Fiscal Cliff

12.22.12

The Fiscal Cliff: Four Possible Outcomes

Chestnuts roasting. Sleigh bells ringing. Falling off a fiscal cliff. It’s just another holiday season on Capitol Hill. David Freedlander on what’s in store for us in the new year.

On Thursday night, Congress grabbed America by the hand, walked right up to the edge of a cliff overlooking a massive fiscal freefall, and closed its eyes. And the nation inched ever closer to heading into the abyss.

The fiscal cliff—a series of automatic tax hikes and spending cuts that are scheduled to kick in after the first of the year unless Congress and President Obama come up with an alternative—is an imperfect metaphor. Americans won’t immediately be forking over substantially more of their annual income, and the spending cuts will take a bit before the effects will fully be felt.

Still, a cliff by another name still ain’t great, and making matters even more frustrating to those of us who are being dragged to the edge is the knowledge that the coming crisis is an entirely invented, and thus, avoidable one. The cliff was constructed, recall, after Republicans and Democrats couldn’t agree on a deficit reduction plan last year; in exchange for raising the nation’s debt ceiling, Republicans demanded this pound of flesh, hoping that the threat of falling would be enough to concentrate the mind of budgeteers.

So with the holidays upon us, we thought we’d take a look at a few possible scenarios that might greet us in the new year:

1. Over the Cliff We Go

This is an idea that is growing in popularity among the outer edges of both the Democratic and Republican Parties. From the Democratic perspective, going over the cliff would result in the federal government finally being flush with revenue for the first time in a decade. Some nasty, politically distasteful military spending cuts would kick in, of the kind that would never be permitted to occur otherwise. Sure, there will be a world of pain in social programs—closed national parks, fewer food safety inspectors and the like—but Democrats think they will eventually get restored. What else to do, after all, with all that tax money now coming in? Plus, sacred entitlement programs will largely be spared. Hard-core Republicans have come around to this idea, too, since it will simultaneously provide them with a long sought after goal (cutting spending) and provide them with a way to avoid violating what they consider to be a sacred pledge (to never raise taxes.) This option is viewed with favor by members of Congress in both parties, since it allows them to do what they do best—nothing.

2. Going Over, Then Clambering Back

This option may be thought of as option 1A, since it involves tumbling over the cliff. Although in this scenario, Congress and the country don’t so much take a lover’s leap, as crawl downward, commando-style. By heading over the cliff one step at a time, they can crawl their way back.
So tax rates go up on everyone at the beginning of the year? Bah-humbug. The first thing Republicans and Democrats will do when they return is announce a tax cut for all Americans making less than $250,000, or $400,000 a year, or some other six-figure annual income. No one will have received a tax bill yet, so no one sees a smaller paycheck.  Republicans and Democrats pat themselves on the back for cutting taxes and saving the union. The markets may be a bit spooked, but who isn’t used to Congress behaving erratically at this point?

3. Americans (Meaning Boehner and Obama) Come Together

Thursday night was a dreadfully embarrassing moment for House Speaker John Boehner, when as a stunt, he called for his GOP colleagues to vote on a bill that would only raise taxes on those making $1 million a year. They balked at his so-called Plan B because raising taxes on the rich is still raising taxes. Republicans all along had been thinking that they could pass a bill with just “the majority of the majority”—i.e, a majority of their caucus, along with a substantial number of Democrats. Now, it appears even such meager hopes were overblown. Could Boehner pass a bill with just a handful of his members concerned enough about what the cliff jumping will do to their party, and the whole of the Democratic caucus? It has happened before, and this time Boehner and Obama appear to have a framework worked out. Such a move could end Boehner’s stewardship of the speakership, but is there any worse job in America right now? Besides, at this point getting a Tea Partier like Eric Cantor in the speaker’s slot may be a better deal for everyone, since at least it will mean that the White House finally has somebody who can hold the Republican caucus together

4. The Mayan Apocalypse

The chances of this passing were never great, but went down a lot this morning when December 21st dawned as so many days before it have. Still, something needs to break the logjam, right? And nothing seems quite so fantastical any more as the notion of Washington figuring their way out of this mess on their own.