Before President Obama left town on the Friday before Christmas, he urged members of Congress to sip some eggnog and relax over the holiday. Speaker Boehner might be in need of some liquid courage after a disastrous attempt to pass to avert the “Fiscal Cliff” with what he called “Plan B” went down in flames after right-wing groups like FreedomWorks and the Club for Growth nixed his plan.
As negotiations resume Wednesday to avert a series of automatic spending cuts and tax breaks expiring, Bill McBride of Calculated Risk adds some much-needed perspective to a situation that was created by a Republican Party commitment to the completely contrary goals of reducing the deficit and never, ever raising taxes:
A few obvious points on the “fiscal cliff”: 1) It is about the deficit shrinking too quickly next year, 2) there is no “drop dead” date and an agreement in early January still seems likely (the sites and TV stations with countdown times are embarrassing themselves), and 3) entitlements are not part of the “cliff” (although it was possible some changes might be part of an agreement).
While the sequestration President Obama and Speaker Boehner agreed on in 2011 to avert the manufactured debt limit crisis will include $11 billion in Medicare cuts along with billions in defense and other cuts, it would not change any benefits that beneficiaries of the program receive. But there’s no doubt that if the whole of cuts and tax breaks ending in the fiscal cliff are allowed to come into being — cutting the deficit in half — they would eventually damage our already-shaky economy, despite the fact that right-wingers have been claiming for years that the deficit was to blame for our slow recovery. And if Republicans want to hold the debt limit — which expires early in 2011 — hostage again, a fiscal crisis could be inevitable.
So something has to be done. But what? Here are five possible resolutions to this completely unnecessary drama:
1. The snooze bar.
Unable to resolve anything but unwilling to take the heat of the markets punishing inaction, Congress passes a bill that simply delays the sequestration, continues all the Bush tax cuts and raises the debt limit for around three months. Then the president signs it. This would be a huge win in general for Republicans who are desperate to avoid the president going into his inauguration and State of the Union prepared to lambast the GOP for refusing to compromise. They would love to delay a deal and hope the goodwill the president won with his re-election fades.
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