As I first learned about the fiscal cliff bill and skimmed through the 157-page PDF, I thought it was terrible, and most likely worse than no deal at all.
First and foremost, it completely failed to cut spending, and actually increased it with things like yet another extension of super-extended unemployment benefits. Wasn’t the whole point of this melodramatic drawn-out charade to try to actually finally force Congress to cut a teeny tiny bit of spending and get us on some long-term sustainability?
They were supposed to either jump headlong into the sequestration cuts or find better ones, and instead they kicked the whole can two months down the road. You can only hear so many warnings about how promised spending cuts never come, and then actually see them not coming, before you start to get pretty cynical about the whole thing. As @ExJon tweeted, “There’s a forest fire raging & DC is arguing if we should put it out with a teaspoon of water or a tablespoon. They’ve stopped trying.”
Second, the deal made the tax code even more progressive than it already is without any spending cuts or sustainability plan to show for it. Obviously I would generally prefer a federal government with lower taxes and lower spending; a progressive may prefer higher taxes and higher spending.
But I thought we all were agreed that this unsustainable low-tax/high-spend fantasy was the worst of both worlds; I had been warming up to the unconventional conservative argument that if we’re going to continue having high-spending, it would be more fiscally responsible to have higher taxes along with it – and perhaps more politically advantageous as people finally begin to feel the cost of a Big Government world instead of continuing to live in the fantasy world.
The original round of Bush tax cuts increased the deficit because they didn’t come with lower spending. This new round essentially repeats the same mistake. The increase on the wealthy doesn’t bring in that much extra income ($60 billion a year covers like 6% of our deficit), and it makes the marginal incentives that much steeper.
Finally, the bill poured salt on these fiscally conservative wounds by extending an array of arbitrary, market-distorting, rent-seeking, heavily-lobbied corporate-welfare tax credits for things like two- and three-wheeled electric vehicles, NASCAR race-tracks, and Puerto Rican rum. Really, guys? Really? For a couple of hours it looked like the House Republicans might kill the whole deal, and part of me hoped they would just to bring a necessary shock to this whole corrupted system.
But as much as I hate these tax credits, I have to admit they’re not that big of a deal. It’s not like any of them were new; they’ve already been inefficiently distorting the market for several years, and we’re all still here. It just would have been nice to see just a few of them finally go up in smoke.
As for the larger aspects of the deal, maybe they’re not so terrible, either. If we’re not cutting spending, I think more progressive is ultimately worse than less progressive, at least relative to where we are now, but I also think permanent is better than temporary, and the deal does finally fix several “temporary” budget gimmicks. The payroll tax cut expires, and the Bush tax rates and the AMT are set “permanently.”
I use quotes because current tax law can always change in the future, but this is better than the silly pretendings of the last few years. By no longer pretending that rates will ever change, the deficit looks $4 trillion worse over the next decade, but that’s more honest than slowly revealing that $4 trillion year by year. There are even arguments that this sets the stage for better tax reform.
After all, the Democrats got their higher taxes on the rich. It wasn’t as much as they wanted, but it wasn’t going to be enough to fix the budget either way. What are they going to do now? On the one hand, this whole manufactured crisis seems like a waste of time since we still have trillion dollar deficits. On the other hand, it has set the stage for a sequester/debt-ceiling showdown in two months where we will really, finally agree to cut some spending and set the government back on a sustainable path.
Call me crazy if the last two years (or the last twenty years, for that matter) have me skeptical that anything like that will actually happen. Instead of jumping off the cliff, we’ve apparently decided to cling awkwardly to the edge for the next two months. I don’t know what will happen at the end of February or the beginning of March, and there are reasons for optimism, reasons for pessimism, and reasons for cynicism. For now I guess we’ll let the pundits pretend they know what’s going to happen next. (After all, they were all so right about Democrats and/or Republicans not really wanting to make a deal after all….)