Republicans and Democrats Playing Game of Economic Chicken
Robert B. Reich
With the election behind us, I had hoped our politicians would get beyond games of chicken. No such luck.
First, you need to understand that the upcoming game of chicken isn't about how much or when we cut the budget deficit, or even whether the upcoming "fiscal cliff" poses a danger to the economy.
The nonpartisan Congressional Budget Office warned last week that the automatic tax increases and spending cuts scheduled to start in January amount to too much deficit reduction, too soon. They'd put the economy back into recession and push unemployment to about 9 percent. But the CBO also warned of an economic crisis ahead if
That's the bind we're in. Reduce the budget deficit too quickly, and we're in trouble. But fail to address the deficit, and we're also in trouble.
It's really a matter of timing. That's why I think any deal should include a trigger mechanism that begins to cut spending and raise taxes when the economy has two consecutive quarters of 6 percent unemployment or less, and 3 percent annualized growth or more.
But the upcoming game of chicken in
Democrats and Republicans are now maneuvering to maximize their bargaining leverage when they sit down next year to decide this.
Last Friday, the president called on called on
Meanwhile, House Speaker
So what's going to happen? Bear with me, because this gets interesting.
The president knows Republicans won't make permanent the tax cuts for people earning under
Democrats figure they'll have most of the bargaining leverage in next year's deal if they do nothing now, allowing tax rates to rise automatically on everyone in January. Then they'll offer Republicans a deal that reduces taxes on people earning less than
Democrats believe this will trap the
But Republicans figure they'll have more bargaining leverage if they keep things as they are until February or March, when the debt ceiling has to be raised again. This way, Republicans can again threaten to vote against raising it unless they get their way on taxes.
This is why Boehner wants legislation that will keep the government spending and taxing at current levels right through the start of the year, and thereby avoid the fiscal cliff.
So who blinks first? Democrats, who don't mind going over the cliff because they'll get a better final deal -- and the deal will be retroactive to
Remember, if nothing is done between now and January, tax rates automatically rise on everyone at the start of the year. That means Obama and the Democrats are in the strongest position right now. Let's hope they don't blink.
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