The Fiscal Cliff thread.

[renaissance]

No real valuable contribution to this thread, but I found out this weekend that apparently a lot of people had been referring to it as the "Physical" Cliff.

[HaveFaith]

I don't buy the notion that we have an out of control discretionary spending problem as easily as some seem to. It appears to me that expenses as a % of GDP have been going down since O took office:

http://en.wikipedia.org/wiki/File:Re...993_-_2008.png

Taxes also seem be be at their lowest in quite some time (as a % of GDP)..

Real question for you:

Where do you think we stand as a nation with the "other" government spending
I would think that when you say "discretionary" you are excluding entitlement spending that seems to be ballooning out of control.

We seem to run this country as if we were a family of four and we say the revenue is too low so we ask the 12 year old kid to kick in her babysitting money and think that wilkl fis the revenue side of the house, then we look at the expense side where we live in a house we cannot afford, eat out every other meal, all have the latest fun toys and gadgets, so we look at the spending and say , "lets cancel our HBO subscription" that will solve our spending.

Anyone on either side who is willing to take on the real problem with entitlement spending is unfortunately unelectable.

the best economic news of the new year:
The Redskins are the NFC East Champs and they are hosting a playoff game

[nonniey]

Boehner to Reid: "Go **** yourself."

http://www.politico.com/story/2013/0...snt-85663.html

Here's the most important part:

And the President himself was bragging about having no spending cuts. Well, that is what the American people voted for.

[Hersh]

Obama has decreased the deficite to gdp ratio about 30% over his first 4 years in office... That's with the economy in the toilet. He's done it with reducing the deficit from about 1.4 trillion to 1 trillion holding new spending down and growing the economy by 2-3%.... Remember he inherited a shrinking economy. He asked for very modest tax increases on the what top half of one percent... The folks like Mitt Romney who were paying only about what 12.9% taxes and now will endure a tax rate closer to 15%?

The democrats wanted the tad hike as a separate piece of business from the cuts which are coming... Again modest cuts relative to the deficit... Just like Bill Clinton did... and Newt Gingrich .... They didn't balance the budget over night they took small responsible steps and over 8 years it occurred... mostly due to economic growth... With still unemployment so high we have a lot of room to grow..

What kills me is if the republicans always knew they would cave rather than stick to their guns, put the economy back into a recession, and end their political viability as a national party.... Why didn't they do it earlier? It's all this uncertainty which is killing us... If they were going to make a deal and accept the democrats terms as they did... why not do it in the beginning of december instead of creating all this uncertainty which is really hurting our economy and job hiring.

My problem with this entire conversation (the politicians/media) is that they are only talking about deficit reduction and not debt reduction. Putting in these short term plans do nothing to address the long term issues facing the country and these politicians do a disservice pretending that taxes won't have to be raised on everyone at some point. I'm not saying raising taxes on everyone should be done now, but there should be a ten year plan so people could plan accordingly.

[Fergasun]

I suggest that the problem is voters who demand that their representation doesn't compromise. Its no wonder the congress people arrive in Washington ready to throw a fit for their way or the highway. If people demanded a different type of representation they would get it.

I'm not so sure about this. The Senate is controlled by Democrats and the House by Republicans. Therefore, both chambers started out doing what they wanted to do. Why would the GOP have pushed through tax hikes a week ago (in fact only 50 House GOP members voted for this bill)? Why would the Senate have any reason for raising the threshold for tax hikes beyond $250k (and throw in the fact hat the GOP could block this)? Oh wait, at getting the fiscal cliff deal done. So what would happen if the Senate had raised the threshold to $450k, and the House didn't pass anything, doesn't that give more leverage to the House to bargain (hey, at least that seems to be my logic).

Everyone knows the GOP is the party against any tax hikes fundamentally, and even now there are folks screaming about how they compromised their values. Re-do that sentence with "Democrats" and "for raising taxes starting on $250k". Erick Erickson made what I thought was good point, in that the leadership of both legislative bodies should have allowed an open legislative process to allow rank and file to form up a compromise. We didn't get *any* ideas on the type of compromise legislation that would pass either the House or Senate in the future, which is freakin' ridiculous... on the other hand is also very freakin' rational.

