More on the Fiscal Cliff

       Two events stir me to add to my fiscal cliff ruminations: one the reading of Bob Woodward’s book on the 2011 negotiations The Price of Power  and attending a meeting with my Brookings colleagues on the cliff prospects.  Let me begin with several highlights from the Woodward book which I recommend to anyone who stumbles upon my blog. It is tough reading at times – endless discussions of this meeting and that session, etc. -- but rewarding for the light it casts on the agreement forming the background for the present negotiations over the “cliff.”  A few nuggets from the book:  it is commonly supposed that the Republicans were the “hostage takers” on the debt ceiling and the source of irresponsible threats to de-stabilize the economy, the nation, and the rest of the nonsense.  Actually, Sen. McConnell proposed a scheme in the negations whereby he Senate (and Congress) would vote to surrender power to the President for the purpose of his being able to raise the debt ceiling.  It was a rather complicated scheme and the white House had some doubts it would work.  Here’s what the plan called for: in this one instance Obama could raise the ceiling to whatever he wanted and the Congress would then in the fashion of the old “legislative veto” provisions (I forget whether McConnell made it a one house [Senate only] or two house veto) have no option to vote against the Presidential action.  McConnell thus gave his colleagues the chance to vote against raising the ceiling, but since it would take two-thirds to override the Presidential action the President’s action in raising the ceiling would stand.  The Senate/Congressional vote would amount to nothing other than political cover for the Republicans to vote against it.  At this point Harry Reid rose in wrathful opposition.  He did not spend 24 years as a U.S. Senator to give away his constitutional powers.  He didn’t give a damn what the President said; he would agree only to a two-step process of raising the ceiling, a $1 trillion first step followed by another raise if certain steps were taken in the meanwhile.
       The White House felt outraged at this point.  Reid was giving away the President’s key demand, namely, that the debt ceiling issue be settled and not come up again until after the 2012 election.
       Boehner meanwhile was having some doubts about the possibility of negotiating anything with Obama.  Obama seemed to offer a good deal at first blush; he would go raising Medicare’s age limit to 67 years over a 40 year period, a bit more means testing on Part B, the new CPI index for Social Security and federal civilian and military pensions, and some other steps on the spending side if Boehner would deliver on the $800 billion in taxes (Boehner was offering only tax reform as the vehicle to achieve the increased revenues).  He figure he could deliver his caucus by pointing out to his Republican colleagues that Obama was agreeing to cuts in health spending.  Thus the Dems could be in effect abandoning one of their chief electoral weapons: the familiar Mediscare tactic with which they had been clubbing the republicans on the head for years.  However, after Obama talked seriously to Pelosi and Reid he began to get cold feet on his potential commitments.  Pelosi told the President flatly that he could not agree to Medicare cuts because this would surrender the principal differentiating factors between the two parties: the Democrats’ appeal to the voters to defend their Medicare against the naughty Republicans like Ryan who wanted to voucherize the program.  Obama’s commitments thus turned into vapors and like vapors soon evaporated, leaving behind (so it appeared to Boehner) only a faint odor.
     Then along came another development that shook Boehner’s confidence in the President.  The Gang of Six came out at the worst possible time with their plan which included $1.2 trillion in taxes calculated against a different base but making Boehner’s offer of $800 look picayune in comparison.  To Boehner’s amazement the President rhetorically embraced the Gang of Six proposal, advised by David Pluff that one must not lose the PR game by letting the Gang get favorable headlines.  What in the name of god is Obama doing, thought Boehner and his aides, embracing this silly proposal which was so totally different in every way from what they had been negotiating with the President?  Obama then began pressing Boehner, first by letting an aide forward a trial balloon with a raise in the taxes to $1.2 trillion and then by himself demanding of Boehner that he raise the tax offer because Obama needed this to get Pelosi and Reid on board.  Since Obama was unwilling to stand up to Reid and Pelosi it dawned on Boehner that he might as well negotiate the deal directly with the Senate leadership and forget about Obama.  He concluded that Obama was incapable of or unwilling to negotiate a deal.  I interject here my own observation that Obama’s skills as a negotiator are depicted by Woodward in, shall we put it delicately, in a less than favorably le light.
       The White House is subsequently informed by Reid’s office that they are concluding a deal with Boehner.  Enraged, the President loses his cool, apparently for the first time in his presidency, and blows up at Boehner, accusing him of treachery, etc., and the President then summons the Congressional  leadership (without staff) to come to a key Saturday meeting at the White House to resolve the issues.  Obama opens the meeting by laying out the issues as he sees the.  He is accompanied only by Tim Gaithner who reiterates the dire consequences of default, etc.  Then, amazingly, Harry Reid asks the President to leave the meeting so that he may talk with the Congressional leaders alone.  Obama later tells Bob Woodward that he was happy to do this, that he had no pride of authorship, that he only wanted to solve the problem, etc.  But it is quite clear that Obama was enraged at being cut out of the decision-making process.  The Congressional leaders then in Obama’s absence cut the short-term deal with the Super Committee, sequester, etc. and have a two-step provision on he debt ceiling.  This is essentially what became the compromise which is now being negotiated – that is, it set forth the fiscal cliff.  The one exception was that the President got back into the act to the extent that he achieved his primary objective of pushing off the debt ceiling issue until after the election.  Other than that the whole process was carried out by the Congressional leaders with the President being largely irrelevant.  This is the story of the Woodward book.  There are many interesting details that could be elaborated and twists to the story, but in outline that is the story.
