Ross_H/Flickr
Some cliffs are real; some aren't
It's true that federal policymakers are facing a daunting task. At the end of next month, automatic spending cuts are due to kick in, just as all Bush-era tax cuts and President Obama's payroll tax cuts, are set to expire. The Congressional Budget Office has said the combination of events may push the economy into a recession, unless a compromise solution is reached.
The situation is commonly characterized as the "fiscal cliff." There is, however, a problem with the metaphor: it's misleading and more than a little absurd. Paul Krugman had a good piece on this the other day.
It's worth pointing out that the fiscal cliff isn't really a cliff. It's not like the debt-ceiling confrontation, where terrible things might well have happened right away if the deadline had been missed. This time, nothing very bad will happen to the economy if agreement isn't reached until a few weeks or even a few months into 2013. So there's time to bargain.
Matt Yglesias made a similar point last week: "A salient fact about non-metaphorical cliffs is that falling over them is generally irreversible. If the cliff is high enough that falling off of it would kill you, then if you fall off you're going to die and that's the end of it. The 'fiscal cliff' by contrast isn't like that at all."
There'd be a little short-term pain, but President Obama would unveil a new policy early in the new year, which would push taxes lower on the middle class. So long as congressional Republicans are willing to act, much of the problem would be resolved quickly. (We're talking about days and weeks, not months.)
Also, to echo a point Suzy Khimm raised on Friday, another part of the problem with the metaphor is that much of the political debate is predicated on the notion that the "fiscal cliff" necessarily refers to a fiscal problem. That's actually backwards -- if the automatic spending cuts and automatic tax increases kick in, the nation's budget deficit would shrink a lot and in a hurry.
This is important because it should, in theory, help shape the debate. I've heard pundits arguing lately, "We need a deficit-reduction plan to avoid the fiscal cliff," but that doesn't really make sense. Going over the so-called "cliff" would mean automatic deficit reduction. The point of the bipartisan talks, then, is to find an alternative solution to the same challenge. Policymakers are effectively looking to replace an unpopular austerity plan with a more palatable one.
Ezra's looking to replace the "cliff" metaphor with something more sensible. Here's hoping something better comes along soon.
(Image: Ross-H/Flickr)
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Hm, isn't the "fiscal cliff" perfect for the deficit hawks? Or could their commitment to reducing the deficit just be - gasp! - a line???
Will you hear this anywhere in the media? No. The Villagers will act as though the Republicans won big, and Obama is being a big meany by not doing what the Rs want.
You look to a Wonk for an alternate metaphor? Predictably, Klein doesn't even seem to understand the necessity of a clear image.
I proposed a traffic light for Thelma and Loius's chase scene this morning.
Example exercise of the metaphor:
Traffic can begin to move when the GOP understands that they have a green light from the electorate for what they prefer to euphemistically describe as "revenue enhancement".
What is the "Red Light"? It is just as much the expiration of the Bush tax cuts as it is the terms of the 2011 Budget Control Act. The GOP gets a green light to play a game of three card monte with their base. They can have a shill in the crowd remark on how the Right is winning, pointing to the fact that they have cut taxes on the Middle class! Yay! They have "saved" the Defense budget from being gutted by the left. Yay! At that point, they can palm a number of cards in the flurry of legislative prestidigitation buried in thousands of pages, agreeing to play a multitude of other revenue enhancing cards needed to plug an 800 billion dollar hole.
Will the right wing bloggers call the GOP moderates on their mendacity? Surely. Will anyone be listening to them, or will those who voted for Romney fear recession more than being labeled a spineless compromiser?
I prefer a parachute. The Republicans can pull the rip cord before or after the cliff. And they will want to protect their allies in the defense industries, so they will pull the cord. It's just a matter of when. It's a rougher landing for the Republicans if they wait until after the 1st, because the Democrats will have the control lines. Perhaps we put it down offshore knowing they can't swim well. Before the cliff they have a much better shot of getting a palatable outcome, to mix metaphors.
