Thursday, November 15, 2012

Politics, Policy and the Fiscal Cliff

Robert Kuttner analyzes the President's proposals on taxes and the budget as we approach the so-called fiscal cliff:
However, despite the president’s elegant move on tax policy, there are two other aspects to deficit and budget politics where his posture is not quite so firm.

One is whether to include Social Security and Medicare reform (by which the right means cuts) in a Grand Bargain.

This was always a dubious idea, and part of the right’s hidden agenda to mix up current budget politics with long-term issues about social insurance. Yesterday, Obama came closer than ever before to saying that he would not sacrifice Social Security.
First, the President expressed during the first debate that Social Security reform was on the table:
You know, I suspect that, on Social Security, we've got a somewhat similar position. Social Security is structurally sound. It's going to have to be tweaked the way it was by Ronald Reagan and Speaker -- Democratic Speaker Tip O'Neill. But it is -- the basic structure is sound.
If the Republicans can put politics aside, they can get a Social Security deal inside of a few hours of negotiation - minor adjustments that improve the program's fifty year projection and make the accountants happy. The President appears to be telegraphing that no further deal will be made.

Second, the Republicans made clear first with their demagoguery about "death panels" and Obama's Medicare spending cuts, and second with their retreat from their own voucher proposals for anybody under fifty-five, that they have no stomach for actually reforming Medicare. They want to do it, but they lack the courage and fortitude.

The President can play the same game that Romney and Ryan attempted during the election - "We'll preserve Medicare for now, but we'll cut spending in the future, when the economy is stable and we've had time to study the issue and identify savings." Frankly, if the goal is to avoid the "fiscal cliff", that's all you can do in the short term. Whatever is agreed it's reasonable to anticipate that three, five years down the line when the cuts are supposed to be put into effect, Congress will blink. Just as they do every single year with the "doc-fix".

Kuttner argues,
Obama has let it be known that he wants the deficit reduction to be “back-loaded”—little if any in the first year or two, and then a gradual phase-in. That’s better than the reverse. But in the end game, the most important thing for Democrats is not to be locked into any multi-year mandatory cuts.

Barring some kind of multi-year super-deal—that Obama should avoid—the rules of Congress prohibit one Congress from binding another.
Right now, arbitrary, mandatory cuts are working pretty well for the President. If a new fiscal cliff is created to compel another round of negotiations a year from now, it's likely to be Congress that is running scared.

Realistically speaking, any deal would be in two parts - tax and spending changes that will be put into effect this year and an agreed framework for future years. I'll grant, if you push cuts too far into the future you are likely to see that although some reform measures are put into immediate effect, key future measures not. Neither side wants to fumble that ball - they both have wish lists they want put into immediate effect, and likely both hope to trade them for promises of what they "will" do in the future.

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