Think of it this way, they've been at this "deficit reduction" for 2 years now (think Simpson-Bowles Commission, plus 2011 debt ceiling deal, plus SuperCommittee, plus even a little bit of Gang of Seven sprinkled in). I remember Boehner saying in the 2011 fight that "nothing is agreed to until everything is agreed to". By using negotiations and not floor votes; both parties are able to avoid the type of negative campaign add which states: "Senator X voted to cut Medicare and Social Security" (which even the GOP would like to avoid as they attempt to cut Social Security). This is all completely rational. So we have this point now where both parties have staked out what they want, and it's clear they won't get it unless (God help us) either party gets a super majority in the Senate, a majority in the House, and control of the Presidency.

Boehner should be applauded for putting forward a bill which his own caucus overwhelmingly voted against! The final vote for the GOP was 85-151. I would love the House GOP to kick him out as speaker, and quite frankly I hope he is sick of being maligned as well by a bunch of folks who will only be taken seriously if they shut down the government (and then will most likely be voted out en masse in 2014?) The GOP should take that approach, because at least it's consistent with their message.... and I need to be clear "HOUSE GOP", because the GOP Senators compromised.

It's probably true the Senate is the only place where bi-partisan deficit compromise could happen... but I doubt it. I think this is the point that Bowles and Simpson were trying to make. Of course what Democratic Senator is going to negotiate when the Democrats have the Presidency and Obama needs to agree to a deal... and what GOP Senator is going to negotiate when the House GOP has more leverage? Hence, we start with Boehner-Obama negotiations. Somehow, at the conclusion of this convoluted post I understand why our sorry political process is going to being with Obama-Boehner negotiations on any type of major piece of legislation (but most especially budget issues).

Let me try to summarize:
- Neither legilslative body has an incentive to compromise because they want to avoid negative campaign ads
- Budget/deficit reduction/tax legislation will only occur if there is compromise
- Democratic Senators won't compromise at risk of undercutting Obama
- GOP Senators won't compromise at risk of undercutting Boehner
- Thus all negotiations require the leading member of the House GOP caucus and Obama (think of the ads against Obama for failing to lead on this issue if Reid was the lead negotiator... there's no difference other than optics, but Obama will be using the bully pulpit).

And think of what happened; Boehner got replaced by McConnell and Obama deferred to Reid but Reid needed Biden (one step away from Obama) to get the deal done.

I hope everyone understand why I'm sick of these budget dances every 6-months...

---------- Post added January-2nd-2013 at 07:54 AM ----------

There are large difference in the parties over "long term debt reduction".

It's probably fair to say the Democratic position is "deficits don't matter.. but we can sprinkle in some taxes on the rich 'cause they raked it in under Bush" although there are some who are worried that we'll go Greece... no one knows when "going Greece" would happen. Is it 5-years, 10-years, or 15-years... and honestly if we go Greece they probably feel like "we can just do Simpson-Bowles". I don't think they want to do anything until we hit that crisis (ie. Social Security is facing a 25% cut right now).

It's fair to say the GOP position is "let's cut government spending to the bone, and let's cut it so hard it hurts the poor and those dependent on government spending.. and sprinkle in a little bit of perks for the rich" They think we've already gone Greece. They are proposing something I'd call "Simpson-Bowles plus"... it goes beyond what Simpson-Bowles did and market as "Path for Prosperity". Just about all the House GOP budgets (which they are so proud of passing) take this approach.

Kudos, I guess to the GOP for putting forth a plan? The Democrats probably don't want to tell folks that Simpson-Bowles is their plan, but I have no doubt it's what would happen if we hit that crisis mode.

[Stadium-Armory]

Real question for you:

Where do you think we stand as a nation with the "other" government spending
I would think that when you say "discretionary" you are excluding entitlement spending that seems to be ballooning out of control.

We seem to run this country as if we were a family of four and we say the revenue is too low so we ask the 12 year old kid to kick in her babysitting money and think that wilkl fis the revenue side of the house, then we look at the expense side where we live in a house we cannot afford, eat out every other meal, all have the latest fun toys and gadgets, so we look at the spending and say , "lets cancel our HBO subscription" that will solve our spending.
:

It seems to me that the entitlement spending such as social security and medicare isn't analogous to the type of spending a family would engage in for gadgets and fancy meals. These are commitment we've made to elderly citizens and are mandatory within the current social compact. When I hear people complaining about how our spending is out of control, I assume they're talking about discretionary spending but to your point, entitlements are the bigger piece of the pie. I'm not particularly educated on the topic but it seems from a laypersons perspective that we aren't prepared for the baby boomers' drag on entitlements and something needs to be done to restructure it. This is a far cry though from the idea that the problem is with Obama's wanting to spend us in to oblivion. This is a structural problem that has existed before O and will after.