As I like to say, if a metaphor was perfect we would call it an example. A metaphor's imperfections give perspective and so have value in themselves, often.
Lawrence O'Donnell coin "stepping off the curb" last week.
If "unskewed polls" were the first crack in the bubble, this is the proof second. "It wasn't our policy positions, it was just the way we said them, so we can just keep doing the same old same old."
I've been saying for some time that the "fiscal cliff" is about as much of a problem as was Y2K. Much overhyped, with little real impact.
As for the tax implications, Congress has all of 2013 to extend, modify, eliminate, or create whatever tax breaks it believes necessary, since taxpayers don't file their 2013 returns until at least early January of 2014. It isn't like there's an impact on the 2012 returns. Those laws are already in place. Withholding might increase, but withholding by itself isn't an important number. If too much is withheld during the year, it just means larger refunds (or smaller balances on tax payments due) when the returns are filed next year.
Much of the furor (coming almost completely from the right) has been created in an attempt to force Democrats into extending the Bush tax cuts for the wealthy. Creating a fake crisis will only be an effective strategy if the Dems are too stupid to fall for it.
There's no reason for Obama, Harry Reid, and other key players on the Democratic side to rush into a compromise. If Republicans want this settled quickly, let them be the ones to cave in. It would be a nice change.
I agree with you that there is no reason for Obama, Reid and others to rush in and compromise, however, please, let us NOT underestimate what will happen if the "fiscal cliff" actually happens.
It isn't the tax increases that will be the problem, it is the sequestration part - the decrease in spending by the Federal Government that will be the problem. We are coming OUT of the last recession because of Federal spending. If we cut discretionary Federal spending by 10%, it will put us back into the recession.
You really NEED to read the CBO analyses of what will happen - I believe those guys know what they are talking about!
Actually, Y2K was a very serious problem. It's just that it was dealt with by foresight and long hard work by professionals.
As distinct from the current fiscal drama, which is mostly just that: drama. The professionals (economists) who aren't working as flacks for someone's political agenda know what to do come January: forget the sequester, and extend the payroll tax holiday, extend unemployment insurance. Maybe maybe not extend the lower end of the income tax cuts (there are more effective ways to stimulate the economy for less net cost). If at all possible, hire people to work on our crumbling infrastructure.
However, what we're going to get instead of delayed maintenance is delayed chickens coming home to roost. All of those "temporary" tax cuts, combined with the idiotic sequester that the House forced last year is now doing the "comes around" part of karma. And it's happening right along with the next installment of Boehner/Cantor's debt ceiling tantrum.
If I were to guess, BC will be demanding a permanent extension of the high-end tax cuts as ransom for the debt ceiling raise this time around. And, no, that makes no sense as a "debt/deficit" issue. Which only underscores the fact that the debt is only a pretext for what they really want.
You know so little about the situation, you should be a conservative.
"All of those "temporary" tax cuts, combined with the idiotic sequester that the House forced last year is now doing the "comes around" part of karma"
The sequestration was the White House's idea.
Also it's the tax rates, the sequestration and the debt ceiling happening at the exact same time. Yes Krugman was wrong again, we will hit the debt ceiling before the end of the year:
http://www.treasury.gov/press-center/press-releases/Pages/tg1753.aspx
I want to reinforce DC's point: the Y2K problem was a very real one, and it would have caused serious problems if it had not been addressed before the problems could manifest themselves. The moral: big problems are neutered when dealt with properly.
"[I]t was Obama’s negotiating team that came up with the idea for defense cuts in 2011, though they were intended to prod Congress to come up with a better deal for reining in the deficit, not as an effort to make those cuts reality."
"Meanwhile, members of both parties in Congress voted for the legislation that set up the possibility of sequestration. Obama’s position is that Congress should now act to avoid those across-the-board cuts."
-politifact.com
I believe this is also incorrect:
The end of the payroll tax cut, which is a $125 billion body blow to consumer purchasing power will be deducted from paychecks the second week of January. Regardless whether that is refunded later, it immediately impacts consumer spending, and the decision of businessmen whether to expand or contract their hiring in relation to that demand.
