Here’s a decent look at the competing advice President Obama may be getting as he approaches the fiscal policy issues. On the one side, Joe Biden:
“You guys have probably looked at the internals of the vote more than I have so far,” Biden said, according to a transcript provided by pool reporters. “But from what it appears is that, on the issue of the tax issue, there was a clear, a clear sort of mandate about people coming much closer to our view about how to deal with tax policy.” […]
“I don’t want to speculate on that,” said Biden. “But we are prepared to work with Republican leadership to actually deal with the two overarching problems right now. One is the whole sequester piece, and the other is the tax piece. It’s possible you can bifurcate them. It’s possible, there’s all kinds of potential to be able to reach a rational, principled compromise. But it’s going to be an interesting — I think the most interesting caucus is going to be the Republican caucus.”
So Biden’s view is, let’s approach these things one at a time, and we won, so let’s raise tax rates on the top 2%. It’s worth noting that Goldman Sachs economic analyst Jan Hatzius now sees this happening.
Behind door number 2 you have Peter Orszag:
The White House, therefore, has three options. First, it could drive us temporarily over the fiscal cliff, let all the cuts expire, and aim for a deal in January with the clean slate that would occur once all the tax cuts are gone. This approach would create maximum anxiety and uncertainty, though. It’s not clear how quickly in January a deal could come together.
Second, rather than insist on raising marginal tax rates above $250,000 in income, the White House could suggest scaling back tax breaks for that cohort. House Republicans would be much more amenable to this type of approach. Still, it would be a major concession from a White House that is presumably feeling vindicated by the election […]
Finally, the White House could push for a placeholder tax cut while negotiations are ongoing. The “tax reform refund” I proposed in a previous column should be easier for the Republicans to swallow than any tax-expiration scheme. This refund would amount to $1,600 a year for anyone who works or receives Social Security benefits, and it would remain in place until a deal could be reached or, failing that, until the economy recovered more.
The other requirement for any deal — entitlement change — is just as challenging. A team put together by the Center for American Progress, which included me, has proposed a variety of steps to continue slowing the growth of health-care costs, but almost all of these would be impossible to get through the House, with the possible exception of our proposal for medical-malpractice reform.
So the most promising approach may be to compromise on Social Security — even though it is not a significant driver of our long-term deficits.
So to Orszag, the only way to actually secure definitive higher revenue – let the Bush-era rates expire, and come back with a tax cut – is risky, and the White House should entertain keeping the rates steady, as House Republicans want. The “tax reform refund” is a confusing idea that relies on placeholders that are simply not necessary when the leverage of the expiring tax cuts is on the side of the White House. Finally, Orszag asserts that safety net cuts, specifically Social Security, are a “requirement.” He does this while saying that Social Security has nothing to do with the deficit!
When we start hearing this – and it’s going to come fast and furious now – consider that this has been thoroughly rejected this week by the American people. The Democracy Corps survey of voters shows that they favor growth over deficit reduction by 67 to 26 percent, and over 60 percent rule out cuts to Medicare and Social Security as part of any deficit reduction package. Almost every candidate personally endorsed by Erskine Bowles and Alan Simpson lost on Election Day. Bowles is in the Washington Post this morning demanding a deficit deal, based on his facility with elites, not any kind of groundswell of support. The “Fix the Debt” campaign has $35 million and not much else in the way of credibility. The public doesn’t want this. Elites want to force it upon them.
There’s a Third Way on the deficit, not exemplified by Biden or Orszag. It’s nothing that Third Way would actually endorse. That would be fixing the economy instead of fixing the debt, and it starts with a massive rebuilding program on the Atlantic Coast to protect it from the new reality of 100-year storms every year or two.
So far, that third way has been shut out of the thinking in the White House.
(Steve Bell, senior director of the Economic Policy Project at the Bipartisan Policy Center) said one option the Obama administration is considering is pushing anew for a “balanced” plan to cut as much as $100 billion in spending as a deficit-reduction down payment while letting the George W. Bush-era tax cuts expire for top earners […]
To help bring Republicans to the table, Obama also may propose “minor changes” to entitlement programs, such as a temporary change in the formula used to calculate annual benefit adjustments, Bell said.
It’s always hard to know where internal discussions at the White House end and advocates for a grand bargain like Steve Bell begin, but it’s safe to say that most of Washington shares this discredited view about the deficit. Only the public does not.
Photo by MTA Photos under Creative Commons license.