Clambering Down the Fiscal Cliff

What would a blog be without an end-of-the-year Fiscal Cliff post?

Reading the vast outpouring from others, I can’t help thinking that conservatives are engaged in massive self-demoralization: The public wants higher taxes. . . . Republicans will be blamed for everything that goes wrong for the next four years. . . . The House GOP is surrendering. . . . There’s going to be a conservative civil war. . . . All is lost save honor (and maybe that, too). . . . and so on and on.

All that strikes me as short-sighted. Let’s start with taxes. Polls show that most Americans think that taxes should be higher for “the rich”, which could mean what the pessimists assume: that a majority now thinks that it can live at the expense of the minority. If so, that would be a remarkable departure from traditional attitudes. Bill Clinton’s tax increases in 1994 hit only a tiny proportion of taxpayers but were wildly unpopular, because, at least in the past, Americans rejected the concept of punitive taxation.

Has that changed, or is it possible that a large number of people are so alarmed by unprecedented budget deficits that they will acquiesce in limited tax increases as a lesser evil? They may underestimate the ill effects of overtaxing the most productive segment of the population, but that doesn’t mean that they’ve become class warriors.

Furthermore, the same polls show that the public’s preferred method of deficit reduction is cuts in federal spending, albeit without much specificity about what ought to be cut.

These considerations suggest to me that the country may wind up climbing down the Fiscal Cliff in roughly this fashion:

It’s unlikely that there will be any “bargain” before January 1st. Time is very short, and the President has shown no real interest in negotiating in good faith. And why should he, when failure to reach agreement will automatically increase taxes?

Senate Democrats say that their reaction to the Cliff will be to propose restoring the Bush tax rates for everyone who makes less than $200,000 a year ($250,000 for married couples). That measure will poll very well. I don’t know for sure how Republican senators will react, but their obvious counter is to offer amendments replacing the current sequestration with larger and more rational spending reductions (e. g., zeroing out “green energy” subsidies, cracking down on Medicare and Social Security disability fraud, capping as much discretionary spending as possible at the 2007 level plus an inflation adjustment, eliminating some of the less defensible tax subsidies, and converting Medicaid to a block grant program). To this could perhaps be added “baby step” entitlement reforms, and one might as well make the ATM and doc fixes officially permanent, since no rational observer expects them ever to lapse. That, too, would be a popular package.

We can assume that Senator Reid won’t let amendments like those come to a vote, precisely because of their popularity. Thus an unadorned tax package will go to the House. (I doubt that Senate Republicans will attempt, or be able to sustain, a filibuster in protest against the majority leader’s high-handedness.) The House can then pass a bill with all of the amendments that the Senate wouldn’t consider.

At that point, the President and the Democrats will face a trilemma. Do they accept the House bill, propose alternative spending cuts of their own, or defeat the Bush tax rate extension? I don’t think they’ll delight in that choice, but it may well be one they will soon face.