Everyone is talking about it, the you-know-what that will do something unfortunate if the Congress doesn’t make a deal by the end of the year. A few important points:
First of all, as Paul Krugman points out, if you even use the term “fiscal cliff” you are being partisan and tendentious. It’s a scare term, and an illogical one at that. If Congress does nothing, then on January 1st….. nothing happens. At least, nothing noticeable, for a while. The law changes, but the effects won’t hit until people actually start filing their taxes. There would be a slow escalation of effects as current departmental budgets run out. A less inflammatory term would be “fiscal slope.”
Second, this is just the second battle in an ongoing war, set up by the debt ceiling fight a year ago. Neither side could really gain what could be called a victory, so the reckoning was put off. Congress created a scenario with something to deeply dismay both sides; deep military cuts and tax hikes on the wealthy for the Republicans and social services cuts and tax hikes on the middle class for the Democrats. It’s an artificial crisis designed to stampede Congress into a “compromise” that is actually a capitulation to corporate interests.
The annual debt ceiling adjustment itself is ridiculous, as nobody can put a fixed number on what level of debt would be dangerous. The Japanese, for example, have twice our debt to GDP ratio and they are still borrowing money (as of this posting) at 0.715% interest. Given the inflation rate, people are paying Japan (and us) to store their money.
Third, Social Security is irrelevant to this discussion. It is separate from the rest of the budget, self-financed, and in surplus. If we do absolutely nothing, zip, bupkis, then in 2037 benefits drop by 25% and life goes on, albeit more miserably for the elderly. Raising the upper income limit on the Social Security tax would solve the problem.
In terms of political strategy, I have to note the anguished tone of those pundits who kowtow to wealthy and corporate interests. In their world, letting the sequester (for that is its official name) go into effect would be akin to the massive asteroid strike that offed the dinosaurs. Maybe for them and their patrons. Given their fear of the event, I’d say the best strategy is to let the supposed asteroid strike.
The Bush-era millionaire tax cuts would go away, along with the middle class tax cuts. The military budget would be hacked, along with various social services. If Senate Majority Leader Harry Reid wanted to be canny, he would start by eliminating the filibuster so he could pass things with 51 votes, as stated in our constitution. Then he could start putting things on the table one by one and daring the GOP to say no. Here are the middle class tax cuts – yes or no? It would be political suicide to say no, so win-win for Harry. Start with the most popular programs, like Medicare. Restore Granny’s benefits, or no? And so on.
There’s a great negotiating technique based on the trade-in vs. price focus in buying a car. Car salesmen know that most buyers either focus on a getting a good price for their old car or getting a deal on the new one, but not both. The smart buyer starts out by focusing on the trade-in. Hammer the salesman hard on that. He’ll slowly cave because he expects to nail you on the price of the new car and make that money back. Get the trade-in price in writing. Then turn to the new car price and hammer on that. At some point he’ll probably protest that he gave you a great price on the trade-in. Thank him briefly, note the irrelevancy of his statement, and keep swinging the hammer.
The Democrats should agree to discuss future concessions on military spending and the like as they lock in the middle class tax cuts and the preservation of Medicare, Medicaid, and Social Security. No votes on the Pentagon boondoggle money until we get ours. No grand bargain, just spoonful by spoonful. Start it all in the Senate and then let the House Republican majority try to explain why it wants to hit up your average American family for four grand in taxes. Once the political suicide subjects have been won, the core of the Republican leverage is lost.
Of course, this assumes that a majority of the Democrats truly want to do something for ordinary citizens, and haven’t joined the Republicans in service of Wall Street and the 0.1%. Probably a bad assumption. They are still cast by the same machine. We’ll very likely see them “reluctantly” make concessions that gut the social safety net and continue to enrich the already enriched.
Perhaps, though, the recent election could be seen as the turning of the tide? All that independent campaign spending on attack ads made for some close races, but close doesn’t get you a seat on the appropriations committee. I’d like to think that some politicians are nervously looking over their left shoulders.