David Brooks wrote an interesting piece on entitlements this morning: http://www.nytimes.com/2013/01/01/op...idbrooks&_r=1&

I'd like to see the democrats tackle entitlement reform.

---------- Post added January-2nd-2013 at 11:14 AM ----------

I'm not so sure about this. The Senate is controlled by Democrats and the House by Republicans. Therefore, both chambers started out doing what they wanted to do. Why would the GOP have pushed through tax hikes a week ago (in fact only 50 House GOP members voted for this bill)? Why would the Senate have any reason for raising the threshold for tax hikes beyond $250k (and throw in the fact hat the GOP could block this)? Oh wait, at getting the fiscal cliff deal done. So what would happen if the Senate had raised the threshold to $450k, and the House didn't pass anything, doesn't that give more leverage to the House to bargain (hey, at least that seems to be my logic).

Everyone knows the GOP is the party against any tax hikes fundamentally, and even now there are folks screaming about how they compromised their values. Re-do that sentence with "Democrats" and "for raising taxes starting on $250k". Erick Erickson made what I thought was good point, in that the leadership of both legislative bodies should have allowed an open legislative process to allow rank and file to form up a compromise. We didn't get *any* ideas on the type of compromise legislation that would pass either the House or Senate in the future, which is freakin' ridiculous... on the other hand is also very freakin' rational.

When push came to shove, they compromised. I guess there's something to be said for that. But I do think it starts with the voters. From that Brooks article I quoted above:

"The White House envisions a series of stages bringing us closer to fiscal sustainability. I hope that’s right. But if Congress couldn’t make a single tough decision under these circumstances, why should we think it’ll make any further down the road? More likely, there will just be more squabbling and brinkmanship, more posturing and punting, which would not only poison future budget talks but also prospects for immigration reform, tax reform, gun control and many other projects.

Whom should we blame for this? Again, we should not blame Obama and Boehner. In their different ways, they and a number of other people in the Congress are trying to find a politically palatable way to deal with these hard issues. They got what conditions allowed.

Ultimately, we should blame the American voters. The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money. Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren. They have decided they like borrowing up to $1 trillion a year for tax credits, disability payments, defense contracts and the rest. They have found that the original Keynesian rationale for these deficits provides a perfect cover for permanent deficit-living. They have made it clear that they will destroy any politician who tries to stop them from cost-shifting in this way.

Most members of Congress are responding efficiently to the popular will. A large number of reactionary Democrats reject any measure to touch Medicare or other entitlement programs. A large number of impotent Republicans talk about reducing the debt, but are incapable of forging a deal that balances tax increases with spending cuts."

[Fergasun]

It seems to me that the entitlement spending such as social security and medicare isn't analogous to the type of spending a family would engage in for gadgets and fancy meals. These are commitment we've made to elderly citizens and are mandatory within the current social compact. When I hear people complaining about how our spending is out of control, I assume they're talking about discretionary spending but to your point, entitlements are the bigger piece of the pie. I'm not particularly educated on the topic but it seems from a laypersons perspective that we aren't prepared for the baby boomers' drag on entitlements and something needs to be done to restructure it. This is a far cry though from the idea that the problem is with Obama's wanting to spend us in to oblivion. This is a structural problem that has existed before O and will after.

Yet anyone who has talked about entitlement reform says "those 55 or over won't see any change" (see Ryan, Paul). Our entitlement problem is mainly driven by escalating health care costs (something ridiculous like 5% a year?). Karl Denninger (he's very conservative) has put together some nice articles over at his site (Market-Ticker.org) talking about the health care side of entitlements). He does take the "we must cut spending down to what we take in via taxes,NOW" approach.

No one knows when we get to that "US is Greece" moment, and that seems to be the sticking point... (ie. during the Fiscal Commission discussion Durbin repeatedly asked this and it didn't sound like there was a definitive answer).

[Larry]

My problem with this entire conversation (the politicians/media) is that they are only talking about deficit reduction and not debt reduction.

Perhaps because they assume (falsely, IMO) that most folks are smart enough to realize that the only way to achieve "debt reduction" is "completely eliminate the deficit, and then some, and keep it that way, for a long time"?