       Now where are we?  The answer is that of course we don’t know.  The kabuki dance is going on and progress may be made.  Unhappily it looks to me that we are uncomfortably close to repeating the same story line as Woodward presents of the 2011 negotiations.  Boehner and Obama are meeting, the tone is positive, and the two sides remain miles apart.  In fact it is worse than 2011.  Obama, having felt humiliated at being cut out of the 2011 negotiations, seems bound to humiliate his enemies this time (and most particularly Boehner and his Republican colleagues).  Obama this time is not even bothering with the vapors.  He is simply saying that since he won the election the Republicans must raise tax rates for the rich (not through tax reform but through actual raising of rates for the high earners).   In return, once the Republicans have actually voted for the raise or clearly agreed to raise the rates for the rich and extend the other bush tax cuts, then he WILL BEGIN TO THINK ABOUT doing something on spending, not actually do anything but to talk about doing something somewhere down the line.  Furthermore he will not specify what such steps might be until the Republicans have done their bit.  When faced with the predictable reaction to this negotiating stance, what does the President do?  Does he redouble his negotiating efforts – no, he goes back on the campaign trail, as if the election never happened.  Boehner is baffled.  This is GroundHog Day; we are going through the 2011 cycle again.   What accounts for this bizarre presidential behavior?  Let’s try to construct the reasoning process that the liberals and the Dems are relying on here as difficult as it might be.  The logic is something like Eric Foner’s criticism of Spielberg’s Lincoln.    The importance of the “insider” maneuvers by Lincoln and his allies were exaggerated; what was more important was the groundswell of public sentiment stirred up by the Seneca Falls ladies, the brave performance of Blacks on the battle field, the energetic actions of the Abolitionists in raising the public’s ire.  The “inside” game is secondary in importance to the outside factors – the will of the people, etc.  Obama thinks he will put the heat on the Republicans who will at last knuckle under and cry “Uncle!”
      The Liberal Mind is a strange and wondrous thing.  Liberals will fight to the death for tolerance; hey will defend your right to express your opinion, even if it is a conservative one.  However they are actually amazed if anyone holds, and dares to express, an opinion that is different from theirs.  Even more amazing to them is the tendency of some of those strange beings, the Conservatives, to insist on having their opinions considered by policy makers.  If only those people would acknowledge that they are 100 percent wrong and agree to accept the fact that the liberals are 100 percent right there would be no problem – agreement could be quickly reached!   Why are they being so stubborn when the liberals and the talking heads agree that the current Republican Party is made up of crazies?  Proof of the insanity of the Republicans is that they now talk “hostage taking” once again on the debt ceiling and they think they have strong leverage against the President when the opinion leaders have decided that the only course for the Republicans is to surrender.  The liberals have become almost hysterical; they just know that those naughty Republicans would like nothing better than to destroy the world economy, ruin the country, and immolate themselves as a political force.
       I would now like to present a more sane view (that is, my view and the view of a few of my conservative colleagues).  The Republicans, and especially the Republicans in the Senate (the departure of Jim DeMint is nothing but an unalloyed blessing for our present purposes) do not consider that the debt ceiling gives them tremendous leverage to take irresponsible positions.  Rather they know that it only gives them a chance to stay in the game and have some voice in policy on the issues that matter, namely, tax reform to promote growth and spending cuts to create fiscal sanity for the future.  If they de-couple the debt ceiling from tax reform and spending cuts they know that nothing will happen on those issues.  They count further that Wall Street will want a solution to our problems and will understand that there will never be a repudiat5iohn of U.S. debts.  Since no deal with Obama seems forthcoming (so many think) we might as well do what was done in 2011: negotiate a deal with Harry Reid that would raise rates on the highest earners, salvage low taxes on capital gains and dividends and probably something on the estate tax, probably provide a temporary fix on the alternative minimum tax, and maybe extend unemployment insurance for a while.  Whether payroll deductions will be extended, the Doc Fix agreed on, and other consequences of the cliff are probably now being quietly negotiated by the Congressional leaders.  There will also be some softening of the defense sequester.  Phase 2 of the deal will leave tax reform, spending cuts, and the debt ceiling to be negotiated by the end of next year, with probably the debt ceiling or some variant of the present fiscal cliff laid out in the Phase 1 short-term agreement as the action-forcing mechanism to ensure that negations go forward on the longer term fiscal issues.
       Will this be enough for Wall Street?  Here I use Wall Street as an abstract noun to denote the whole of world financial markets, the behavior of financial and non-financial firms, and the American consumers.  Wall Street has demonstrated a robust capacity for irrational behavior so we cannot be too confident about the reaction to another short-term deal that defers action on key issues.  So far, however, Wall Street has not gone bonkers over the cliff.  Business firms have gradually started to invest a bit and consumers have shifted away a bit from complete absorption with de-leveraging that has been their wont since the financial crisis.  If the liberals could stop crying “Wolf!” and howling about how dire everything is, and if the conservatives would just shut up, and the public stop listening to the talking heads, we would probably find ourselves not too badly off once we have averted the cliff (as we surely will).  There will always be a deal.  The only question is how good a deal and if the pundits would accept something short of miracles we will probably be able to live with the deal.  Until the next deal which we will also be able to live with until the next deal after that, and so on.  It is in the nature of politics that there will never be a permanent settlement of everything.  There are only partial, proximate and less than fully satisfactory settlements which carry us through this crisis to the next crisis if people can manage to keep their wits.  The only thing that is permanent is death (although I should perhaps acknowledge for my base that there may even be triumph over death – the ancient Greeks said that human beings are superior to the Gods who are immortal because we face and triumph over death and Christians and Jews believe in resurrection).          
         House had some doubts that it would work.  Here’s what it did: Obma could raise the ceiling to whatever he wanted this one instance and the Senate (or both Houses).

