Fiscal Cliff: The Sky Is Falling!

Alice Rivlin is a Very Serious Person on deficit reduction. It's very important that we all buy into the extreme sense of urgency around all this "fiscal cliff" hysteria, so that when they spring the Grand Bargain that solves everything, we

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Alice Rivlin is a Very Serious Person on deficit reduction.

It's very important that we all buy into the extreme sense of urgency around all this "fiscal cliff" hysteria, so that when they spring the Grand Bargain that solves everything, we understand that there was Simply Nothing Else To Be Done. Now that you have your marching orders, start laying in the cat food for your retirement years:

WASHINGTON — Senate Democrats — holding firm against extending tax cuts for the rich — are proposing a novel way to circumvent the Republican pledge not to vote for any tax increase: Allow all the tax cuts to expire Jan. 1, then vote on a tax cut for the middle class shortly thereafter.

The proposal illustrates the lengths lawmakers are going to try to include new federal revenues in a fix for the “fiscal cliff,” the reckoning in January that would come when all Bush-era tax cuts expire and automatic spending cuts to military and domestic programs kick in.

Virtually every Republican in Congress has taken the pledge, pushed by Grover Norquist’s Americans for Tax Reform, never to vote for a tax increase — a pledge both parties see as a serious impediment to a tax compromise. But if tax rates snap back to the levels of the Clinton presidency on Jan. 1, any legislation to reinstate some of those tax cuts — but not all of them — would be considered a tax cut.

[...] Lawmakers on both sides are now lamenting the fiscal train wreck that many of them voted to create, a confluence of spending cuts and tax increases that the Federal Reserve chairman, Ben S. Bernanke, said Tuesday could send the economy into recession.

At the same time, former Vice President Dick Cheney was meeting with Senate and House Republicans, in part to warn them of the dire consequences he sees in $500 billion in automatic military cuts that will begin to hit on Jan. 2. Off Capitol Hill, a broad bipartisan coalition of fiscal hawks, led by the co-chairman of President Obama’s 2010 fiscal commission, Erskine B. Bowles, restarted efforts to pressure Washington to reach a “grand bargain” on deficit reduction.

Fiscal cliff, Grover Norquist, tax pledge, deficit reduction, blah blah blah. Grand Bargain!

Dividends and capital gains at a 20 percent rate for households that earn more than $250,000. The White House this year proposed allowing dividends to be taxed again at ordinary income rates, a plan that would increase tax rates on dividends to as high as 44.7 percent, from 15 percent, according to a new report by the accounting firm Ernst & Young.

Neither party was interested Tuesday in emphasizing what their proposals had in common. Republicans highlighted Ernst & Young’s conclusion that tax increases on the affluent would cost around 710,000 jobs, cut wages and “have significant adverse economic effects in the long run.” Democrats pointed to the line in the report that Republicans tended to drop, which said the adverse economic impacts would hit “when the resulting revenue is used to finance additional government spending.” The tax increases Democrats want would instead be part of a deficit reduction package.

Of course. Because the Bipartisan Elite are all about cutting the deficit in the middle of a depression!

Robert Greenstein, president of the liberal Center on Budget and Policy Priorities, pointed to a report by the private equity giant Carlyle Group, which suggested that simply extending all the tax cuts and avoiding the automatic spending cuts in January could be more dangerous than letting the fiscal hammer fall. The “fiscal cliff” would lower the nation’s indebtedness by $7.8 trillion over 10 years and bring the budget nearly to balance by 2016. In contrast, a last-minute deal to punt the deficit issue down the road would send a signal to world markets that the United States government is not willing to confront its red ink.

Senator Kent Conrad of North Dakota, chairman of the Budget Committee, said the offer to allow let all the tax cuts lapse, then reinstate most of them days later, was a legitimate way to free Republicans from their no-new-taxes pledge.

But Mr. Norquist, the keeper of the pledge, said the idea “doesn’t pass the laugh test.”

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