Just a theory.

[Hersh]

Perhaps because they assume (falsely, IMO) that most folks are smart enough to realize that the only way to achieve "debt reduction" is "completely eliminate the deficit, and then some, and keep it that way, for a long time"?

Just a theory.

I think they only say deficit reduction so they can claim some kind of success when they pass a bill that does only a tiny amount of deficit reduction. That will work with voters because that's how little most voters pay attention to facts.

[Tulane Skins Fan]

I think they only say deficit reduction so they can claim some kind of success when they pass a bill that does only a tiny amount of deficit reduction. That will work with voters because that's how little most voters pay attention to facts.

They say deficit reduction because debt reduction is not a good goal for a country. It would be better to have deficit reduction and allow GDP to catch up to your debt.

You don't want your government profiting off its people (feudalism style), which is what would be necessary for debt reduction. That would not be good for the private sector and the economy as a whole.

[Wrong Direction]

They say deficit reduction because debt reduction is not a good goal for a country. It would be better to have deficit reduction and allow GDP to catch up to your debt.

You don't want your government profiting off its people (feudalism style), which is what would be necessary for debt reduction. That would not be good for the private sector and the economy as a whole.

I'm not sure I fully buy this argument. I mean, if the government is ever actually turning a profit I certainly agree. We don't want to spend or take in more than we have to. However, with 16T in debt, we're not at risk of doing taking in too much anytime soon.

I've been in a fog for a couple of weeks, and thus not up on the details of the news. I know this bill includes an AMT fix. That's good. We're still without a Medicare doc fix, right? We're still without an agreement on the debt ceiling as well, and the sequester has been put off for a couple of months, right? I'd like a timeline of when each of these next crises are coming. It seems like the only time they do anything is at the deadline, so maybe I'll just tune out until debt limit day.

I'm trying to figure out how this all works together. Is the grand bargain the next thing to happen? I suspect a long term doc fix would be part of entitlement reform, which will be part of the debt ceiling deal. I predict that, at a minimum, the parties agree to change the eligibility for Medicare and social security. I've heard rumblings of D's also supporting much more competitive bidding (prices in Medicare) and maybe even more capitation and reforms to Medicare Advantage. I'll believe that stuff when I see it though, but the Medicare side does at least have more potential for savings and creativity based on some things I've been reading (ex: many Dems including Daschle published an article about competitive bidding, which many R's generally support). Then of course you have implementation of the ACA and more tax reform, so the calculus for all of this is incredibly complex.

It would be nice if our leaders who hate each other so much have agreed to secretly sit down and start hammering this stuff out w/o public attention. Maybe all of these deadlines are a good way to actually force them to do something?

[JMS]

My problem with this entire conversation (the politicians/media) is that they are only talking about deficit reduction and not debt reduction. .

Actually they are only talking about revenue... The democrats wanted to untie new taxes with the talks on cuts. It's hard enough to get anything out of congress so rather than try to handle everything all at once they broke it into separate issues... So not the talking heads are crying there are no cuts.... and the response is Duhhhh!!!....

I also like Obama's position that he's not going to debate or entertain any deals on raising the debt ceiling. The republicans can not be counted on to be reasonable or act in the best interest of the country, but we are seeing that they can be counted on to act in their own best interest. If they want to sink the global economy and let the US default on it's debt; because as Micheal Backman says it's not that big a deal... Then let them... It's like holding a pistol to your own forehead and threatening to shoot if you don't get what you want. That worked before, Obama bought into it and they took us to the brink of default and caused our credit rating to go down for the first time in US history, but Obama's saying not again.

Putting in these short term plans do nothing to address the long term issues facing the country .

I agree you need to cut spending and raise revenue, and above all grow the economy.... The problem is even when we just try to do one thing it takes longer than the deadline will allow. I mean we actually went over the cliff right.. We got this deal after the fact... We have to take this piece meal... Get what we can, when we can...

these politicians do a disservice pretending that taxes won't have to be raised on everyone at some point. I'm not saying raising taxes on everyone should be done now, but there should be a ten year plan so people could plan accordingly.