Why the Republicans Lost and What to Do About It

    A great deal of nonsense as usual has been said about the election.  The Pundits have gone crazy with their explanations, usually over explaining the result and calling for the most drastic remedies.  Let us start from the proposition that there were “internal” reasons – i.e., those related to the race itself, party organization, conduct of the campaign, etc. – as well as “external” or demographic reasons – those related to broad trends in society, the society, and the Zeitgeist, etc.  Much too much in general has been made of the demographic trends – in particular, the rise of the Hispanics, increasing incidence and prominence of single woman, the triumph of liberal life-style values, economic inequality, etc.  It is asserted that the Republicans are a white, male-dominated, upper-class, snot-nosed bunch of old fogies out of touch with the country.  And the predicable remedies are pronounced, especially by liberals and Democrats (who love to comment on what the Republicans should do to modernize) to the effect that the Republicans are doomed to extinction unless they cease being Republicans and adopt more moderate positions.  Democrats define a moderate position as based on asking oneself what would FDR feel about an issue and what has the New York Times said recently on its editorial pages, and then acting responsibly by apologizing for one’s past beliefs, recanting all apostasy, and embracing the Democratic platform.   And it goes without saying that Republicans should repudiate their base, denounce most of their supporters as hopelessly out of touch, and routinely and ritualistically disavow Rush Limbaugh, Grover Norquist, Ayn Rand, or any other figure disliked by any Democrat.   Of course there is some ambivalence among the Dems on the latter point since many love to have Rush and “shock jocks” around in order to portray them as the authentic voice of the Republican Party.

