While we wait for breaking news on the budget negotiations here are two interesting, if not gloomy, perspectives from pundits to provide some context. According to David Brooks: Fiscal Cliff Blame Should Largely Go To Republicans, writes Mollie Reilly & Ryan Grim.
"What's happening in Washington right now is pathetic. When you think about what the revolutionary generation did, what the civil war generation did, what the World War II generation did -- we're asking not to bankrupt our children and we've got a shambolic, dysfunctional process," Brooks said during an appearance on NBC's "Meet the Press."
"Most of the blame still has to go to the Republicans," he continued. "They've had a brain freeze since the election. They have no strategy. They don't know what they want. They haven't decided what they want." ...
"We have been talking to the Republicans ever since the election was over. They have had trouble saying yes to a number of repeated offers," Obama said. "[S]o far, at least, Congress has not been able to get this stuff done. Not because Democrats in Congress don't want to go ahead and cooperate, but because I think it's been very hard for Speaker Boehner and Republican Leader McConnell to accept the fact that taxes on the wealthiest Americans should go up a little bit, as part of an overall deficit reduction package."
Brooks also criticized President Obama who has "governed like a visitor from a morally superior civilization."
Jeffrey Sachs has a far gloomier view suggesting that the only thing worse than not reaching a deal, would be reaching a deal, as any deal we could reach with Republicans will mean Republicans have fundementally won by capping the size of government at a lower level than is possible for it to be viable as a progressive force. In Going Over the Cliff Is the Only Way to Save the Government argues if we reach a deal that extends Bush tax cuts for anyone "the federal government and the long-term purpose of the Democratic Party are both likely to be ruined for years to come," but only if if fails can we go back to "using government to promote the public wellbeing."
Sachs argues that the Bush tax cuts were never even remotely affordable if we want to sustain a modern government that provide any reasonable level of social spending.
The main point is this. If no deal is reached, the Bush tax cuts end. We would return roughly to the tax schedule of the end of the 1990s, when the macro-economy performed reasonably well and the budget was near balance. Federal government revenues would rise by around 2.5 percent of GDP per year compared with the current tax schedule. According to the CBO, the federal tax system would collect 20-21 percent of GDP in the second half of this decade. This is a bare minimum of what's needed for effective government.
If we make the Bush tax cuts permanent, at the $400,000 threshold, then we will only be able to collect 18.5 percent of GDP in the second half of this next decade -- 2.5 percent less than if we let the Bush tax cuts expire. (Early rumors this morning is that the Democrats have already conceded to make the threshold at least $450,000, and may go up to $550,000.)
Let's be clear. In an ideal world, there are better and more progressive ways to get to 21 percent of GDP in federal tax revenues than by personal income taxes alone. A partial list would include: a wealth tax on large fortunes (e.g. 1 percent on net worth above $5 million); an end to tolerating tax havens like the Cayman Islands; an end to the tax deferral of overseas corporate income; a crackdown on abusive transfer pricing; and a tax on carbon emissions). The problem is that neither the Administration nor the Congress is proposing these measures, and in the meantime, a deal now that extends the Bush tax cuts will be a severe loss of revenues for years to come without any offsetting gains.
If the deal is reached, therefore, the Republicans have won: they have locked in a federal tax system that collects so little total federal revenue that government can afford almost nothing aside from the military, interest payments, retirement programs and health care. Say goodbye to the rest: science, technology, education, job training, infrastructure, a functioning justice system, community development, renewable energy, environment, and more. ...In short, something terrible would have to give. Either we'd have to gut life-sustaining programs for the poor (Medicaid, Food Stamps, etc.), or gut civilian government (education, science, environment), or bust the budget with trillions of dollars more in public debt.
I guess the only good news from Jeffrey Sach's perspective would be to hope for that the talks complete collapse, and, as a nation, we withdraw from our addiction to excessively low taxes with two quarters of recession, but emerge a healthier nation. The CBO scoring on the failed talks scenario does predict that after two quarters of mild recession the economy roars back to 5% plus growth rats by around 2016 if I remember correctly. Global confidence will be restore by our returning to the Clinton model of balanced budgets and prosperity. Instead, we seem to be choosing to go into slash and burn austerity mode.
Alternatively, Democrats will need to keep in mind that if we agree to make the Bush tax cuts on those earning less than $400,000, we need to go into a full court press to find other ways to raise tax revenues, or face the music that the GOP as won, and start slashing spending everywhere, starting immediately with the debt-ceiling crisis.
The GOP may have outsmarted us on this one. Despite the funny jokes David Brooks makes about them not knowing what they want, they seem to be more committed to their vision of "starving the beast of government" than we progressives are to making sure we have enough revenues to sustain it. At this point they seem to be on the edge of a major victory locking in permanent tax cuts that were meant to be temporary when no other prospects for replacement revenues on the horizon until we regain control of the House.