Simply letting the Bush-era income tax cuts expire and allowing billions of dollars of spending cuts to kick in would actually be the easiest thing to do, inasmuch as that would amount to following the law.
Despite my cynicism about Congress always taking the path of least resistance, I agree with Schroeder that this isn’t going to happen. Too many conflicting interests are invested in that outcome. Such action would suck $600 billion (or more, depending on who does the calculating) out of the economy, about 4% of GDP. With the economy only growing at 2%, it’s easy to conclude that the economy would “go negative”, pushing us back into recession. And Congress can’t stand the heat if that happens. It also violates the pledge that many in the House and some in the Senate have signed not to raise taxes. Letting the Bush tax cuts expire is a tax increase.
Schroeder’s second scenario: a six-month delay (a short-field punt, in other words):
One option here, if Mitt Romney wins, is to simply punt the whole matter, suggests public-policy consultant Tom Block. “A Romney win likely means that he will ask [for], and get, a six-month delay as policy options are worked out,” said Block, a former head of government relations at J.P. Morgan Chase & Co., in a note to clients. President Obama, if reelected, could also do the same, depending on the outcome of negotiations with congressional Republicans…
If Romney wins on Nov. 6, he may ask Congress to come up with new deficit-reduction ideas. But if Obama prevails? “We believe the Republicans are likely to give in eventually on raising revenues from upper-income tax payers,” said the Barclays analysts in their Oct. 23 note.
Number four: a grand bargain:
In an Oct. 23 interview with the Des Moines Register, Obama predicted he and Republicans would come to the equivalent of the “grand bargain” he has been trying to work out with the GOP. That translates to $4 trillion of deficit reduction over 10 years…
Number five: a new deal:
In the event that lame-duck negotiations between Obama and Republicans blow up, they could fall back on something like a recently released framework from the Bipartisan Policy Center. The suggested legislation envisions turning off the fiscal cliff, but would require a down payment of tax and spending changes that would be built on as part of a bigger debt reduction package in 2013.
This, of course, is a variation on the “punt” theme: let someone else, later, fix the problem.
There is a sixth option: take the high road and do what eventually will have to be done anyway: turn off the unsustainable welfare programs, cut back the military to within the constraints of the Constitution, and simplify the tax code as a first step to eliminating the (now unnecessary) income tax altogether.
This is dreamland. But one can dream, can’t one?