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There was a big breakthrough in the Presidential race, with implications for US fiscal policy, that sort of slipped by unnoticed on a Friday in August. Mitt Romney, the presumptive Republican nominee, argued for a one-year delay in the trigger, the automatic cuts to defense and discretionary spending set to go at the end of the year. Importantly, he did not identify an offset. He merely said that the trigger ought to be delayed.
The Republican presidential contender said Friday during a campaign trip to Las Vegas that the cuts would be “terrible,” particularly for the military [...]
Romney says he wants President Barack Obama and lawmakers to work together to put, in his words, “a year’s runway,” in place to give the next president time to reform the tax system and ensure the military’s needs are met.
Now, Romney is a pretty weak leader of his party. He called for an expiration of wind energy tax credits and Republicans on the Senate Finance Committee defied him and passed a one-year extension of that tax break as part of a tax extenders package that got committee approval this week.
But the fiscal cliff is something different entirely, something sure to generate a lot of conversation as we near the election. And the man who will lead his party at the top of the ticket just said that the fiscal cliff should just get extended. He already held the position of extending the Bush tax cuts, and in fact lowering rates even more below that. His party just passed a similar plan through the House this week. And now, Romney wants to extend the trigger. There are no offsets for any of this.
The first thing to say here is that Republicans don’t care about the deficit. They never have. That’s clear when you see this desire to extend about $400 billion in deficit spending for 2013, without replacing it. If Romney becomes President, he’ll follow through on this philosophy. He’ll lower taxes on the rich and permanently delay this trigger, building up military spending. Reagan proved deficits don’t matter.
In fact, this is a pretty good strategy for 2013, to increase the deficit and subsequently increase aggregate demand. However, Romney and the Republicans would channel that fiscal accommodation into the least efficient policies imaginable – tax cuts for the rich and military spending – which will not lead to the major improvements in the economy that similar accommodation for, say, infrastructure spending and debt relief would.
The implications for the fiscal cliff, however, are large. Democrats generally agree with the delay of the trigger. The equation that Nancy Pelosi has been making is that the expiration of the Bush tax cuts over $250,000 of income gets you virtually the same amount of revenue that it would cost to permanently cover the trigger. So if Obama wins the election, and the Senate stays in Democratic hands, they could force the already-passed tax cut bill down the throat of the House. And that money could be applied to a delay or even cancellation of the trigger. And now, Democrats have the talking point that even Mitt Romney supports delaying the trigger, and that they’re being “responsible” by paying for it. The other fiscal cliff elements, including the patch to the alternative minimum tax, would follow suit (Senate Finance already included the AMT patch in their tax extenders bill). And the budget, under the deal announced this week, would be on auto-pilot at agreed-upon levels until March.
The fiscal cliff doesn’t look so big and bad after these developments. We could see a move into 2013 with the only parts of the cliff allowed to occur being the payroll tax cut and those inefficient Bush tax cuts for the rich. This would pull back fiscal policy to some degree, but not nearly at the expected level and in a manner that the economy could more easily absorb. It’s not optimal policy – we need far more government spending right now to fill the demand gap, and we’re sure to get less once the dust settles – but it’s a lot better than some of the alternatives.
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Want to make the economy take off?
Tax the rich, cut the military spending to 200 billion or even less, put a trillion dollars to work building a train system for this country, replacing our aging water systems, build protection against the rising seas, and provide funding for real small startups not the bull corporations are trying to claim are startups.
Since there is no way our corrupt government will do this we need to start eating the rich.
Yeah, so the military doesn’t get cut. Want to be the mandatory cuts for everything else gets forced down our throats…
Sorry, but we all know where this is going. And it isn’t for the betterment of voters, just the banksters and military industrial complex from now until the end of time.
Nice mention of Reagan. But, don’t mention it too much. It will spoil “the worst economy since the Depression,” mantra as to why Obama has failed to get the economy moving.
As we all know, Reagan took over an economy that had higher unemployment, huge inflation and a defeated population that figured it was all over and Japan was taking over.
Obama had it easy by comparison. The TARP had already steadied the banking system. GM had already been bailed out. All he needed to do was get some jobs going. He didn’t have massive inflation to deal with or interest rates in the 12% range. He had low interest rates and low inflation.
All he had to do was get some jobs going. And not cops and teachers. But, the kind of jobs MOST people can get and have.
Mr. Excuse.
Yes, he’s had to deal with the “worst excuses since the Great Depression.”
Congress has proven itself expert at kicking that can down the road.
They are clearly incapable of actually solving problems. The sad truth is that everyone knows this, including them. Typical of real life, there is no happy ending.
David, consider putting all your info on the fiscal cliff in one folder and publish it on FDL as “Cliff Notes”! /s
“So if Obama wins the election, and the Senate stays in Democratic hands, they could force the already-passed tax cut bill down the throat of the House. And that money could be applied to a delay or even cancellation of the trigger.”
What makes anyone think, after everything so far, that this will happen.obama and the democrats have no interest in rolling back american “austerity” plans. This current group of whores CREATED them.
reagan was allowed as much defecit spending as he wanted……it was extrodinary, the gusto and enthusiasm with which ronnie slasher taxed and spent..the plans are different now..they have to sell the “budget crises” and catfood comission “austerity”
Haha. so just like Boehner last year, Romney is cutting the legs out from under Obama’s plans for a “grand bargain” to eviscerate Social Security and Medicare.
Oh, noes! What will happen to Barry’s legacy now? Eek! Those darned Republicans, stopping the One from being Responsible and Adult! Grr, we must fight to re-elect Obama now! /s (duh)
Yep. Reagan was one of those Presidents that ran up the credit cards and one of the initial starters of the “deficits don’t matter” mantras.
Nowadays it’s Deficits matter when we are talking about fulfilling our obligations to elderly, public servants, or aid for young children. They DON’T matter when it comes to defense contractors or taxing the rich(or job creators as they like to be referred to).
You almost need a scorecard.
So Ronald Reagan took over the worst economy since the Great Depression? Who would have known. But if you’re going to rewrite history, why not go further than Reagan inheriting a defeated population? Why not call Iran-Contra the first “Arab Spring”? Why not call Reagan’s tripling of the deficit “the shot heard ’round the world”. You must have graduated from Glenn Beck’s online university.