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While discussing the 'fiscal cliff' in a thread over at ChrisWeigant.com, a regular commenter led me to a simple way to judge any fiscal cliff deal.

Here's what michty6 said:

As far as I can tell (early info) Republican proposal is: let's not go over the cliff with $1.2t in cuts, but instead cut $1.4t - except the 'fiscal cliff' includes cuts to the military and we'd rather cut more from programs that help veterans/the elderly/the poor instead.
Basically, the idea is to compare any new proposal with the BATNA (or Best Alternative to a Negotiated Agreement). For anyone not familiar with this concept, in a negotiation, your BATNA is what happens if you do nothing or there is no negotiated agreement.

The BATNA in this latest negotiation is the 'fiscal cliff'. Let's look at the BATNA for Democrats and how this can be used to evaluate new proposals.

First of all, the fiscal cliff is a prior negotiated agreement. Forget about all the drama associated with the term 'fiscal cliff' for a second and let's look at what's in the fiscal cliff agreement.

What's in the 'fiscal cliff' agreement?

A handy way to look at it is to consider what's in it in terms of revenue and cuts.

The estimated revenue generated from letting the Bush tax cuts expire, the Alternative Minimum Tax rates returned to 2000 levels, and expiration of the 2% social security tax reduction introduced by President Obama in 2010 would lead to additional revenue of $399 billion a year.  

Cuts are proposed which are roughly $110 billion a year. These cuts will be applied evenly between defense and non-defense spending if the 'cliff' is not avoided.  

Over 10 years this would be $4 trillion in additional revenue and roughly $1 trillion in spending cuts from both military and non-military programs. The numbers may be rough (as it's hard to actually find one solid set of numbers in the news so don't hold me to exactness) but serve well for comparison purposes.

Remember, this is the negotiated agreement if nothing happens.

Also remember that after the 'cliff', Congress can still make any changes they want if they agree. For instance, they could decide to reinstate the tax cuts on 98% of Americans.

It's a balanced agreement with cuts to both military and non-military spending and revenue increases. And Democrats could fight to reinstate tax cuts on 98% of Americans.

This is the fight Democrats want. Because Republicans do not want to be seen as fighting for the benefits of 2% of Americans.

If nothing happens, balanced cuts happen, revenue increases, and Democrats can fight for tax reductions for 98% of Americans after the fact. This is their BATNA.

It actually looks pretty damn good.

What's in the new proposal Republicans issued?

Now let's look at the offer the GOP put on the table.

Their offer contains $800 billion in additional revenue over 10 years from closing unnamed and unspecified loopholes. No taxes would revert to pre-Bush levels.

The GOP proposal also specifies $1.4 billion in spending cuts from Medicare and Social Security and contains no cuts from the military budget.

No military cuts. No tax increases for wealthy Americans. And we have no idea what loopholes they want to close.  

This doesn't look like much of a compromise. In fact, it looks like the Romney plan: vague loopholes closed and cuts to Medicare and Social Security.

Why would Democrats take this offer when they could accomplish a better negotiated agreement by simply letting the Bush tax cuts expire and then fighting for reinstatement of tax cuts for 98% of Americans?

Republicans would also be much more likely to go along with this idea because they could claim they never raised taxes. They just let them expire and then enacted new tax cuts for 98% of America.

In this situation, I quite frankly don't see much of a downside to the 'fiscal cliff'. In fact, it looks more like a fiscal escape hatch - a much better negotiated deal which simply happens without all the Washington drama currently going on.

Because of their very strong BATNA, my advice to Democrats would be that any plan that isn't a better deal should be rejected. And quite frankly, I don't think Republicans are willing to put a better plan on the table.

Don't Panic

But don't worry. Remember, there is a negotiation already in place - the fiscal escape hatch. Use this as the BATNA to judge any negotiated deal. Right now, the cliff is a much better deal than what Republicans have offered.

And it might be better than anything Republicans will offer.

We just have to have the courage to ignore the media scare which is likely to come as networks fight to outdo each other in the world-ending Mayan scare known as the 'fiscal cliff'.

Remember, the fiscal cliff is simply the already negotiated agreement.

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Comment Preferences

  •  Great Post!! nt (0+ / 0-)

    "If you tell the truth, you won't have to remember anything", Mark Twain

    by Cruzankenny on Tue Dec 04, 2012 at 04:36:38 AM PST

  •  I like it... (0+ / 0-)

    fiscal escape hatch sounds good and also implies there is a way out of the crises.

  •  This just underlines the Democrat's strength (1+ / 0-)
    Recommended by:
    akadjian

    Do nothing, & we win most of a loaf. Not everything we'd like, not even everything we honestly need, but better than anything we got under the Shrub -- or would have gotten from McCain or Romney.

    Compromise only if we get something more we wouldn't otherwise get. There's a lot of other bills out there needing attention in the House.

    PS, if a bunch of Republicans decide to sign onto Pelosi's discharge petition, & the Senate bill happens to pass the House, McConnell can always just smile & shrug, & tell the disappointed RWNJs, "I did the best with what you voted into office. Take it out on your fickle Congressmen." He lost one, but in a way he could save face.

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