Fiscal Cliff—The Well Orchestrated Dance: (One analyst's views)
Since the Simpson-Bowles issued two years ago there has always been agreement in principle on a target of around $4 trillion in deficit reduction. That number was confirmed in Obama’s budgets of the past two years, in Paul Ryan’s House budget proposals, in the aborted ‘grand bargain’ in the summer of 2011 between Boehner and Obama, and is the target once again, in the abrupt return to deficit cutting after the hiatus from deficit cutting during the 2012 election year.
In a well orchestrated political dance, yesterday, Monday, December 17, Obama took the lead in the fiscal waltz and agreed to reduce the tax revenue mix a second time. After an initial offer of $1.6 trillion in tax revenue generation (tax hikes) two weeks ago, he reduced it to $1.4 trillion last week, and again, most recently, to $1.2 trillion. Boehner raised his offers for tax revenue, from an initial $800 billion to $1 trillion. A compromise at $1.1 trillion is just about what Simpson-Bowles recommended two years ago.
Boehner has also agreed in principle to some kind of increase in the top tax rate, while Obama has signaled he’s willing to give up on his $250,000 threshold, suggesting $400,000, but indicating even this was not his last offer. Boehner offered $1 million. It’s not unlikely they’ll settle at around $600,000, which is approximately the average annual income of the wealthiest 1% households in the US.
So the parties, Boehner and Obama, are virtually agreed on the tax question. The only issue is how much tax revenue will be realized from tax rate increases vs. tax bracket manipulation. With just one or two offers from an understanding on the tax issue, the parties are already moving on to determining how much spending cuts will accompany the revenue hikes. If the final deficit reduction target is $4-$4.4 trillion over the coming decade, that means another roughly $3 trillion in spending cuts and/or tax hikes on the middle class will be necessary...
The real deadline, if any, is March 27, 2013. That’s when the federal government runs out of money.