StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

The 4 Fiscal Cliff Deals That Are Still Possible

25 Dec 2012
Posted by Stan Collender

With less than a week to go before going over the fiscal cliff becomes the reality that common wisdom said absolutely could not happen, there are only a handful of ways this is going to go down.

1. The Big Deal. This isn't going to happen. Never mind that the political support doesn't exist to do the combined comprehensive tax and Medicaid/ Medicare/Social Security reform that is the basic definition of a big budget deal. Even if that political support did exist there simply isn't enough time left to get it done before January 1 and 2. I'm mentioning it here just to dismiss the notion out-of-hand before someone asks about it. Chance of happening: 0%.

2. The Kick-the-Can-Down-the-Road. Yes, I know how sickeningly commonplace this continually repeated phrase has become, but it is still a fiscal cliff possibility. In fact, the procedurally (but not the politically) easiest thing to do at this point would be to extend all the existing tax cuts until, say, six months or a year from now, and delay the spending cuts to the same date, that is (no screaming, please), to kick the can down the road. This might even be doable with a voice vote in both houses. Chance of happening. Chance of happening: 5%.

3. The Fig Leaf. This has become the increasingly discussed option last Friday: Do something small that's just enough to provide political cover to everyone for cancelling the tax increases and spending cuts. For example, an agreement to do nothing more than extend the tax cut for those earning $250,000 or less each year and perhaps something else (the White House is pushing for an extension of unemployment benefits, for example) might be enough to make cancelling the rest of the fiscal cliff politically acceptable.  This could be done relatively quickly because the legislation would only deal with a limited number of issues. Chance of happening: 10%.

4. Nothing. Even though it will be one of the worst possible outcomes economically, It's hard to argue with the procedural simplicity of doing nothing because nothing would have to be debated, passed in the House and Senate, compromised or  signed by the president. No votes, caucus meetings, press conferences or negotiating sessions. Chance of happening: 85%.

uh, Stan…

That's 105%. Are you using Paul Ryan's accountant?

Do you have Nancy Pelosi's

Do you have Nancy Pelosi's brain damage?

Arrant Pedantry Alert

I regret the selfishness of pointing it out, but I believe you wanted 85% for option #4.


0%+5%+10%+90% = 105%, so there seems to be a math mistake somewhere.

I say we get the fig leaf (tax increases only on income >$250k + AMT patch + Medicare doc fix + some mitigation of the military part of the sequester) but it doesn't happen until a few days AFTER we go over the cliff, probably between Jan 4-7. Then the debate shifts to the debt ceiling and the expiration of the continuing budget resolution, which are coming up in late Feb and late March respectively and will be even more painful.

Thanks everyone

 Math now fixed. This is what happens when you attempt to post something in between family events on a holiday.

The picture describes is

The picture describes is clean and neat only if the decision point (Jan 1 or 3) is a binary divider. If the "Cliff" is actually more of a "Slope", then the probabilities will slowly change over time as the components of the tax increases and spending cuts phase in and start to change consumer behavior.

Of course, the debt ceiling is a binary event and it will resolve itself to one and only one state when it is realized.

To the Cliff....!

Don't forget that if we go off the cliff, we land in a completely new policy world !

So the Democrats don't have to be bound by any deal they made before the new policy world comes into effect. It's 2013 and the Democrats will be able to propose tax cuts and policy changes based on the new tax and spending baseline, not the baseline that we have now !

So, first on the agenda, a 4 Trillion dollar tax cut !

Second on the agenda, a responsible package of spending cuts !

Third on the agenda, let the Republicans oppose an increase to the debt ceiling. Let the TeaTaliban be exposed for what they really are, destroyers of government, merchants of chaos and fear. Besides, The President would instruct the Secretary of the Treasury to issue special purpose Bonds, Bernanke would buy them in a pico-second and the Supreme Court wouldn't intervene as it is obviously Constitutional under the 14th Amendment !

Sure, it could cause a temporary shock to the economy. But as soon as the economy realized that the US was good for our money regardless of what the TeaTaliban tries to do, it would be better for everyone in the long run.

Stay strong, my friends...'the cliff' is our greatest opportunity in twelve long years....Keep your eyes on the Prize...Hold On...

Nothing is better than nothing...or even something

It does seem that if Congress does nothing at all, lets the tax rates rise and the spending cuts happen, that option would be better than if Congress acts.

The 112th Congress has done a number of somethings over the last two years, almost all of it bad, very bad, firmly establishing a track record of policy and political incompetence historians will be writing about for at least a generation. Better they do nothing than they do something.

Cliff?... What cliff?

If congress does nothing before the start of 2013, the tax burden will increase for most Americans at a time when they are least able to withstand the pressure. But the EGTRRA or Bush tax cuts were already scheduled to expire after a two-year overtime period and reset us to the pre-EGTRRA tax rates. Resetting tax rates to the prior rate is not the same as increasing taxes. Rather, it should be viewed as an expiration of a cut instead of the beginning of an increase.

If we go over the alleged cliff, tax revenues will increase and the national debt will be decreased, provided that the IRS succeeds in collecting the revenue. The important thing here is to ensure that the taxes are paid fairly by all rather than strapping lower income and middle income people with a disporportionate share of the debt.

My preference is to keep taxes as low as possible. The problem is that the Bush tax cuts were enacted during a time when we were taking on the cost of two new wars at the rate of billions of dollars of new spending per month.

Americans should demand that all tax cuts are properly accounted for with appropriate spending restrictions. In addition, all tax increases should be justified on the basis that they are necessary to protect out interests.

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