Views from the Edge of the Cliff

I plan to keep adding to this page as the drama proceeds. Here are the first two entries (11/10/12):

1. From "The Fiscal Cliff May Be Overblown" by Cyrus Sanati, CNN Money, Overblown

"Discussions around raising the marginal tax rate on the top 2% are simply just political fodder. Indeed, multiple studies, including ones by the CBO say that it would raise an insignificant amount of money (a negative for the Democratic view) but would also cause no real harm to the economy (a negative for the Republican view). In the end, if it takes changing the top 2% rate from 35% to 39.6% to end this whole fiscal cliff charade, you can bet it has already been agreed to.

As cynical as it may sound, it is simply irrational for either side to address the deficit in any meaningful way given how cheaply it is for Washington to borrow money. As we have seen in Europe, nations won't swallow the bitter pill of austerity unless the markets force them to. So while the equity markets are jittery about the fiscal cliff that is not enough for Congress or the President to present any real long-term compromise if the yields on Treasuries remain at near all-time lows. It will only be when it becomes too expensive to borrow that you will see the government act in any meaningful way to address the nation's long term fiscal issues, not a second before."

Sanati's column has the ring of truth. The real problem is the long-term debt, which will not be addressed until the arithmetic takes over, in California or the United States. 

2. The Budget Control Act of 2011 seems to do almost nothing in the way of addressing debts and deficits, although President Obama keeps saying that he's already cut spending by $1 trillion. See Wikipedia: Budget Control Act of 2011

Quoting the Wikipedia section on "Projected and known impacts" of the Act:

"The act will not actually reduce the overall U.S. debt over the 10-year period it is specified for, only slow down the existing rate of growth of the debt.^[12] That is partly because the cuts due to the act will not reduce federal spending in absolute terms, but rather reduce the year-to-year increases in spending from what had previously been anticipated.^[2] Even with the slowdown, both federal spending and the debt are still projected to grow faster than the U.S. economy, due to the cost curve effects of health care, which the act does not address.^[12]"

"Most of the $900 billion in the first tranche of cuts occur in future years and so will not remove significant aggregate demand from the economy in the current and following year.^[4] Only $25 billion in federal discretionary spending is required to be removed for 2012.^[2] Regarding the across the board cuts, these could not take place until 2013 and so if triggered, a new Congress could vote to eliminate or deepen all or part of them. Some top Republicans were particularly concerned that any defense cuts could not go into effect until after 2013.^[4]

Passage of the Budget Control Act of 2011 was not enough to avert, three days later, Standard & Poor's downgrading the nation's credit rating for the first time in the firm's history, from "AAA" (highest) to "AA+" (highest, with qualifications).^[29] They said they were "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."^[29]

In short, like all long term budget deals or tax bills, this can be undone, at will, by any future Congress and only reduces the increase in deficits and debt growth. S & P projects U.S. debt to be at least $22.1 trillion in 10 years. At Current Rates we are scheduled to hit that amount in four years. See this pinball-like representation of U.S. Debt: U.S. Debt Clock

3. If Bill Kristol is OK with a tax raise on the wealthy, then who can be agin' it?

Speaking on Fox News Sunday, conservative commentator and Weekly Standard editor Bill Kristol went even farther than Cyrus Sanati (above).

"It won't kill the country if we raise taxes a little bit on millionaires," he said. "It really won't, I don't think. I don't really understand why Republicans don't take Obama's offer…. Really? The Republican Party is going to fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of whom live in Hollywood and are hostile?"

4. "We don't want to kick the can down the road."

Corker and Conrad with Chris Wallace: Democrats, Republicans seem more ready to compromise on deficit deal

Compromise already. If Republicans can actually get significant entitlement reform and more reductions in spending by going with Obama's tax rates, they ought to do it, even if they think it will slow job creation. It's better than a deadlock.

