Fiscal Times: Using Magic Tricks to Avoid the Fiscal Cliff

Thursday, 29 Nov 2012 08:33 AM

By John Morgan

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Appearances count for a lot in Washington, so it might not be shocking to many if Democrats and Republicans use budgetary sleight-of-hand to avert the fiscal cliff or limit its consequences.

The Fiscal Times estimates there are at least five ways Congress can give the appearance of being reasonable, yet still not levy serious pain on their base supporters.

“A lot of this is not wanting to be blamed for failure and not wanting to appear to your core constituencies that you have broken a promise — either to not raise taxes or to cut entitlements in unacceptable ways,” Robert Reischauer, former director of the Congressional Budget Office, tells The Times.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

First, Congress could get rid of the progressive income tax scale and agree to at a flat rate that applies to all the income of wealthy Americans, not just to part of their income. That way, Republicans could claim they held the line on top marginal tax rates, and the government would collect more revenue.

Second, lawmakers could play “baseline games,” The Times said, whereby all deficit reduction plans would extend for over a decade, so stretching the starting point in various directions can add up to big savings.

Third, Congress could lower the deficit by “refining” the Consumer Price Index (CPI), a measure of inflation the government uses to determine how much entitlement payments increase each year. By changing the CPI formula to make the inflation rate appear lower, billions could be saved in entitlement payouts.

Fourth, Congress could contemplate the argument that a simpler tax code with lower rates and fewer deductions would spark economic growth and lead to billions in new revenues. Also known as “dynamic scoring,” this strategy allows adherents to project new revenues that may or may not materialize.

Finally, The Times suggests lawmakers could allow yet another sequester, which is the agreement that caused the current fiscal cliff in the first place. The 2011 deal between the Obama administration and Republicans called for automatic, across the board spending cuts — a sequester — unless Congress agreed on long-term deficit cuts totaling $1.2 trillion. However, Congress has yet to agree on those cuts.

Against this backdrop, The Wall Street Journal reported that a steady stream of CEOs has converged on Washington in recent days, intent on pushing the Obama administration and members of Congress to reach a bipartisan deal to avert the fiscal cliff.

USA Today reported President Barack Obama has launched a new “campaign” to persuade Republicans to approve his version of a fiscal cliff settlement, including higher taxes on the wealthy. He embarked on a high-profile strategy that included meetings with supporters, business leaders and even a tour of a toy factory near Philadelphia.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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