The fiscal cliff was just a warmup.
Jan 14, 2013, Vol. 18, No. 17 • By IRWIN M. STELZER
It is easy to think of the avoidance of the fiscal cliff as merely a financial deal, aimed at solving our fiscal problems. That would be wrong. The really important fact is that the deal is still another step in President Barack Obama’s drive for a place on Mount Rushmore as a “transformative” president. This is a president who has transformed the health care and energy sectors and has reopened the era of big government—the end of which was famously proclaimed by Bill Clinton as his own legacy.
Now to the matter of money. If you think that the last-minute deal to avoid going over the fiscal cliff solves anything, think again. The Congressional Budget Office reckons that last week’s deal will increase the deficit over the next 10 years by some $4 trillion, despite adding $600 billion to our tax bill. To understand why, pore over the 154-page bill and consider its handouts to windmill operators and producers of all sorts of fuels other than those God put in the earth (a continuation of the president’s transformation of the energy sector); its extension of unemployment insurance; its tax relief for mortgage-debt forgiveness and other goodies.
Worse still, the table is now set for what Republican senator Lindsey Graham calls Round Two, which he says is “coming, and we’re going to have one hell of a contest about the direction and the vision of this country.” The White House puts it slightly differently: “We are headed for 60 days of nastiness.” Others call it the politicians’ version of March Madness, during which three interrelated problems will give Congress another set of opportunities for late-night sessions.
Here is what is in store for the month that traditionally comes in like a lion and goes out like a lamb.
* The Treasury, which hit the debt ceiling on the last day of 2012, runs out of accounting tricks and can’t borrow $40 for every $100 it spends. No threat of default, no matter what the president says: The cash flow from ongoing tax receipts covers interest payments on the national debt ten times over. It is spending on many government programs that would be cut if there is an impasse over the debt ceiling. The president alternates between saying he will not enter into negotiations to raise the ceiling, and warning that he will not agree to spending cuts in return for an increase in the ceiling. The solution, once again, is to be tax increases on “millionaires” and on corporations that employ lobbyists. Before dismissing the notion that the president will simply refuse to talk, consider two things. He is a better negotiator than conservatives give him credit for. His strategy on the cliff gave him higher taxes and no significant cut in spending. Second, if he refuses to negotiate, the Republicans’ only weapon is nuclear—destroying America’s credit rating, which rating agencies are already threatening even in the absence of default.
* The cliff deal’s two-month postponement of $110 billion in automatic spending cuts over nine years expires. The battle over how to plug that hole in the budget will be a reprise of last week’s show. The president is insisting on new taxes on “millionaires” and corporations to make up the needed revenue, while the Republicans are adamant that spending be cut, although not for the military, which is Obama’s favored target for reductions. Optimists say the president is bluffing, that he would not dare to raise taxes so soon after his recent success in socking it to high earners. This practitioner of the dismal science thinks it more rather than less likely that Obama will increase the tax burden on high earners. After all, wistful liberals have taken to citing the fact that top marginal income tax rates exceeded 90 percent between 1944 and 1963, and the nation generally prospered. And that the portion of GDP claimed by our government remains more than 10 percentage points below that of steadily prosperous Germany.
* The measure funding government agencies lapses. Unless there is some agreement for ongoing funding, the government will shut down—no guides in the national parks, no staff to issue passports or visas to foreigners, no disease control, no garbage collection on the National Mall. Voters who want smaller government will get their wish after a fashion. Republicans hankering after the political standing of Newt Gingrich, the last Republican to close down the government in a confrontation with then-President Bill Clinton, will feel comfortable shutting down the government. Others, who remember that after the Gingrich shutdown the Republicans’ favorability rating fell from 15 points above the Democrats’ to 11 points below their opponents’, might hesitate.