Here’s what I think will happen with the (poorly named) “fiscal cliff”. Or at least what the Democrats should do.
- This assumes the Republicans refuse to compromise (or don’t even make a counter-offer to Obama’s offer).
- We go over the fiscal cliff. Nothing happens, at least not immediately. I think the markets are already prepared for this to happen anyway. People start to find out what across-the-board spending cuts will do, and become concerned.
- Just before the deadline — when it is clear that no compromise will be reached — the Democrats (should) introduce a tax cut for everyone earning under $250,000, to replace the Bush tax cuts that are expiring. And reversing the worst (most damaging to the economy) spending cuts.
- The Republicans have a choice: Vote against a tax cut (because it doesn’t apply to the rich), making them look really bad. Or vote for it, accepting no tax cut for the wealthy.
- If the Republicans vote against it, throw in some additional spending cuts. By then, people start getting really pissed off about the across-the-board spending cuts (their social security checks get smaller, people lose their jobs, the military starts making cuts).
- The Republicans cave, having at least put on a show of being tough for the benefit of their base.
Why do I think no compromise can be achieved before the deadline? After all, didn’t major Republicans already offer to compromise by raising revenues? No, not really. Their offer to raise revenues does not include any tax increase, only “closing of tax loopholes” — and they are unwilling to specify what loopholes they would close. Besides, closing loopholes will never be enough to balance the budget. We need at least some tax increases, and I think that will just be too difficult for too many Republicans. Once we go over the cliff, then taxes will increase automatically. At that point, Obama can propose tax cuts and spending cuts from a position of strength, and Republicans can pretend they are voting for tax cuts (which before the fiscal cliff would have been tax increases).
If you disagree, please leave a comment. But don’t just disagree, tell me what you think will happen. If I get it totally wrong and someone else gets it mostly right, maybe I’ll give a prize or something. At the very least you’ll get bragging rights. And maybe a job as a political pundit (<snark> except at Fox News, where being right could be a problem </snark>).
Extra points if you present a plausible idea of how we can get rid of the debt ceiling.