The most important thing is to keep the economy growing.. If we have to incure more debt in the short term to enable that then so be it. We aren't going to have to raise taxes a huge amount on everybody. We are going to have to keep the economy growing... hold down new spending as we have, and cut back a bit where we can too... It' s going to take all three, and it's going to take a few years.. up until now we only were using two.... Our debt is not in crisis, or deficit is. We do not need to panic and return to the 1880's... we need to take small steps and have a little disipline is all..

[Tulane Skins Fan]

I'm not sure I fully buy this argument. I mean, if the government is ever actually turning a profit I certainly agree. We don't want to spend or take in more than we have to. However, with 16T in debt, we're not at risk of doing taking in too much anytime soon.

I've been in a fog for a couple of weeks, and thus not up on the details of the news. I know this bill includes an AMT fix. That's good. We're still without a Medicare doc fix, right? We're still without an agreement on the debt ceiling as well, and the sequester has been put off for a couple of months, right? I'd like a timeline of when each of these next crises are coming. It seems like the only time they do anything is at the deadline, so maybe I'll just tune out until debt limit day.

I'm trying to figure out how this all works together. Is the grand bargain the next thing to happen? I suspect a long term doc fix would be part of entitlement reform, which will be part of the debt ceiling deal. I predict that, at a minimum, the parties agree to change the eligibility for Medicare and social security. I've heard rumblings of D's also supporting much more competitive bidding (prices in Medicare) and maybe even more capitation and reforms to Medicare Advantage. I'll believe that stuff when I see it though, but the Medicare side does at least have more potential for savings and creativity based on some things I've been reading (ex: many Dems including Daschle published an article about competitive bidding, which many R's generally support). Then of course you have implementation of the ACA and more tax reform, so the calculus for all of this is incredibly complex.

It would be nice if our leaders who hate each other so much have agreed to secretly sit down and start hammering this stuff out w/o public attention. Maybe all of these deadlines are a good way to actually force them to do something?

There's a lot left to be debated, and I'm not sure, but I THINK the "doc fix," (which is basically welfare for doc's.. or at least a government "handout") is in there.

You should buy the argument though, because its true. In fact, as recently as 2000 we were not just running a balanced budget, but the government was profiting from us. That's why the Bush tax cuts were passed... we thought we would have the entire debt paid off in about ten years, which would have been economic disaster.

Government debt is not the evil that so many people think it is. Yes, it can get too big, but its hard to say we have too much right now. Its very easy to say "oh my goodness, we have trillions of dollars in debt, this is terrible." But if GDP is pumping out bigger than that, it might not be a bad thing at all.

There shouldn't be an attempt to balance the entire debt like that though. Balancing the deficit in the short term is one thing, the debt is another.

[JMS]

Yet anyone who has talked about entitlement reform says "those 55 or over won't see any change" (see Ryan, Paul).

Paul Ryan is a dufus... His budget was a self indulgent fantasy.

Our entitlement problem is mainly driven by escalating health care costs (something ridiculous like 5% a year?).

Double the rate of inflation for nearly 40 years.

Karl Denninger (he's very conservative) has put together some nice articles over at his site (Market-Ticker.org) talking about the health care side of entitlements). He does take the "we must cut spending down to what we take in via taxes,NOW" approach.

This is the debate the nation was haveing for two years last term. The debate the republicans refused to enter beyond spreading fear uncertainty and doubt... FUD... "Keep the government hands off my medicare check"..... The basic facts are our medical system sucks... and needs to be reformed. It doesn't provide good services to the population at a reasonable cost and hasn't for decades.... IT needs reforming and with Obamacare we have perhaps started down that path.

No one knows when we get to that "US is Greece" moment, and that seems to be the sticking point... (ie. during the Fiscal Commission discussion Durbin repeatedly asked this and it didn't sound like there was a definitive answer).

The US will never be Greece... If we don't deal with the deficit we will eventually become Japan, not Greece. We need to reform military spending, and healthcare. We have done some work on healthcare but need to do more.

[Wrong Direction]

There shouldn't be an attempt to balance the entire debt like that though. Balancing the deficit in the short term is one thing, the debt is another.

I suspect we disagree over the degree to which a balanced budget should pay down debt versus grow it. I'd pay it down, but true balance isn't required. On that I agree.

Either way, our biggest debt problems are in front of us, not behind us. At some point it would be nice if we had real leadership capable of taking on these problems. I'm cautiously optmistic, moreso than anytime over the last few years. Obama's in legacy territory. He'll want to make some progress on entitlements other than creation of new entitlements, I'd think.