Both Democrats and Republicans sounded positive coming out of the fiscal-cliff meeting at the White House today. But we have few, if any, details now, and we probably won’t get any for a while. What should we be looking for?
First: Remember what the fiscal cliff (or the “austerity bomb,” or whatever else you want to call it) really is at this point: a series of only loosely related items scheduled to happen at about the same time. The two largest ones are the expiration of the Bush-era tax rates, which if allowed to happen would impose a large tax increase on all income taxpayers, and “sequestration,” which is automatically imposed spending cuts on a wide range of programs, concentrated on defense spending and domestic spending that’s appropriated every year. And then there are a few other items, perhaps most prominent of which is the scheduled end of the payroll tax break.
Remember, too, that there’s probably more agreement than disagreement on a lot of it. Everyone agrees, as Barack Obama keeps pointing out, that most of the tax rates should stay in place. Almost everyone agrees that automatic across-the-board spending cuts would create a lot of major problems. The big differences? The rest of the tax cuts, and what to do to replace any canceled spending cuts.
There’s a ton of budget jargon involved, but as the negotiations go on, here’s a sense of what to pay attention to:
Anything enacted into permanent law matters more than anything having to do with year-to-year appropriations. “Permanent” law is, of course, only permanent until it’s changed, but it’s hard to change law – so any changes to tax law, including tax rates, and any changes to Medicare or Social Security, for example, would be a lot more permanent than caps on future appropriations bills.
Anything described as a “framework” for further deficit cutting is also, most likely, just kicking the can down the road. A “framework” may come with some sort of “enforcement,” but that’s exactly what’s happening now – which shows that any enforcement can be unraveled when it needs to be. Needs to be? Defined, simply, as what Congress and the president agree they want.
We also may get some sort of process reform, along with or instead of substantive change. Keep an eye out for those; they might be nonsense that everyone will ignore, or they might have a real effect on future budget decisions, tilting them in favor of or against particular outcomes. For example, “paygo” provisions that forced Congress to pay for any new spending were in fact pretty successful for a while, even if they were vulnerable to repeal down the road.
Of course, the headlines are going to be about bottom-line figures: taxes raised, spending cut, deficit targets. Just remember that those figures can be extremely phony. That might be good! If you think it’s the wrong time for cutting the deficit, then fake-numbers deficit cuts might be the proper solution. So when proposals start emerging, look beyond the bottom line to exactly what procedures they’re using. That’s how you can start to figure out what’s really happening.