       Let me concede that the good guys took a thumping in the election.  It does no good to point out that the Republicans won the older vote, married women, white males, came close, etc. and any points of consolation from the election.  A good try does not count in politics.  A loss is a loss and there is no consoling ourselves by the nature of any upside.  We have to understand what went wrong and how we can fashion a strategy to win that does not depend so narrowly on eking out wins in ALL of a limited number of swing states.   I assert that the biggest problems lay with inside factors – that is, with mistakes in the campaign itself.  First our ground game was not good.  The Dems outclassed us in voter contacts, get out the vote, social media, fund raising, tactics, avoidance of big mistakes, and other aspects.  We have to do better and beef up our professionalism in party machinery.  I shy away from condemning our candidate which is very convenient in the wake of a loss.  Romney was the best candidate we had and fought valiantly despite some flaws as a candidate.  The choice of Ryan invited trouble le and this has to be laid at Romany’s feet.   Every one of his advisers advised him against Ryan, largely on tactical grounds of Florida, Mediscare by Dems, etc., but Romney decide3d to go ahead anyway.  Less Romney’s fault and more that of his advisers was the inexplicable failure of letting Obama define Romney as a vulture capitalist in Ohio and other key states very early without answering and counteract ting it.  The result was that by the time we started spending money it was too late.  We could not counteract the impression already firmly fixed that Baine Capital was a bunch of hoodlums, Romney loved to fire people, was a heartless plutocrat, etc. 

       The Axelrod-Pluff-Obama strategy was of course awful and ugly and certainly is not going to make it easier for the second term to be successful.  But it was effective.  It just was a bad year to be running a Wall Streer who would not release his tax returns until way too late.  Romney might have had trouble with the capitalist image so soon after the financial crisis in any event, but he could not help himself by releasing his tax returns earlier.  The first debate was a great success, but is clear in retrospect that we over interpreted it.  Romney, by laying back and being statesmanlike on the theory that voters would admire his restraint, allowed Obama to get away with his despicable aggressive tactics, the rudeness, interruptions, etc.  A more confrontational stance would have, it now appears, been a better tactic since presidential bearing counted for nothing these days.  The Romney message was too single-mindedly economic and stuck to some points that were just dumb.  There was no need to proclaim that everybody was going to get a tax cut.  Joe Sixpack understood in his toes that this was not going to happen, that the danger was of his taxes going up drastically, and wanted more realism in solutions to the debt and jobs crises.

       There is no doubt that some general factors were working against us: the protracted primary battle being a major one.  Romney went too far in the primary battles to defeat opponents who really could not have stopped him.  He adopted extreme positions which made it difficult for him to pivot easily to a general election strategy.  The immigration attack on Perry, the promise to veto the Dream Act, the too rigid stance on immigration, and other stands were unnecessary and counter productive.  A more aggressive critique of Obama’s foreign policy in general should have been part of the strategy.

       I could go on to dissect the campaign but I think you get the drift of my argument.  Now let me turn to the future.  Some general factors are still working against us.  The demographics have to be faced.  It is a no-brainer that we have to do better with Hispanics, and we can in fact do better.  Upward mobility, family values, the American Dream are naturally Republican virtues and values, and can be reclaimed by if we recruit good candidates and give prominent roles to Sen. Rubio, Governor Martinez of New Mexico, and others.  A good candidate at the top of the ticket next time would greatly help the cause, as would vigorous advocacy for appropriate steps on immigration reform in the Congress.  We are not going to be able to avoid a long primary fight next time, nor should we want to.  The party needs an internal battle in which the moderates and more progressive voices have a chance to make themselves heard.  The Democrats will of course declare that we are tearing outselves apart and will shed crocodile tears.  But this is really nothing but a return to the way the party was when I was a boy when my father and his pal Stassen (and then Ike and then Rockefeller and Romney senior) were fighting the Taft wing of the party or when Main Street was fighting Wall Street.  The Republican Party survived those battles and will survive the internal debates that will take place over the next few years.  We will emerge he stronger.

