Nov. 26, 2014

The Fiscal Cliff Debate Borders on the Surreal

How ridiculous is the fiscal cliff debate? The answer is that it’s off-the-wall crazy. Consider the following.

The tax increases and spending cuts that will go into effect as part of the fiscal cliff are the absolutely wrong fiscal policy for the start of 2013 unless you think that causing a recession is a good idea. 

Although he had to coin the phrase “fiscal cliff” to express himself, a recession is precisely what one of this country’s most important economic policymakers — the chairman of the Federal Reserve — has been talking about with increasing urgency since early this year to anyone who will listen. It’s also what Wall Street economists have now validated with their recent forecasts and what the Congressional Budget Office — Capitol Hill’s numbers-crunching priesthood — has said directly and unambiguously to Congress itself. In other words, why is the fiscal cliff even a possibility?

There’s little discernible support on Capitol Hill for allowing the fiscal cliff to happen. But the main alternative to that, indeed, the only option that would be the right fiscal policy and ultimately the easiest solution — a 2013 budget deficit that will be much higher than it otherwise will be — is at least as politically toxic as the fiscal cliff itself. As a result, no one dares talk about it, and the discussions about how to avoid the cliff have been limited.

The alternative to the fiscal cliff that so far has progressed the most seems to be a multi-step process that delays the cliff and puts in place deficit reductions that would be triggered automatically if Congress fails to do what’s required. That means that the answer being considered is to duplicate the procedure that created the anything-but-super committee whose failure last November triggered the spending cut part of the fiscal cliff that is now creating so much economic and political heartburn.

Dealing with the fiscal cliff has become the equivalent of more-than-three-dimensional political chess. The cliff wasn’t dealt with before Congress recessed largely because all of the options would create difficult election issues that neither of the two political parties wanted. 

But waiting until the lame-duck session to begin the discussions creates other problems that are at least as serious. These include: a lack of time; what’s likely to be a slew of defeated Members who won’t have the same incentive to participate in the debate as they did before the election; and, depending on the election results, both parties perhaps thinking that they will be in a position to drive a better bargain next year, that is, after the fiscal cliff tax increases and spending cuts go into effect.

The politics of the fiscal cliff could be even more difficult if Speaker John Boehner (R-Ohio) faces a challenge from within the Republican Party to remain as Speaker in the next Congress, something that may be more likely if the GOP loses seats in the election. 

With the challenge most likely to come from the right, Boehner’s best hope to keep his position could well be to let the fiscal cliff happen rather than be seen as negotiating with the White House. This will be the case regardless of whether President Barack Obama is re-elected.

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