Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Saturday, December 01, 2012

The Fiscal Cliff: Now for the Middle and End Games

To those of you, such as my colleague Andy Borowitz, who would rather read a calculus textbook or visit the proctologist than read another piece about the fiscal cliff, you have my sympathies. But spare a thought for us—the poor, benighted journos who have to cover this stuff on a daily basis for the next month or so. I guess you could call it our penance for all those months spent making fun of Mitt Romney, who, just by happenstance, visited the White House on Thursday as hopes of an early fiscal deal, stoked by President Obama earlier this week, were evaporating.

The Mittster fled without saying what he and his nemesis talked about over grilled chicken salad and turkey chili. (Who knew that the White House chef, like many of the rest of us, is still repurposing uneaten Thanksgiving fowl?) Fortunately, John Boehner, the Republican Speaker of the House, stepped into the news vacuum, announcing, from the other end of town, after a meeting with Treasury Secretary Tim Geithner, “No substantive progress has been made in the talks between the White House and the House over the last two weeks…there’s a real danger of going off the fiscal cliff.” Meanwhile, the Treasury announced that Geithner would be going on the Sunday talk shows this weekend to defend the Administration’s position, which might well inflame things further.

What’s going on? Is it time to panic? Will there be a resolution before the December 31st-January 1st deadline, when the Bush tax cuts are set to expire and a series of automatic spending cuts are scheduled to kick in? Not very much, no, and almost certainly. In any complex negotiation, there is a large element of bluff, and the current back-and-forth merely represents a statement of opening positions. The Obama Administration, rightly sensing that it holds most of the high cards, is taking a tough line. On the tax side, it is demanding a return to Clinton-era tax rates for the top two per cent of households; on the spending side, it is basically restating the plans it laid out in its dead-on-arrival 2013 budget, which it released back in February. The Republican leadership, having made an initial concession in saying that it was willing to consider raising more revenues by eliminating loopholes, is now balking at the notion of higher tax rates and demanding more spending cuts.

Thus we have what appears to be a stalemate. But the basic logic of the situation is the same as it has been since the election: neither side wants to go over the cliff, despite the fact that it isn’t really much of a cliff at all—more of a steady incline, or a staircase with a lot of little steps. On the Administration’s side, there is little enthusiasm for the bargaining strategy that I laid out earlier this month, of publicly embracing the cliff and playing down its economic consequences. Geithner and Obama’s other economic advisers fear that the sight of more deadlock in the capital could cause gyrations in the markets, nervousness on the part of consumers, and a continued reluctance to invest among business executives. The White House’s politicos don’t want to start a second term with a fiscal crisis.

On the G.O.P. side, the arguments for striking a deal are even stronger. If the Republicans hold out, taxes will go up for everybody on January 1st, and they will get the blame. And to what end? Come the new year, they would be in an even worse bind. The public would be outraged, the Democrats would immediately propose a bill reducing taxes for ninety-eight per cent of the population, and the Republicans would have little option but to sign on. From the perspective of Boehner and his Senate counterpart, Mitch McConnell, it makes much more sense to strike a deal this side of midnight on December 31st, when at least they have some leverage: the threat that unless the White House makes concessions they won’t be able to sell a deal to the anti-tax ultras in the House.

If an agreement is highly likely, there is less certainty about how we will get there and what it will look like. With both sides having made their opening bids, the next stage—the middle game—is for both sides to modify their positions, but that might take a while. With the Republicans in Congress still splintering into those who are willing to accept an increase in tax rates on the rich and those who aren’t, Geithner and his colleagues feel no incentive to help the G.O.P. negotiators by making public what they are willing to do on Medicare and Social Security—the crux of the long-term fiscal challenge. On the Republican side, meanwhile, Boehner and McConnell are still trying to gauge how far they can go without risking a repeat of 2011, when the conservatives in the House rejected a deal.

Once both sides have sorted out their bottom lines, the serious talks will begin. As of today, it doesn’t look like that will be until the end of next week, at the earliest. Even now, though, it’s possible to see the outlines of a deal that would involve higher rates and fewer deductions for the rich; modest cuts to spending programs—entitlements included; and a mechanism to discuss long-term tax reform of the type proposed by the Simpson-Bowles commission. (At the start of 2010, President Obama created this body. At the end of 2010, he tossed its recommendations in the trash can.) On Thursday, a widely read article at Politico sketched such a deal, which would generate $1.2 trillion in new tax revenues over the next ten years and $1.2 trillion in spending cuts.

That doesn’t mean it’s going to be easy, though. For one thing, a $2.4 trillion deal wouldn’t be big enough to stabilize the debt-to-G.D.P. ratio by 2022—an important condition for future financial stability. Also, the longer the serious negotiations get delayed, the more time the ultras on both sides have to stake out their positions. Representative Steve Scalise, the Louisiana Republican who has just been elected as head of the Republican Study Committee, the right-leaning caucus that two thirds of Republican Congressmen belong to, is vigorously campaigning against any increase in tax rates. Meanwhile, the Democratic Progressive Caucus in the House has already put forward a resolution that rules out any cuts to Medicare, Medicaid, or Social Security.

To strike a deal, Obama and Boehner are going to have to disappoint, at least to some extent, their respective supporters. That will be the endgame—when the two sit down together and work out the unresolved details. A month out, it might be silly to make predictions. I’ll do it anyway. When the final deal is done, it will involve an increase in the top two tax rates, but not all the way back to the Clinton-era levels. The top rate, instead of going from 35 per cent to 39.6 per cent, will go to something like 37.5 per cent. The second rate, instead of going from 33 per cent to 36 per cent, will end up at something like 34.5 per cent. Deductions will be capped for high earners, and the tax rate on capital gains and dividends will go from fifteen per cent to twenty per cent. On the spending side, there will be some cuts to entitlements, but most of them won’t take effect until after 2022. As a result, the immediate budget savings will be pretty modest, especially if the White House succeeds in getting as part of the deal an extension in long-term unemployment benefits and at least part of the payroll tax cut.

Such a deal wouldn’t please everyone, but it would avoid an immediate shock to the economy, and it would allow both sides to claim victory. Obama and the Democrats could say that they had fulfilled their campaign pledge to raise taxes on the rich. Boehner and the Republicans could say they had retained the Bush tax rates for the vast majority of Americans and prevented a bigger hike in rates at the top end. Once again, the really tough question—how to bring revenues and spending into line over the long term—would be deferred. That won’t be resolved until American voters accept that they can have lower taxes or higher spending on government programs, but not both simultaneously. And of that realization, there is still no sign.

Original Article
Source: new yorker
Author: John Cassidy

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