      As to the cultural issues Republicans do not have to abandon their more conservative beliefs and values.  They simply have to be more tolerant and less strident which is what they by nature are.  Most of us do not like the noisy claque of foaming at the mouth extreme voices. When we look ahead we see that we have a very deep bench with a group of outstanding candidates out there for 2016, any one of whom would be a better candidate than unfortunately poor Romney was because he had to try too hard to convince people he was what he was not.  We can be optimistic about our chances even against a Hilary Clinton or Joe Biden.  And one more thing: we have to avoid nominating candidates who blow great chances to win Senate or House seats.  It was self-inflicted missteps that cost us five to six U.S. Senate seats.  Let’s be what a Conservative Party should be – careful, cautious, moderate, intelligent, devoted to nation, strong on defense, open to change but not radical change, respectful of the individual but loyal to the community, and open to the opportunities for new groups to achieve the American Dream.   We will never get a break from the media; the talking heads are locked into their narrative that the Republicans are white, bloated males contemptuous of the little guy and the other tiresome and deep-rooted beliefs of which they are scarcely aware.  We simply have to fight that much harder to get our voices heard and to get any kind of reasonable hearing.  The people instinctively understand this bias and that is why the shock jocks have an audience.  We must have the reasonable voices in our party make the intelligent case against the liberal clichés and the Dems’ failure to address the country’s problems.   The Dems are the limosone liberals, the special interest panderers, the pusillanimous pollsters, the monied moguls, the pretend pals of the poor.   Onward Republicans!   

Obama’s “Light Footprint” Diplomacy

A major innovation of President Obama’s foreign policy is the so-called “low footprint” approach.  Broadly, this means that heavy, conventional military interventions will be downgraded and in their place the U.S will rely increasingly on: first, special forces (e.g., the attack that killed Osama bin Laden), subversion (e.g., computer worm planted in Iranian computers to cause blow-ups of centrifuges enriching uranium dubbed “Olympic games”), and the use of drones to target leaders of terror groups to avert imminent attacks on the U.S. or U.S. forces in theater.  The whole notion is also epitomized in the “leading from behind” strategy employed in Libya which has been proclaimed as a great success and a cogent demonstration of the new approach’s wisdom.  At first glance the idea appears to be grounded in good sense.  We are in a war fatigue mood, the nation wants out of expensive wars that have dragged on, and has no appetite for getting involved in new wars.  A reassertion of diplomacy in the t5aditional sense in place of rushing into military interventions has much to commend it.  Of course diplomacy is preferable to war, and there is no doubt an overdue shift toward stressing the arts of the diplomat in today’s world which seems to have no end of potential and actual crises that could easily lead to military commitments.

     But if Libya is an example of the new approach’s success (a proposition I dispute) the case of Syria illustrates its shortcomings.   Laying back, allowing others to take the lead, waiting for an opportunity to target a bad guy with a drone – in short, being generally passive and reactive but highly aggressive in a narrow anti-terrorist arena – got us nowhere.   Ore more precisely we are arguably worse off than if we had been somewhat more active in the traditional arts of diplomacy, trying to exert our influence openly,  or in supplying arms and assistance to rebel forces in the hope of bringing a decisive end to the situation.  Of course we cannot be sure that the bigger footprint approach would have worked, but we can be pretty sure that the light footprint approach would not work.  Libya, if it was a success, worked only because the geography facilitated the use of U.S. power to destroy conventional troop build-ups in advance of a march on the anti-Gaddafi forces.  Even at that, the effort cost us some $1-$2 billion, and it produced what?  A weak and practically non-existent state that controls only Tripoli and shares power or co-exists with a miscellany of militias that trample on rights, run things their own way in their territories, and generally prevent the country from acting  as a coherent state or functioning economy.   And the rationale for the intervention (the “responsibility to protect” doctrine – in this case protect Tripoli against a boastful Gaddafi threat that was aimed at frightening people not to support rebel forces) in retrospect is a mockery in light of the slaughter in Syria where we have deemed it impossible go protect anybody or anything.

