More Democrats Willing to Go Over 'Fiscal Cliff'
Monday, 26 Nov 2012 04:21 PM
By Stephen Feller
A growing number of Democrats say they are willing to let the country go off the fiscal cliff if a deal cannot be reached by Jan. 1 that raises taxes on the top two percent of earners while protecting costly entitlement programs.
Their theory in this game of chicken with Republicans is that it will be easier in January to lower taxes for 98 percent of the country while finding the best possible parts of the federal budget to cut — in line with long-held goals of the nation's liberal party. They also think they'll be in a better position to save most, if not all, of massive entitlements like Medicare as well as pet projects.
The fiscal cliff, originally created to force a legislatively-appointed supercommittee to make significant cuts to the federal budget, is roughly $500 billion mix of budget cuts and tax increases.
It includes the expiration of the Bush-era tax cuts and Obama-era payroll tax cut, massive cuts to the military and jobless benefits, and a decrease in Medicare reimbursement rates.
This will send tax on bond interest to 44.6 percent from 35 percent; on capital gains to 25 percent from 15 percent and on dividends to 44.6 percent from 15 percent, Forbes magazine pointed out Monday.
The average family will pay an extra $2,000 to $3,000 in income taxes if Congress fails to reach an agreement before the Bush tax cuts expire on Jan. 1, according to the Congressional Budget Office.
The economy would shrink by 0.5 percent, the CBO has found.
Experts have consistently predicted that the overall economy would take a massive hit if the country goes over the cliff, likely sending it into recession. Still, since July, Democrats increasingly have made the case that it wouldn't be so bad.
Led by Sen. Patty Murray, D-Wash., Democrats have pushed the idea that the cliff is not as bad as the hype, with it being more of a "slope" than a "cliff."
Pentagon cuts, they say, would be phased in, and the tax hikes, including the payroll hike, could also be slowed. If this happens, according to The Center on Budget and Policy Priorities, there would be a few weeks at the beginning of 2013 for a deal to quickly be reached.
Sen. Charles Schumer backs Murray, also saying that Democrats can’t cave in. He and other Democrats believe that Obama won a mandate for increased taxes with the presidential election.
"[President Obama] campaigned on it clearly," the veteran New York Democrat said on "Meet the Press." "He didn’t back off it."
Also weighing in on Monday in a New York Times Op-Ed was billionaire investor Warren Buffett, who has said he think the country will be just fine going over the fiscal cliff.
While it's not ideal, the founder of Berkshire Hathaway thinks that Obama must be willing to keep pushing for higher taxes on the wealthy, even if it triggers the automatic onset of tax increases and spending cuts on Jan.1.
The U.S. economy, he said, can weather it for a month or two. "We're not going to permanently cripple ourselves," Buffett told CNN last week.
Buffett shrugged off the Congressional Budget Office's warnings that failure to address the fiscal cliff by Dec. 31 could lead to a recession.
"We have a very resilient economy," said Buffett, a long-time Democrat and staunch Obama supporter. "The fact that [lawmakers] can't get along for the month of January is not going to torpedo the economy."
But even as some Republicans waver on taxes, others have renewed the call for no tax hikes.
"A tax increase never created a new job in this country," Rep. Tom Price, R-Ga., said on "Fox News Sunday." "It doesn’t make any sense to us to raise taxes on job creators in this time of economic challenge."
And House Speaker John Boehner, R-Ohio, has said raising tax rates will stymie job creation. But he also said he is willing to raise revenue through tax reform and by eliminating "loopholes" in the tax code.
House Majority Leader Eric Cantor, R-Va., has not said whether he would vote for tax increases.
"A lot has been said about this pledge," Cantor said on MSNBC Monday morning, referring to the popular no-tax pledge pushed by anti-tax activist Grover Norquist.
"I will tell you when I go to the constituents that re-elected me, it is not about that pledge, it really is about trying to solve problems," Cantor said. "And as we know, this election we just went through is very much about, number one, what are we going to do to reclaim a momentum in this economy? How do we get us back to that? And, two, how do you solve a problem?"
