Fiscal Cliff: Negotiating with a Weak Hand?

The only time in American history that the federal government completely paid off its debt was in 1835. Because the feds have carried a debt for more than 99 percent of our history, one might therefore wonder whether the national debt is really such a big deal. Unfortunately, when it comes to debt, especially sovereign debt, size matters.

The Gross Federal Debt broke the trillion-dollar mark for the first time in fiscal 1982. (Table 7.1, tables found here.) So it took 147 years for the gross debt to hit $1T and only 30 years more to hit $16T. The gross debt is now larger than the economy, as measured by the gross domestic product.

Invoking the 2011 debt ceiling deal, Democrats assert that they've already cut the deficit by a trillion dollars. And according to Table 1.1, the overall deficit for 2013 is estimated at -$901B, an improvement of $325B. But the "fiscal cliff" negotiations are all about rejiggering the deal struck in 2011. That is, the feds want to redo the across-the-board spending cuts and extend the Bush-era tax rates, slated to expire. So what this year's deficit will turn out to be is anyone's guess.

Regardless of whether the feds go over the fiscal cliff or hammer out a deal to avoid it, the one criterion for serious deficit hawks should always be the size of the deficit in the short run. The current deficit is the only one the current Congress still has any control over. And the next Congress can only affect the deficits of 2013 through 2015. That's because no Congress can bind another Congress.

If Congress runs a trillion-dollar deficit next year, then deficit reduction will have been a failure, regardless of what they promise in the "out years." And if Congress continues to run huge deficits while pouring good money into boondoggles like Solyndra, then America will continue her march to insolvency.

But how do Republicans negotiate with a party that wants no cuts in spending (except in Defense), wants to add new spending initiatives on top of the current spending, and wants income tax hikes for the top 2 percent? On December 12, Ann Coulter offered her answer in an article at Human Events:

Republicans have been forced into a Hobson's choice of either letting the Bush tax cuts expire for everyone or agreeing to a tax hike on the top 2 percent of income earners (not to be confused with "the rich," who have already made, inherited or married their money).

If Republicans object to the Democrats' hitting job creators with a tax hike, three things will happen: Taxes will go up for everyone; Republicans will be seen as the "party of the rich"; and the inevitable economic collapse will be blamed on Republicans.

If Democrats were merely trying to raise taxes on the rich in a vacuum, it would be easier for Republicans to oppose raising anyone's taxes. But because the Bush tax cuts are only temporary, unless the high-income earners' taxes go up, everyone's taxes revert to pre-Bush tax rates.

With his Plan B proposal propounded on Tuesday, Speaker Boehner seems to be moving towards Coulter's position. Plan B would extend the current tax rates for incomes below $1,000,000. House Republicans would do well to consider Coulter's analysis, if Plan B comes to a vote. Moreover, a clean bill that does nothing more than extend the current income tax rates for what is well over 99 percent of Americans might be strategic genius. Dare the Democrats to vote against tax cuts for almost everyone. (In 2010, it took an income of $508,677 to get into the top 1 percent.)

Of course, raising taxes on anyone in a slow economy isn't too bright and against GOP principles. But even if Plan B doesn't pass, Republicans would be on record for having voted for tax cuts for the middle class, whereas Democrats wouldn't. Boehner's (and Coulter's) ideas seem sound. House Republicans may have a better hand than they realize. They can haggle over spending cuts and everything else come January, when the next debt ceiling is closer and they have more leverage.

Inasmuch as Boehner has already agreed to raise tax revenue, the snag in the fiscal cliff negotiations becomes the intransigence to cut spending. And that aversion to spending cuts comes not only from D.C. Democrats but from the People as well. A disturbing article by Lesley Clark details the citizenry's resistance to spending cuts of any kind. "Don't mess with Big Bird," Clark warns. But if entitlements are off the table, and we can't even cut Big Bird, it's doubtful we can cut anything in Obamaland.

Other interesting ideas for the fiscal cliff come from Chapter 5 of a terrific video interview with John O'Sullivan and Jonah Goldberg in the Uncommon Knowledge series hosted by Peter Robinson. Their idea is to let Obama have everything he wants and then wait for the inevitable collapse, which Goldberg calls "the reckoning." At that point, the scales will be lifted from the eyes of Americans and they will see the Obama project for the fraud that it is, and come running back to the GOP.

Jon N. Hall is a programmer/analyst from Kansas City.

If you experience technical problems, please write to