Photo: White House via Flickr
Last year, Goldman Sachs hired former Senate Budget Committee chairman Judd Gregg after he retired from an 18-year tenure in the Senate. He serves the firm as an international advisor.Goldman just put out a report on the impending fiscal cliff featuring an interview with that Senator Gregg.
No one expects the U.S. government to actually “go over” the fiscal cliff – that is, Congress is expected, even if at the last minute, to come up with a compromise that will avoid the contractionary effects of concurrent tax hikes and spending cuts set to go into effect on January 1, 2013.
However, Gregg described in Goldman’s report just how it could come to pass that the U.S. government does, in fact, fail to reach an agreement and send the U.S. economy hurdling toward contraction.
Here’s what Gregg had to say:
If you are a strong liberal in the Congress several aspects of going over the fiscal cliff at the least don’t bother you and at the best, actually work in your favour. First, you’re going to get a big cut in defence spending, which doesn’t bother you. Second, you’re going to get a huge tax increase, which doesn’t bother you; and third, you’re not going to have any reduction in the size of the government; the government is going to continue to grow, which you actually like.
On the other side of the aisle, any tax increase would be an anathema to most conservative Republicans. So with the Democratic leadership and the President saying that they’re not going to agree to any extensions on the tax cuts unless there’s a tax increase tied to it, conservative Republicans might not be willing to make a deal. So Congress could get wrapped around its own wheel because the forces on the hard left and the hard right both stand their ground.
Gregg, who served in Congress as a member of the Republican party, said the House of Representatives will actually have more difficulty reaching an agreement on the fiscal cliff than the Senate:
There is a large working group in the Senate right now which is bipartisan and covers the philosophical spectrum, with some of the most liberal members, like Dick Durbin and Chuck Schumer, and some of the most conservative members, like Mike Crapo and Tom Coburn, working together to try to figure out a process to reach agreement.
That doesn’t occur in the House for a very specific reason: 60 to 65% of the House seats are gerrymandered by a party. That means a member of Congress who is elected from those districts only has to get the votes of his or her party in the primary to get elected. To win your primary, you have to get the vote of the base, which is the most hard-core group on philosophical issues on both the left and the right; and the only way that you can lose that vote, if you get it initially and are elected, is if you compromise, because the base does not tolerate compromise on either the left or the right. And so the House is sort of locked down by the fact that so many of its members can’t cross the aisle and expect to get reelected.