The President's proposal is rational: The GOP agrees the low and middle income cuts should stay in place so we should pass those. But which sounds better?
The gutless GOP move is to make it your tax cut, and be rid of that GW guy. But the expectation of tax hikes in January could have a dramatic impact on holiday spending which accounts for 20 percent of purchasing revenues.
Responsible GOP legislators know that. The question is, will a minor optical advantage have more weight than the responsible move, which is to move swiftly and unambiguously on fiscal stimulative legislation?
It really is a shame so the house races did not get more focus. If a fraction of the money funnelled to the Presidential campaign went to the house races, there were enough that we could have made the Dem pickup much bigger.
If I sound like a broken record about the House, I make no apologies. It was dumb both of media and the electorate to ignore it.
From what I understand/read, an increase on the wealthy alone would only bring in an additional $100 - 150 Billion a year, which would cover about 10% of the current annual deficits of $1 Trillion. Obviously that is not even close to what is needed. Whether it is called a "cliff" or a "curb" it is going to be a bit painful, but necessary step to get this giant "weight" off our fiscal shoulders.
So? $100-150 billion is more than Mitt would have saved by cutting PBS funding. By billions and billions of dollars.....
Agreed Tiger. But I do not understand where you are going with this. First, Mitt is not involved with this stuff now and second, in my opinion some cuts to things like PBS would still have to go through along with the tax rate increase to make a decent dent in the ongoing deficits. Add the 150 billion in tax revenues from the wealthy and add on the same amount from some cuts (accross the board) to programs and now you have cut 20% off the deficit. That would however, mean we are still overspending by $700 to 800 Billion a year. That is better than nothing, but I would like to see the deficits cut by at least 50%.
That only says to me that the proposed increase in taxes on the wealthy isn't big enough. How about, instead of increasing the top marginal rate from 35 percent to 39 percent, we bring it up to maybe 75 or 80 percent? That would help a lot more, don't you think?
Of course it would Daniel. I don't have a real problem with that - since I am not one of the wealthy :) - and two, it would definitely help much more. Doubtful it will ever happen like that. I do hope you don't think I am against raising taxes on the wealthy. I am all for it. My point is that it isn't enough. We owe a very, very big amount of money (debt) and we are routinely overspending by an unbelievable amount each year (deficit). We can't keep pretending that it is no big deal. Years ago it was no big deal, but now it is a very big deal dollar wise. We are just kidding ourselves with all this denial and rationalization of continued massive overspending.
Too high. Current best guess for revenue maximization point is around 70%. For other reasons, a lower figure would be a good idea.
If technocrats were running the show, we might get tax rates set as a percentage of revenue maximization, with the percentage set to achieve net income required. But that's just crazy talk.
D.C. The Laffer curve ignores other effects. Like the psychological. A board chairman may decide that he hates the federal government getting money and decide not to give the million dollar raise the the CEO if $700,000 goes to Uncle Sam. Put it into R&D or upgrading facilities or new markets or, failing that, give it to the factory workers who will be paying only $150,000 to the feds. They will also spend a higher proportion than the CEO will.
You would add brackets making the 70% rate at income above $5,000,000 or so with lower rates down to the current 35% at $380,000. Bush 41's tax simplification plan eliminated all upper brackets so that if you earned more than 50th percentile you paid the same rate. It was a tax cut for rich people.
Unfortunately, I don't trust Obama to stand up to the Rs. Oddly, I trust the Senate more.
mmm...I was under the impression that the "cliff" was the recession part, not the taxes part.
It is really the choice of eating a big **** sandwich in 1 day or eating 3 smaller **** sliders over 3 days...
Both are going to be unpopular with the majority of Americans and both will leave a bad taste in your mouth. Just how much **** do you want at one time is really the question...
Here’s a metaphor Ezra can use for the “fiscal cliff” and the way the discussion about it is currently being framed:
Like in the old movies, the beautiful girl is tied to the tracks. The train is coming! The Republicans want everyone to believe that it’s a real train, and that great harm will come to the girl. In fact, it’s really a short HO Scale toy train. Even if nobody unties her, she’ll feel almost nothing should it hit her.
