Here’s the problem with the Fiscal Cliff.
If we go over it, then we get unprecedented austerity, and the progress of the recovery gets unwound.
If we get a deal out of Washington, we get… austerity. It’s less austerity, but a deal would almost certainly get.
So is there any way plausible way to avoid austerity altogether? Actually, yes.
First, you have to realise tonight’s developments, which is that we finally got details of The White House’s “opening offer” in the debate. The big surprise is that there’s actually a lot of stimulus: Mortgage relief, extension of the Payroll Tax holiday, extension of emergency unemployment benefits, and some infrastructure spending.
Now the GOP reaction can be characterised by what’s on the top of Drudge.
Now that’s fine. This is how a negotiation works. Obama presents his preferred set of plans, and the GOP pretends it’s completely preposterous. Relax. There’ still plenty of time.
But as Matt Yglesias points out, Obama’s plan is actually a great first step towards an ideal outcome for the economy that allows both sides to win.
All the GOP has to do is say “yes.”
Say yes to all the stimulus, that is. And say yes to the entitlement cuts. Throw in some extra entitlement cuts, though, if there’s anything the GOP feels strongly about. But say no on taxes. Tell Obama no on the higher rates for the rich, no on the estate tax, no on all the tax stuff. Instead he can have the almost $800 billion in revenue that comes overwhelmingly but not exclusively from the rich by capping deductions at $50,000. If Obama has a religious preference for a somewhat lower cap and somewhat more revenue, then maybe he gets it.
The point is, as Yglesias goes on to say, is that the GOP can force Obama to decide between stimulating the economy and taxing the rich. Obama would look horrible if he got all the stimulus he wants, but then said no because he was so intent on raising taxes.
Everybody wins. Obama gets stimulus. GOP gets taxes. The economy doesn’t have to worry about anything.
It’s not clear that this definitely will be what happens, but seeing as it violates nobody’s “pledges” or what not, it is plausible