Tuesday, October 2, 2012

A Beltarian Explains the Post-Election Fiscal Battle

In the end, it will result in higher taxes for all of us. But here's Bruce Bartlett explaining the post-election positioning that will be called the "Fiscal Cliff" negotiations:
 With polls consistently showing a steady lead for Barack Obama in the presidential race, it’s not too soon to start thinking about what he will do the day after the election. In particular, what will be done about the looming “fiscal cliff,” which begins on Jan. 1, when previously enacted spending cuts and tax increases take effect.

These automatic tax increases and spending cuts will reduce the budget deficit by about $600 billion next year if all of them are allowed to take effect. This fiscal tightening is equal to about 4 percent of the gross domestic product, and the Congressional Budget Office estimates that it will reduce G.D.P. growth by an equal amount next year. There is evidence that the fiscal cliff is already affecting business investment spending, slowing economic growth.

Dealing with the fiscal cliff will undoubtedly be the principal item of business when Congress returns for a lame-duck session. Talks between the administration and Congressional leaders have already begun but have been hampered by questions about who will be president in January, as well as which party will control the House and Senate.

Although it appears that the Republicans will retain control of the House while Democrats’ prospects of continuing to have a Senate majority have improved, the majority margins are likely to narrow. This could be a particular problem in the House, where Representative John Boehner of Ohio, the speaker, has never had a firm hold on power because he is viewed with suspicion by the G.O.P.’s Tea Party wing.

The budget analyst Stan Collender speculates that Mr. Boehner will be on a short leash during the lame-duck session as the Tea Party tries to maintain influence after a disappointing election. This means that Mr. Boehner will have little scope to negotiate with Democrats on a compromise that would forestall the fiscal cliff, making it likely that the fiscal cliff measures will begin as scheduled.
 Bottom line: Post-election, there will be no serious spending cuts, taxes will be raised and ad nauseam we will be bombarded about the fiscal cliff we are about to go over, to soften us up for the tax hikes.


  1. EPJ: "Bottom line: Post-election, there will be no serious spending cuts, taxes will be raised and ad nauseam we will be bombarded about the fiscal cliff we are about to go over, to soften us up for the tax hikes."

    That seems just like what the construction guys call, 'mothering'.

    I.e. "You'll get your paycheck next week, we promise, we Love your work, you're a great asset, just keep working for us." Then it happens again the next week.
    Some People will do this for weeks before they figure out they're not Ever going to get paid.

  2. The "fiscal cliff" is a complete scam. Notice Barlett's claim of a 4% reduction in the GDP is based on merely a simple division of 600 billion (the projected size of the "fiscal cliff" tax increases and budget cuts) by the GDP. But if this 600 billion is merely borrowed from the private sector, it follows the private sector economy would similarly decline as it would not have that borrowed capital to invest itself in the economy. Borrowed money also has to be paid back eventually, and who knows what interest rates will be in the future--for the PIIGS countries in Europe they skyrocketed overnight once the unsustainablity of their debt problems became clear to the markets.

    Barlett also doesn't tell you that even if the "fiscal cliff" occurred that overall 2013 government spending would still be increasing dramatically over 2012 levels with the government still be adding at least a half trillion in new debt.

    There would undoubtedly be some negative consequences like volatility in the markets from going over the "fiscal cliff," but there will likely be significant positive consequences as well. Reduce the budget deficit to 500-600 billion then as a % of GDP this would be below the magic 3% target all the credit agencies use to calculate sustainability (I think personally this is too generous)--we might get our credit rating upgraded actually or in effect. It also would throw a real monkey wrench into the spending machinery of DC generally and give us real cuts in military spending which in economic terms is basically pure waste.

  3. Will they cut spending in any measureable way?
    Ha! Just kidding!
    I'll be voting Romney, at least then the media will look for wrongdoing instead of aiding and abetting it.
    I know, I know, I should worry about war, wiretaps, and the like.