Today everyone is supposed to be optimistic about avoiding the fiscal slope. Considering the potential consequences of that avoidance, I’m not sure “optimistic” is the right word. But the idea works like this: House Republicans will allow the Senate-passed bill of extending the Bush tax cuts up to $250,000 of income into law, if they get a “framework” of mandatory tax reform and entitlement targets six months or so down the road (in essence, a second “fiscal slope”). Lawmakers would also pass $50 billion in deficit reduction as a “down payment,” to cancel out the first six months or so of the sequester cuts.
The only problem with this agreement is that Republicans mostly favor it and Democrats mostly don’t. And it’s predicated on that Bush tax rates bill passing the House, which isn’t entirely likely.
Boehner told Obama, Reid and House Democratic Leader Nancy Pelosi (D-Calif.) at the meeting that tax reform and entitlement reform should wait until 2013, according to a Boehner aide.
“The Speaker said he believes 2013 should be the year we begin to solve our debt problem through tax reform and entitlement reform, and proposed that both parties work together to avert the fiscal cliff together in a manner that ensures 2013 is that year,” said the aide.
Democrats told Boehner they would not accept any postponement of a debt deal unless Republicans agreed to a substantial down payment, and pushed for the up-front funds to come from raising tax rates on the highest two income brackets, according to a Democratic aide familiar with the meeting.
By pressing for significant progress on a deficit-reduction deal during the lame duck, Democrats are hoping to push Republicans to accept hefty tax hikes before the new year.
In other words, Democrats see the tax rate deal that locks in the Obama framework as the down payment. Republicans see the $50 billion in deficit reduction and the framework for tax reform and safety net cuts as the down payment. Therefore, this optimism is completely misplaced. The two sides are talking about completely different deals.
Tim Geithner and not Jack Lew has been named lead negotiator on the White House side. In 2011, Boehner had problems with Lew and basically requested that he be replaced. So where’s Geithner on all of this?
Geithner, who attended Friday’s meeting, said a compromise should “lock in some upfront savings that help restore fiscal sustainability and set up a process for reaching agreement on the additional savings that we’re going to need.”
That sounds roughly equivalent to the Boehner conception: an upfront “down payment” and a process for later. The question lies in what that down payment looks like: the change in tax rates, or the token spending cuts to replace the sequester, or both.
Ultimately, the political system is biased toward deferral, so that’s what I think you’ll get. The question is what will get done in the meantime.
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