicans see large domestic spending cuts, tax increases on poor and middle-income Americans and the need to increase the debt ceiling as their own leverage points.
Is that true? As it happens, today’s Wall Street Journal features a panicked editorial about Obama’s strategy of using the “fiscal cliff” as budget leverage. The Journal is ground zero of the supply-side economics movement, caring enormously about low taxes for the rich and not at all about deficits. After raging at the fiscal cliff, the Journal editorial reports that John Boehner has a plan to defuse the automatic spending cuts and tax hikes:
On January 1, Washington faces both a huge tax increase and an automatic spending cut known as the "sequester." Our sources say that to get past these immediate deadlines, Mr. Boehner will ask Mr. Obama to maintain the Bush tax rates for at least another year, ease the sequester for defense in particular, and in return GOP House leaders will be open to giving the President new revenue. Then the two sides can negotiate the bigger tax and entitlement questions next year.
Let us reason together. If one side wants to cancel the budget trigger, and the other side wants to keep it in place, is it true that both sides want to go off the cliff? No, it suggests that Boehner and Obama both grasp that the "fiscal cliff" increases Obama's leverage. (Also, note the hilarity of Boehner’s offer, which is to delay the tax hikes and defense cuts in return for a promise to be “open” to giving Obama some unspecified level of revenue. What a deal!)
The Journal also offers some advice to Obama as to how he can prove his good faith — by appointing a well-respected figure to succeed Tim Geithner as Treasury Secretary. You’ll never guess who the Journal has in mind:
On the other hand, the choice of someone like Erskine Bowles, who led Mr. Obama's deficit commission in the first term, would signal a desire for serious negotiations. Especially after the fiasco of the "grand bargain" talks of 2011, Mr. Obama needs a point man whom Republicans think isn't a political hit man.
If rich-guy-tax-hating, deficit-agnostic GOP partisans trust Bowles, that should be all the endorsement Obama needs.