Fiscal cliff: Another shot at a grand bargain?
Congress is addicted to short-term fixes. Whether it’s a yearlong budget or long-term deficit reduction, lawmakers have limped from one stopgap measure to another. But some politicians and budget experts are holding out hope that the looming threat of the fiscal cliff will give them another shot at passing long-term reform: They hope the January 1 deadline will not only force Congress’s hand on the Bush tax cuts and the sequester, but also pave the way for a sweeping overhaul of both taxes and entitlements.
The thinking is that by putting everything on the table — ranging from industry tax breaks to Medicare reform — it could be easier for both parties to come up with a deal. While no one really thinks that a grand bargain is possible by the end of 2012, Congress could conceivably pass a bill by January 1 that would link a short-term fix to a bigger overhaul — thus avoiding the fiscal cliff, achieving deficit reduction, and overhauling the tax code in one fell swoop.
“No one thinks you’re going to rewrite the tax code in lame duck,” Bob Greenstein, president of the Center on Budget and Policy Priorities, said at the Bipartisan Policy Center on Monday. But he pointed to deficit-reduction plans like last summer’s “Gang of Six” agreement that could create legislation that links a tax code overhaul to entitlement reform. Sen. Max Baucus, chair of the Senate Finance Committee, is planning to roll out his own plan for a major tax overhaul by the end of the year.
In fact, CBPP warns legislators against rushing to find any short-term fix to “taxmaggedon,” arguing that failing to find a solution by January 1 won’t plunge the economy immediately into recession. “The greater danger is that misguided fears about the economy going over a ‘fiscal cliff’ into another Great Recession will lead policymakers to believe they have to take some action, no matter how ill-conceived and damaging to long-term deficit reduction, before the end of the year, rather than craft a balanced plan that supports the economic recovery in the short term and promotes fiscal stabilization in the intermediate and longer run,” the CBPP argues.
Alice Rivlin, the former CBO director, agreed that the fiscal cliff could present “ a huge opportunity for genuine tax reform” if it’s turned into a trigger of sorts. Congress could pass a short-term extension that would defer the effects of the Bush tax cuts and sequester for sixth months. At the end of those six months, “you come back with real tax reform and entitlement reform. And if you don’t do that, the cliff is still there.”
Some Republicans have floated similar ideas. Rep. Dave Camp, chairman of the House Ways and Means Committee, has proposed a two-stage tax reform plan that would first extend the Bush tax cuts across the board before January 1, then force Congress to adopt a comprehensive tax overhaul later in 2013, using another trigger to spur action. “There is strong support to use the expiration of the [Bush tax cuts] as leverage to force action in 2013 on comprehensive tax reform,” Camp declared last month.
Congress failed to come up with a grand bargain the last time. And it’s highly possible that legislators will, at best, muster a short-term solution to the fiscal cliff. But if the 2012 elections do change the balance of power in Washington, there could be less of a deadlock this time around.