Sent by a friend this morning:
Bob Kuttner contends that "If Obama will just realize it, he holds most of the cards." I believe that Obama does realize this. I think most Obama voters delude themselves about what Obama would do if he could really have his way without obstruction. As a corporate centrist, he actually believes in balanced budget austerity, even if he believes the wealthy should share a bit of that austerity. This makes him the "good cop" to the Republican "bad cop," which will still imprison us, though with a smile rather than a club. Kuttner further believes it will be up to Obama's fellow Democrats to save him from himself. It is hard for me to imagine who that would be, given that Harry Reid seems to be aboard the shared austerity train. Nevertheless, Kuttner per usual gets the economic and tactical dynamics of the "fiscal cliff" negotiations much better than most, including recent leaks as to White House strategy, making this piece a very valuable read....
Let's Not Make a Deal
Posted by Robert Kuttner on 11/11/2012 9:30 pm Eastern Time
President Obama gave a pretty good speech on Friday about the economy and the budget. In his most quoted line, the president said, "I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren't asked to pay a dime more in taxes."
So far, so good -- Obama is not willing to accept the Republican demand that all of the deficit cutting come out of spending. And House Speaker John Boehner appeared to give ground, conceding that some "revenue" increase would be necessary, though Boehner still deludes himself in thinking, as Mitt Romney did, that this can somehow be done by "closing loopholes." (The Congressional Budget Office has shot down that balloon. There aren't enough loopholes.)
Obama, evidently, is willing to play hardball to compel the Republicans to allow tax rates on the top two percent to revert to something like the Clinton era top rate of 39.5 percent but spare the bottom 98 percent any tax increases. As Obama put it, "On Tuesday night, we found out that the majority of Americans agree with my approach."
But that was about the only good thing in Obama's speech, or his posture towards the Republicans and the budget. Obama still believes that the economy needs budget cuts of $4 trillion over the next decade.
It doesn't. If anything, it needs spending increases.
We need more public spending both because the private economy is weak and because Hurricane Sandy just revealed the need for hundreds of billions of more outlay to protect our coastal communities from ocean waters that will continue rising. We will need hundreds of billions beyond that invested in renewable energy to keep global climate change from worsening.
But if Obama and the Republicans strike a deal to cut the budget by $4 trillion over a decade, there will not be a penny available for new infrastructure spending. And budget cuts of that magnitude will slow down the recovery.
We have heard a great deal about a "fiscal cliff."
The cliff is partly made up of mandatory budget cuts that take effect in January dictated by the House Republicans back in 2011 as their price for extending the debt ceiling. In addition, the cliff includes automatic tax increases scheduled to kick in as the Bush tax cuts sunset, as well as hikes in payroll taxes that take effect as the temporary two percentage point reduction expires.
All of these automatic budget cuts add up to $560 billion in the next fiscal year. According to the Congressional Budget Office, cuts of that magnitude in a still-fragile recovery would push the economy back into recession. Everyone seems to agree that this cliff is to be avoided.
But the president's own proposed budget cuts of $4 trillion over ten years average out to $400 billion a year. In other words, the Obama Cliff is almost as large as the fiscal cliff that everyone dreads. Whatever the precise mix of tax increases and spending cuts, $4 trillion is too big a cliff.
And while Obama's supposed new toughness on tax policy has gotten most of the attention, he seems poised to give away the store on spending cuts. Recently, Bob Woodward was given a leaked copy of the Administration's offer in the proposed budget deal of 2011 that fell apart because House Speaker John Boehner was unable to deliver his Republican caucus to support any revenue increases.
In that aborted deal, Obama was prepared to cut Social Security and increase the Medicare eligibility age. White House leaks have suggested that both items will be on the table this time. That's bad policy, and worse politics. The clearest principled differences that distinguish Democrats from Republicans is that Democrats are staunch defenders of Social Security and Medicare, while Republicans are eager to cut, privatize, and voucherize.