     Let us look specifically at the components of the light footprint strategy.  The use of Special Forces may be desirable and useful in the context of a broader engagement.  But Special Forces cannot be used in all sorts of situations where there is not a major U.S. national interest and the logistical backup that would guarantee success and the safety of the troops.  As David Sanger points out in his new book on Obama’s foreign policy, the President asked his advisers how many troops would be needed to seize and hold Syria’s chemical weapons facilities.  He was told 75,000.  This could not be an operation involving a small number of Special Forces but nothing short of another conventional war (which of course the President was not willing to consider for understandable reasons). 

     Second, the use of the computer virus against Iran’s centrifuges was astonishingly risky for a country whose economy is so dependent on the use of the Internet in banking, transport, energy, etc. and which is at the same time so vulnerable to disruption.  Attacking our information infrastructure would seem an ideal instrument of asymmetric warfare for any country unable or unwilling to challenge us in conventional military terms.  Why should we be the nation that takes the lead in state-sponsored computer subversion when we have so much to lose?  How can we take the lead in trying to get an international convention to protect the Internet when we have acknowledged our own not so clandestine subversion?  I can see how the short-term advantage in persuading the Israelis that Iran can be stopped or slowed down by actions short of a military strike, but we are paying a rather heavy price.  Let the Israelis engage in such subversion themselves or better yet call their bluff and tell them we won’t support any military action while we are still negotiating. 

       Third we come to the use of drones which the Obama Administration, in an astonishing breach of security and good sense, boasted about in the campaign.  The increasing use of drones is alien and odious to the American experience, and has dramatically complicated and worsened relations with Pakistan and seems bound to the same with other allies.  Asserting that there are careful review, including presidential approvals, does not help the situation.  It makes it worse.  Hence I disagree with David Cole’s suggestion in the current issue of The New York Review of Books that the Administration and the Justice Department should lay out a transparent set of criteria for the use of drone and targeted assassinations.  This only furthers the impression that our leaders actually spend their time plotting assassinations.  To the world we are the Evil Empire raining down technological death on third World peoples.  What are we saying – that we have the right to kill anybody, anywhere, anytime, apart from any theater of war?  It does no good to claim that we now only blow up the wife and children and maybe a few close neighbors because our science and technology have made such progress.   

     There are other aspects of the whole problem that need to be addressed, like the transformation of the CIA into a quasi-military agency rather than an intelligence agency.  But I will leave those for a future blog.  Certainly the country needs more focus on diplomacy and fewer military interventions, but let’s drop the nonsense that there is something magical, low cost, and risk-free in pursing a light footprint in the world if we truly want to remain relevant in the world.

-- Bruce L. R. Smith

    

      

My Plan to Avert the Fiscal Cliff

Before I lay out my “fiscal cliff” plan I should explain why I’m resuming the blog.  I am told that Philip Roth has posted a sign on his frig saying “No More Books!” and that he feels enormous relief every time he sees it.  Diane Ravitch, who is slightly younger than I am, has apparently decided to call it quits on big books.  She cheerfully blogs away and says she enjoys it because she doesn’t give a damn who might be offended or object to her remarks.  I have to confess to a similar feeling.  After dashing off (hardly the word—bleeding out through sweat and agony) scholarly tomes for more years than I should admit to I have recommended to friends that I be shot if they catch me starting off on another book project.  I have finished (no doubt much work lies ahead should I manage to get a publisher) a major effort and am totally exhausted.  It is just too much work at my age.  I will see this one through if it kills me – and it may – but I hereby swear with Mr. Roth, “No More Books!”

