Aug. 27, 2014

What Would It Take for Action on Fiscal Cliff?

The subject of the fiscal cliff is a bit like the old "Perils of Pauline" movie serial. There will be numerous episodes where the country's economy, like Pauline, hangs in the balance - until the next episode.

Financial markets remain largely indifferent to the possibility of disaster, assuming that, like Pauline, there will be some miraculous rescue because the alternative is unthinkable. Of course, given our thoroughly dysfunctional politics, people should start thinking.

On the other hand, there are lots of alternatives that could stave off catastrophe, with the options differing by election outcomes.

This will no doubt be one of several columns looking at what might happen, in this case based on what I believe is the most likely election outcome, with the giant caveat that many things can happen in the next five weeks to change each part of it.

Absent such a change, we would end up on Nov. 7 with something quite close to the status quo: a second Obama term; a continuing Republican majority in the House, albeit with smaller margins; and a continuing Democratic majority in the Senate, also with a smaller margin.

How Americans will react to an election marked by pessimism about the future, anger about Washington, D.C.'s inability to deal with the nation's problems and a particularly high contempt for Congress - that results in no perceptible changes in the deck chairs on the ship of state - is both interesting and relevant. But it certainly will not point to a public willingness to tolerate continued gridlock and tribalism.

I believe that, for the most part, Democrats and Republicans in the Senate will hear that message. There is a pent-up desire among many Senate Republicans to return to a problem-solving mode, a desire that has been enhanced in recent weeks by the first significant effort in three years by the business community to step up to the plate and call for action to avoid fiscal turmoil.

The "gang of six" has two of the most responsible and thoughtful members of the Senate supporting it (without joining), Sens. Lamar Alexander (R-Tenn.) and Michael Bennet (D-Colo.). And a broader cross-section of Senators have been working on a plan not just to stave off sequesters and the potential recession caused by sudden spending cuts and tax increases but a bigger long-term plan to ameliorate the debt problem.

That plan is not likely to be a full-blown resolution of the problem, i.e., a 10-year detailed legislative program to cut $4 trillion from the debt via a mix of taxes and spending cuts from all areas, including entitlements.

The fact is that, contrary to most press reports and to conventional wisdom, no such detailed program exists.

We still do not have, from Simpson-Bowles, Domenici-Rivlin or the gang of six, a detailed plan in legislative language. After three years, all we have is a set of templates, leaving the tough specific decisions to Congress to resolve.

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