So the good news is that the Democrats won the election and President Obama's spine has been stiffened on the subject of taxes. The bad news is that the skids are greased for a budget deal that cuts more than necessary, risks putting the economy back into recession, and blurs differences between the parties on critical issues like Social Security and Medicare.
If Obama will just realize it, he holds most of the cards. He prevailed in the election. Most voters agree that the rich should pay higher taxes. Most don't want cuts in Medicare and Social Security.
Tactically, if he just waits and lets the automatic tax increases take effect, public pressure will mount on the Republicans to agree to tax hikes for the wealthiest so that the bottom 98 percent can get tax relief. If Obama jus lets the automatic "sequester" take effect, there will be $600 billion in military cuts, and pressure will mount on the Republicans not to allow the cuts to start biting.
The stock market has been swooning since the election for fear that Republicans and Democrats will not agree to a deal in time. Well, let it. Obama should wait for Republicans to come to him.
But by all appearances, the eager-beaver bipartisan Obama that we saw in early 2009, (until he got his clock cleaned) is back. Despite his recent victory, if he is too eager to make a deal, he -- and we -- will get rolled.
I think the dems including Obamaman have the road map to go back to Clinton era fiscal parameters. Very persuasive except that "going back" has been associated with rumney/bush policies. I guess the Clinton era fiscal policies need a really cool name/metaphor or, as is more likely, they will "just do it (optional "baby")".
That cliff in the photo looks like the white cliffs of Dover.
My feeling is that if we get the intransigence I am expecting from our fine GOP T-party congress, we should just go right over the "cliff". I would never play chicken with these people. I'd stand my ground, if I were the president. Let them sweat for a change.
Going over the cliff might be a better idea than some fool compromise the House would agree to. It would end the costly, deficit raising, Bush tax cuts, cut the bloated defence budget, and end the reign of Grover Norquist. I say GO!
Besides, it's not a cliff. It's more like a slope. We'd survive, and then when they see we're serious, they might be sweetly reasonable.
It works with my cat!
IIRC, I believe that a good-sized chunk of the $4T is interest payments saved, so averaging is not really a good way to think about it. There are compounding effects on the early portion of cuts.
Really?? Because by most reports, the growth in the economy has pushed forward the time frame for the debt ceiling to be reached to March or April at least.
Besides, there are other options rather than caving in to Republicans...either invoke the 14th Amendement provision about the debts of the US being respected, or let the Treasury mint two $3T platinum coins and use that to cover the debt. Problem solved.
There really is NO need for President Obama to cave at all. Just let the Bush tax cuts expire, and let the GOTP stew in their own bile for their treasured tax cuts to the wealthy. And, keep their hands off of Social Security/Medicare/Medicaid, which do not contribute a cent to the debt.
What does Treasury know?
http://www.treasury.gov/press-center/press-releases/Pages/tg1753.aspx
#11 baannedagain,
Exactly!
Sounds more like Fiscal Rapids to me...
Let's just cut the military budget in half. Defense spending is non-productive. I.e., it contributes nothing to the economy. So let's take half of all military spending, provide job training to newly out-of-work defense employees (ex-soldiers and civilians alike), plow some into education, and reduce the deficit by the rest. So simple, yet so hard for delusional people to accept.
I love you man. Change the army into an open door hiring civil service/security institution. More: first on scene at world disasters, schools for everyone, toss in the space program,,,
Space exploration motivates us (young idiot men) and it's probably neccessary for our survival. Let's put up some aluminum reflectors in space to keep the poles cold. So we can then go on merrily poisoning our oceans, ground waters, top soils, etc. without having to worry about global warming.
Well cutting defense spending within reason is OK, but your comment WisKoda that it contributes nothing to the economy is not exactly correct. There are very big corporations (shipbuilding, aircraft manufacturing, vehicle manufacturing - including tanks, etc) that make big bucks producing/supplying for the armed forces. And they employ hundreds of thousands.
