Saturday, January 5, 2013
The CALM Act, and the fiscal cliff negotiations
I'd like to give a shout-out to Joe Manchin, Democratic Senator from West Virginia, for introducing the CALM act in the midst of the fiscal cliff tax talks. While it wasn't adopted, the idea of phasing in the tax increases over three years could have helped avoid recession while returning the tax rates to Clinton levels. I am a strong believer that broad based taxes both better address long term debt, and are a more fair mechanism for sharing the burdens of government. While Manchin admitted it was perhaps the best of a bunch of unpalatable choices at the time, I would have supported it.
I think that the agreement that was reached can best be explained by its political maneuvering. The Obama administration was largely more interested in producing a more progressive taxation system than it was in dealing with the national debt, at least while republicans hold the house. They also are more satisfied with the structure of the current scheduled spending cuts, which reduce military and discretionary spending by 10%, while leaving entitlements untouched. By decoupling the spending and tax negotiations, the talks turned from a grand bargain addressing the debt problems to a debate about how progressive taxes should be made. Since revenue increases were the republicans primary leverage in grand bargain talks, addressing that issue first puts the administration in a much stronger position in the coming spending cut talks.
The only point of leverage republicans have left is the debt ceiling... which the president has repeatedly claimed he won't negotiate with. Without that, I'd anticipate the administration would largely press for a reduction from the scheduled 10% cuts to discretionary spending. I'd encourage republicans to press for either another dollar for dollar extension of the debt ceiling to cuts ratio, or to negotiate an extension to the debt ceiling by shifting some of the debt cuts to the long term structural entitlement reforms.