Photo: Courtesy Sotheby’s
Panic over the fiscal cliff is so widespread, one might forget why people are panicking about it.After all, the fiscal cliff is a major deficit reduction event, and reducing the deficit is a very popular idea. Why not just hit it?
In a must-read post at New York Magazine (via Bonnie Kavoussi), Jonathan Chait clarifies a lot: The Fiscal Cliff is an event that plays very much into the hands of Democrats, or at least those with a liberal agenda, because it reduces the deficit in ways that conservatives and corporations don’t like: Higher taxes and lower defence spending.
Republicans hate the fiscal cliff because it eliminates the deficit in ways they hate — mostly by ending all of the Bush tax cuts, along with some spending cuts that take a huge bite out of the Pentagon. But another group also hates the fiscal cliff for different reasons. The centrist anti-deficit groups funded by Pete Peterson hate the fiscal cliff because it creates an avenue for bringing revenue and outlays in line in a way that they don’t want. It basically creates a situation where the deficit is solved in ways that are more left-wing than even Obama proposes, giving him leverage to craft a solution largely along his own preferred lines, rather than through the “grand bargain” they have been fruitlessly trying to craft since 2010. And so they are issuing dire warnings about the fiscal cliff that are either completely disingenuous or reveal a total failure to understand what they’re complaining about.
He goes on to note that Wall Street execs have signed onto a letter claiming that if the cliff is hit, America will get another downgrade, and that interest rates will spike, which is completely disingenuous. Everyone who saw the first downgrade knows it did nothing to push rates higher.
Anyway, the fact that the cliff balances the budget in ways that centrists, corporations, and Republicans don’t like explains why we’ve gotten such shrill warnings from the likes of Erskine Bowles and Alan Simpson, even though they’re the two most famous anti-deficit folks there are these days.
Thinking about how much more in line the cliff is with the liberal policy agenda should make people pretty interested in a Romney-wins-the-Presidency-but-Democrats-hold-the-Senate election result. It’s really hard to imagine what incentive the Democrats would have to cut a deal.
There’s a lot of horrible reporting about the Fiscal Cliff, but this is the key thing to think about: A full-on hit is not that different than what liberals currently favour as policy. That’s got to be your starting assumption in any analysis.
One last thing: The notion that the kind of deficit reduction the Fiscal Cliff would involve, rather than the recessionary impact of hitting it, is Corporate America’s big worry is consistent with other rhetoric that we’ve heard from CEOs.
Remember, back in August, Cisco CEO John Chambers said that America should take its fiscal policy cues from the UK (!) of all countries. That seemed pretty asinine, since the UK pursued austerity early (under Cameron’s PM-ship) and then went into a recession. But what Chambers likes about the UK is not its growth (or lack thereof) but the fact that the UK doesn’t tax overseas earnings the way the US does. That’s a huge deal for Cisco (and many other giants, which have mountains of cash piled up overseas). What that told us is that for a company like Cisco (which is pretty mature at this point), a recession is OK, if it also came along with favourable tax treatment.
Tax treatment is a huge deal for large businesses and the wealthy. Growth? Maybe not so much at the moment.
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