Feeling thus liberated, I now embark on spelling out how to solve the fiscal cliff.  Notwithstanding the fact that I class myself unapologetically with the fiscal scolds (a favorite Krugman term) the metaphor is really unfortunate.  It is not a cliff, but more like a slope.  This does not take away from the seriousness of the problem but it helps us not panic.  Panic is clearly the strategy that the Obama Admin has relied on – panic or a stampede of the Republicans into accepting more taxes and forgetting about cuts.  It matters from a psychological standpoint to act soon, but there is not going to be a recession because of the cliff even if negotiations drag on for months.  It appears that both sides are not going to negotiate seriously until we actually go over the cliff.  So relax and get used to the idea.  Going over the cliff or sliding down the slope will give new urgency to the process but also at the same time reassure everybody that the sky is not falling.   (Pardon my metaphors!)  What will happen with the cliff/slope?  Initially… not much.  You don’t pay your taxes until April and then you are going to pay at the 2012 rate.  There will be an increase in the withholding on your paycheck but probably not right away.  It will take the IRS a while to issue the new tax tables to employers.  The increase (the end to the decrease decided on last year) in withholding will come into play quickly, but again employers may not immediately jump to the increase/return to status quo ante until the dust settles and the IRS decides it must issue the guidance.  The Pentagon will not immediately cancel any contracts.  Federal employees will not be laid off; though they will certainly be a hiring freeze (I have seen dozens of hiring freezes by this or that agency).  What Wall Street will do is anybody’s guess, but it appears that the drop of 600-700 in the Dow since the summer suggests that Wall Street has anticipated and already reacted to the uncertainty of the cliff.  I don’t want to say that further drops will not occur, but if Wall Street had taken Political Science 1 it wouldn’t be so damned silly and overreact so much.  There will be a deal – there always is – and the politicians will not be as dumb as the editorial writers always declare that they are.  The deal will come but not until the President drops his nonsense and swaggering and gets down to business.  The Republicans are eager to deal.  Prezy has certainly maneuvered the Repubs into a corner, but it boggles the mind to imagine that the Repubs will go for revenues without any actual cuts or even a modest down payment.  The “revenue now but cuts maybe sometime in the future” approach is absurd.

Revenues:  let the income tax rate on the very top go up to the 39% (say, $500k and above but I’d be prepared to cave at $300 if shoved hard).  Cap deductions at $40,000 for all taxpayers.  $50,000 sounds better but won’t raise enough revenue.  State and local governments won’t suffer that much, but charities might but this can’t be avoided if we are serious about the problem.  Deductions include mortgage interest, state and local taxes. Charitable giving, whatever the individual taxpayer wants.  Being above $40 or $50k would mostly hit the top earners.  The mortgage on modest mortgages would still be there and the shock to the real estate industry would, I think, be manageable by the industry.  I believe that we have to go the route of capping deductions because you could not fight every single deduction item by item.  The lobbies/interest would beat you flat.  Some more “means testing” on Part B Medicare would be included in my package, even though there is plenty of means-testing in Part B already!  If you have Social Security at age 67 as is gradually happening, converting Medicare to the same age makes some sense (providing that you are phasing it in over 30 years).  Whether corporate tax changes should be included in this initial “down payment” I’m not sure but the alternative minimum has to be addressed very soon, and inheritance, dividends, capital gains, corporate income very soon, too.

Expenditure cuts:  First, it goes without saying that none of the above will happen unless the accompanying cuts or the down payment are simultaneously agreed to.  The minimum down payments cuts include these; cost of living adjustment for Social Security and federal pensions of the very modest sort that has been fully explicated should be adopted.  It boggles the mind to see a 25 year old as likely to take to the barricades if his or her social security check is $10 or $20 less a month forty years from now that it might be under the current, slightly inflated COLAS under the present formula.  Some down payment cuts in Medicare are in order, including a small rollback of some parts of the Affordable Care Act.  A parsimonious definition by CMS of the minimum package allowed on the exchanges set up buy states.  Some trimming of food stamps (which has gotten out of hand with everybody and his uncle jumping in and getting eligibility even when it is obvious the program wasn’t intended for them).  The down payment must then be supplemented by an ironclad agreement that the House leadership and the Senate leadership will present serious, fleshed out proposals for long-term tax reform and entitlement reform by April as proposed recently by David Brooks.  The dreaded sequester thus will still loom over the scene and will return – for real, this time – at the end of 2013 if tax and entitlement reform is not enacted by the fall of 2013.  Reporters who declare that the deal is a fake, a phony, should be sent to Gitmo, and anyone using the metaphor “kicking the can” should be “keel-hauled” for abuse of language. 

Well, I'm Back!

WELL, I'M  BACK!!!

After nearly two years of silence and while killing myself with work on a new book, I have decided to release, return to my blog, and post whatever the heck I feel like saying.

I will make an announcement at an appropriate time about the NEW BOOK.  But for now, I say to millions, thousands,  dozens,  anyone who might be interested,  my first substantive blog will not be long in coming.  And it will be MY PLAN to stave off the "fiscal cliff."  So stay tuned...