All this talk about Grand Bargains and Plan Bs and so forth may have just distracted everyone from what the smart money thought all along, that a deal was much more likely right after January 1, than right before.Here’s what Bill McBride said way back in early November:
My baseline forecast assumes a compromise on the fiscal slope (more of a “slope” than a “cliff”, and January 1st is not a drop dead date). My current guess is an agreement will be reached AFTER January 1st – so that the Bush tax cuts can expire and certain politicians can claim they didn’t vote to raise taxes (silly, but that is politics).
The fact that Boehner couldn’t get Plan B passed, because there was (in his words) a perception that it included a tax hike (when in reality it didn’t… it was a cut for all taxpayers), really suggests this technicality matters about when you pass the bill. It’s politically easier to vote for a bill after taxes have already risen, and you’re doing voters a favour.
That’s the gist of this Jonathan Allen piece in Politico, about why folks in DC want to go over the cliff. It gets easier to solve an existing problem, rather than prevent one.
There are last minute talks today in hopes of averting the cliff. And there’s of course the chance that the level of acrimony only increases once we go over, and that no solution is forthcoming. But suddenly the early January tax cut plan (perhaps at the $400k – $500K cutoff range), with an extension of everything else, seems to be more likely.
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