We're 42 days away from the beginning of the austerity crisis, and the strangest thing is happening: Washington appears to be preparing to deal with it in a smooth, timely, reasonable way.
A disclaimer: This might be the calm before the storm. Readers will remember that there were weeks when much of Washington thought the supercommittee was going to come to a deal, too. But in my conversations with the various players, I'm not hearing much concern. In fact, I'm hearing some confidence. December 21st, people keep saying. We'll have a deal by December 21st.
That date wasn't picked out of a hat. Dec. 21 is considered to be the deadline for a deal if you want to avoid even the slightest of economic disruptions. As the Eurasia Group's Sean West told Politico's Ben White:
A reasonable timeline, presuming a deal comes together, might be the release of a plan in the first week of December, followed by two weeks of legislative activity, with a target of wrapping up in the middle of the month. 15 December is a soft deadline, because payroll companies generally require two weeks to update withholding software to accommodate changes in income tax rates; a patch to the alternative minimum tax for 2012 will also need to be clear well in advance of 1 January so as to not delay tax filing. But Friday, 21 December, is seen as the real "last ditch" deadline so that members can adjourn before the holiday.
I wrote yesterday that the key question in the deal was whether the Bush tax cuts expired for people making more than $250,000, as President Obama is insisting, and thus tax reform began from there, or whether there's simply a framework with revenue and spending targets, as Speaker John Boehner has proposed. But the various players think those visions can be combined.
Here's how it could work: The top-income tax cuts expire, as Obama wants. Those cuts only raise about $80 billion in 2013, so they're a "down payment" on reform. And their cost is that the Democrats identify roughly $80 billion in spending cuts that can be passed into law now — so Republicans also get a "down payment" on the bigger deal. And all this happens in the context of a framework for a larger deal, which includes the promise of tax reform in 2013.
There will have to be more than that, of course. In particular, Republicans will need to feel that Democrats, now that they've pocketed the Bush tax cuts, have some incentive to come to the table for the final deal. So we're going to be discussing triggers and sequesters and other kinds of penalties again. But that's an easier discussion. In the past, every one of these deficit negotiations has fallen apart over the issue of taxes. If Republicans are no longer inclined to fight to the death over the Bush tax cuts for income over $250,000 — and many in their coalition aren't — this could go surprisingly smoothly.