Senator Jeff Sessions of Alabama, the senior Republican on the Senate Budget Committee, echoed Cantor, saying in an interview that reforming the outdated tax code could stir up new revenues without raising tax rates.
"We need to create growth, which creates jobs, not damaging growth by huge tax increases," Sessions told Fox News.
A CNN/ORC International poll released Monday shows a solid majority of respondents -- two-thirds -- supports the Democratic stance that any agreement should include a mix of spending cuts and tax increases. Of that total, Republicans favor such an approach by 52 to 44 percent.
Even if effects of the cliff felt by Americans could be held off temporarily, the markets may not fare so well.
"Markets are going to go into an absolute tailspin, and I don’t think we want to risk that, especially with leadership right now trying to find a deal," said Gabriel Horwitz, director of the economic program for Third Way, a centrist think tank. "I think the market reaction is going to happen immediately."
"Rather than stop the country from going over the fiscal cliff and preventing the expiration of the 2001 and 2003 tax relief, they are prepared to Thelma-and-Louise the American economy right over the cliff," said Sen. Orrin Hatch, R-Utah, the top Republican on the Finance Committee. "That is an astonishing admission."
William Galston, a senior fellow in governance studies at the Brookings Institution, told CNN that Murray's form of brinksmanship is best avoided.
"To be sure, no one believes that non-agreement by December 31 would be the end of the story. After a period of finger-pointing, discussions would resume," Galston wrote last week in a New Republic opinion piece. "But equally, no one knows how the failure to reach agreement before the end of 2012 would affect the dynamics of the negotiations."
In addition, "we can be reasonably sure ... that national and global markets would react adversely and that businesses, which are already retreating from planned investments in new plant and equipment, would become even more uncertain and risk-averse."
Murray said in July, and again after the election in November, that without increasing taxes for some Americans, Democrats would balk at any deal Republicans propose.
By waiting until January to cut taxes for the bottom 98 percent, rather than increasing taxes for the top two percent, it may be easier for Republicans to support the concept - based on timing and semantics, Murray and other Democrats seem to think.
"We can’t accept an unfair deal that piles all of this on the middle class and tells them they have to support it," Murray said on ABC in November. "We have to make sure that the wealthiest of Americans pay their fair share. If Republicans, many of whom were elected after campaigning against tax hikes, won’t agree, Democrats shouldn’t blink... We’ll start over next year and whatever we do will be a tax cut for whatever package we put together. That may be the way to get past this."
While many Republicans are now saying that they’d be willing to violate Norquist’s pledge under the right circumstances, removing the spectre of actually voting to raise taxes would make it easier for them, she surmises.
Sen. Lindsey Graham said on ABC this Sunday that the pledge was not his major concern, as long as Democrats offer cuts to entitlements and other drains on the budget alongside the tax hikes.
"I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform," Graham said.
House Minority Leader Nancy Pelosi, D-Calif., told ABC that it’s not her "role to go to the table with a threat... I think it’s my role to go to the table with some ideas, to be receptive to what we can come to agreement on."
However not all Democrats agree that the threat of going over the cliff should not exist.
Sen. Jay Rockefeller, D-W.Va., and Sen. Tom Harkin, D-Iowa, have circulated a letter demanding that Obama start negotiations at a 1-to-1 ratio of spending cuts to revenue increases, putting them in line with many in the party who want to see a harder line taken by Democrats.
Increasing federal revenue is the most important part of any negotiation, and though a deal before reaching the cliff is ideal, Rep. Peter Welch, D-Vt., joined many others in his party and said waiting until January may be the best option.
"If the Republicans can’t see their way to significant additional revenues targeted toward the people who are best off and targeted toward passive income and other things like that, then we’re better off going over the cliff and readdressing this with a better Congress in January," said Rep. Peter DeFazio, D-Ore. "And we would have plenty of time to fix it."