(11/13/12)

5. "The Hard Fiscal Facts," WSJ, 11/12/12  Link:  WSJ Editorial

Gleanings from this editorial, which is in favor of keeping the Bush tax cuts permanent (despite William Kristol):

1. In the fiscal year that ended on September 30, the federal government rolled up another $1.1 trillion deficit.
2. The four largest deficits in modern history accrued during the last four years, the Obama years. See the editorial for a table.
BUT
3. "Tax Revenue kept climbing, up 6.4% for the [last fiscal] year overall, and at $2.45 trillion it is now close to the historic high it reach in fiscal 2007 before the recession hit. Mr. Obama won't want you to know this, but this revenue increase is occurring under the Bush tax rates that he so desperately wants to raise in the name of getting what he says is merely 'a little more in taxes.' Individual income tax payments are now up $233 billion over the lat two years, or 26%."
4. "This healthy revenue increase comes despite measly economic growth of between 1% and 2%."
5. "Now let's look at outlays, which declined a bit in 2012. That small miracle was achieved thanks to a 4% fall in defense spending, a 24% fall in jobless benefits, and an 8.9% decline in Medicaid funding. Note, however, that federal spending remains at a new plateau of about $3.54 trillion, or some $800 billion more than the last pre-recession year of 2007. One way to think about this that most of the $830 billion stimulus of 2009 has now become part of the federal budget baseline. The 'emergency' spending of the stimulus has now become permanent, as we predicted it would."

Conclusion: we are close to gathering more revenue than we ever have, as was true during the Bush II years; we are just spending far more than we are taking in. And this was also true during Bush II's presidency: then,  tax cuts coincided with big revenue gains. We just spent way more than we took in.

6.
NPR's Fiscal Cliff Notes: Cliff Only Dents Deficit

These are very good. Go to this link and listen to them all: Fiscal Cliff Notes

I heard my first this morning in the car: "Fiscal Cliff Would Only Dent the Deficit"; this is only 3 minutes long: Fiscal Cliff wouldn't come close to dealing with deficit

(11/14/12)

7. New York Times, "Showing Backbone on Debt," November 13, 2012:

"Jay Carney, the White House press secretary, provided a bit of good news this afternoon to those worried about painful compromises ahead in the negotiations over the fiscal cliff. President Obama, he said, still wants $1.6 trillion in new tax revenue (over a decade) in any package to reduce the deficit.

That’s almost impossible to achieve without raising rates on high incomes. Reverting to Clinton-era rates on incomes greater than $250,000 would raise $1 trillion; the rest could come from capping deductions, the method Republicans prefer but which would be insufficient alone.

Of course that’s just an opening position; the White House presumably is willing to come down from that number in talks with Republicans. But it’s more than the $1 trillion or so the president wanted in his talks with Speaker John Boehner in 2010, and sends a strong signal that the talks will have to yield far more than modest changes in the amount that rich people can deduct."

The editorial goes on to lament Obama's advertised deficit cutting goal:

"Less heartening, Mr. Carney also cited an overall goal of reducing the deficit by $4 trillion, the same cut achieved in the Simpson-Bowles plan. There’s no need for the reduction to be that high. As the Center on Budget and Policy Priorities has repeatedly pointed out, just $2 trillion in savings would stabilize the debt at about 73 percent of the economy, far less than the current (and growing) level of 82 percent. That would mean the debt would no longer grow faster than the economy, removing the threat of economic harm from a too-high debt burden, and giving policymakers time to deal with the real driver of long-term debt, health-care costs.

A deep, $4 trillion reduction is not necessary in part because Congress and Mr. Obama already cut $1.7 trillion from spending last year, in the various deals forced by House Republicans. Adding $2 trillion in new debt reduction on top of that would be a “notable achievement,” as the Center puts it, in a capital supposedly bound by gridlock."

See: Showing Backbone on Deficit

The $1.6 trillion dollar additional revenue goal is twice that which Obama asked for last year, which has people speculating that Obama wants a "fiscal cliff" deal to fail. See $1.6 Trillion? Obama Doesn't Want a Deal

Obama's request does remind me of my favorite Dr. Evil Scene.  "Ah . . . Dr. Evil . . . $1.6 trillion isn't very much money . . .":

He should go for $100 trillion in new revenue.