Wednesday, December 12, 2012

Why We Are (Probably) Leaping Off the Fiscal Cliff

It seems to me highly likely that both Republicans and Democrats will, by design and mutual agreement, allow the federal government to go over the fiscal cliff.

It won't be by accident, or because they could not agree on a deal.

It will happen (probably) because doing a deal will be easier AFTER we fly over the fiscal cliff.

The reason is simple.  Most Republican's have signed Grover Norquist's "Taxpayer Protection Pledge" to never raise income taxes.  Tax rates today are lower than they will be on January 1, 2013, if we go over the fiscal cliff.

Therefore, if a deal is made and signed into law today that involves setting tax rates at a rate anywhere between today's rates and the Jan. 1 rates, it is a tax hike, and violates the pledge.

However, if the exact same deal is made on January 2, 2013, then it is a tax cut, and does not violate the pledge.

No Republican wants the stigma of having violated the pledge.  Yet they realize that the Democrats and Obama simply will not agree to a deal without some tax increase, and the Republicans will take a large share of the blame if they do not find a compromise that raises some tax revenue.  They can dodge both bullets if they wait after Jan. 1 to sign any deal into law.

Obama, I believe, realizes this, and prefers to have a negotiating partner that can more easily agree to a tax increase above today's rates.  So he too may be more than willing to let the New Year pass without signing a fix into law.

Mind you the deal may happen before the New Year.  But I doubt anything will become law until January 2 or later.

But what should the deal be?  Stay tuned for the next 21st Centrist post, where we lay it all out...

1 comment:

  1. Insightful and incite-ful all at the same time! I tend to agree with this assessment, although I have never been one to rely upon a politicians' fidelity to his pledges. This one is particularly vexing for them, however, and would leave them up Cripple Creak without a hit of acid. But the impression left with the remaining Americans, considering the way the issue is framed as being like driving drunk with Thelma & Louise, might seem unforgivable or perhaps less forgivable than dishonoring a selfish and stupid pledge to a political has-been and shouldn't be. Great article, though. Rich