With Congress back from Thanksgiving break, the fiscal cliff maneuvers are shifting into high gear. There’s a deal to be made, and the key elements are on the table. Simplified, the target is $4 trillion in deficit reduction over 10 years (pretty much the Simpson-Bowles framework). It comes from four places:
1. New revenue. This part will have to be largely settled in the next few weeks to avoid the fiscal cliff. The debate is over how to do it: cap deductions, raise income tax rates, raise capital gains rates, the Buffett rule, etc. Steve Rattner and Warren Buffett look at the alternatives in the Times, which provided the chart above.
2. Spending cuts. The Jan. 1 sequester is just the first $1 trillion in spending cuts, and Republicans as well as Democrats are whining about the pain they will inflict. But if you had 10 years to spread $1 trillion in spending cuts across instead of doing it all at once, it should be possible to minimize the damage.
3. Tax reform. I’m all for simplifying the tax system, reducing the corporate tax rate and all the other stuff most pols pay lip service to. It can’t be done in the lame-duck session, but a target could be set and a serious commitment made to doing it in 2013.
4. Entitlement reform. Again, it can’t happen this year, but a commitment to an amount could force a deal. As with taxes, there are more alternatives than are commonly mentioned. Usually raising the eligibility age is as far as the specifics get, but there are also options for means-testing benefits, raising the cap on SS taxes, and controlling health care costs. Ross Douthat makes a conservative case for reducing or eliminating the payroll tax.
You make a deal by setting target savings for each category, then dicker over the specifics.
The barrier to compromise getting all the talk so far is Grover Norquist’s anti-tax pledge. Several Republicans took to the airwaves over the weekend to renounce the pledge, but they are mostly on the Senate side, and the bigger problem will be in the House.
But a larger hurdle will be the Boehner Pledge. The House Speaker has said he’ll bring no legislation to the floor unless it is supported by at least 50 percent of House Republicans. If Obama held all the Democrats and could peel off 27 Republicans, a deal could clear the House — if the thing came to a vote. But if Boehner keeps his pledge, 122 Republicans would have to agree.
And while Obama has already won his re-election, Boehner won’t be re-elected speaker until his caucus votes in January. So keep an eye on Eric Cantor, who was sounding squishy on Norquist’s pledge on Monday. If Boehner missteps, Cantor would be the most likely candidate to challenge him. Will Cantor let Boehner make a deal and allow it to come to the floor, or will he cast his lot with the scorch-the-earth opposition? High drama time on Capitol Hill.