The problem, Skip, is that capital intensive purchases like ships and F-35s are better for the companies investors than the economy as a whole. If you're going to be spending tax dollars, it would be better to spend them in a way that folds them back into the economy at large rather than into a few rich guys' investment portfolios.
WisKoda's main problem is that this would cause massive disruption to the economy which itself would be painful. In the '30s the pain had already occurred in the period after November of '29
You idgits,we must keep the peons in a state of fear lest they turn to loathing!
The "War on the Fiscal Cliff". Seriously. Is everything a war metaphor in the US?
I thought we'd already started socializing the term "fiscal curb" to replace "fiscal cliff." Sounds less armageddon'ish!
Kinda like calling a serious (but curable) illness a cold?
Why does everyone seem to think that going back to the Clinton tax rates would be the end of the world? If memory serves, we had a budget surplus, the debt was on target to be eliminated, we created something like 22 million jobs, and the economy was booming.
Sure the spending cuts would not help the current economy, but with everyone so concerned about passing on debt to our children and grandchildren, what's more important to us in the big picture? It's simply not possible to keep our current low federal tax rates or lower them even more, AND pay down the debt any time soon. Why is this so hard for people to understand?
I'm concerned about what I call cliff panic. Despite uncliffness of the fiscal cliff, just the misnaming of it changes perceptions and could lead to some level of panic among financial types.
Oh God, if I hear the term 'Fiscal Cliff' once again, I swear I'll move to Canada.
Sure, it is not terminal if you are the government and write the rules. But if you are a small business and you project out 3 months, 6 months, and 1 year, then having information BEFORE things go into effect is paramount. This is typical inside Washington thinking, it's okay for the government so it must be okay for business, too. Geez.
How about "rolling down the hill, not gathering moss while stoned"
Okay, all the big liberal economists agree it shouldn't be called a fiscal cliff. I'm inclined to agree as well. So can we change the discussion? Just do it, y'all.
There should be an amusement park ride called "Fiscal Cliff"
I thought Fiscal Cliff was the mailman on "Cheers"
Beep Beep It's The Economy: The cartoon version of many physical non realities is humorous because they are counter intuitive. (Gee how funny those Wile E. Coyote cartoons were; when to see him run way past the plank, over the cliff and hanging too long there before falling.)
The politics of non-reality, is also counter intuitive, going over a cliff is a metaphor, for the proposed anvil of the deficit, to walk anvil in hand on the plank over the cliff. One of three things happens; the anvil goes up, since it is a balloon filled with helium; or the anvil rests on the plank, Wile walks back to the cliff to just have the cliff collapse; or Road Runner comes to assist, handing Wile the anvil, who falls and is seen being hit by the plank, Road Runner walking casually back to the cliff without a plank.
Now the man-made fiscal tax crisis deficit looms over head (anvil), Wile proposes loopholes to catch Road Runner, but the ACME order for loop-holes contains a decimal place and spelling error for loop-poles. The ACME delivery truck shows up with so many loop-poles that Wile has to crawl out of the heap of hopelessly entangled in the loop-poles. Road Runner again comes to the rescue, handing Wile a pair of budget cutting scissors, but just before leaving, Road Runner ties one to Wile's tail, and hands him the anvil. The anvil falls through the ground, as the camera backs away, completely through the cliff, down goes Wile, the heap of loop-poles, and the Anvil. Top side Road Runner plugs the hole, with the big bag of money Wile meant to pay ACME Defense Supply, LLC.
Moral: If you take what politicians in the beltway say as truth, the beltway is really a tread mill using a Mobius strip; it has only one side and repeats itself while trying to paint the bottom line. To see Congressional reruns, don't worry, Congress is Syndication Film, like the Coyote Cartoons, the reruns are funny, to those who have Romnesia, or have gotten so used to non-realities that funny is the way to go.
The Economy; we cannot afford to keep watching Congressional Cartoons.
The Fiscal Cliff isn't a cliff at all;
It's a Fiscal Bump.
With a little luck, we'll find out as we go over it the bump was really Grover Norquist.
Wheeee...