Counterparties: We know what the fiscal deal will look like
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The fiscal cliff has already found at least one victim, the WSJ reports: “half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next”.
Investors and small business owners, the NYT reports, are worried about about things like higher capital gains taxes — one lawyer says he’s never seen such a “flood of desire and action to transfer a business and cash out”. For big companies, meanwhile, there’s $150 billion worth of corporate tax breaks to fret about.
Tim Geithner, on the other hand, apparently isn’t terribly concerned about the fiscal cliff (or any of austerity’s other “thousand tortured metaphors”): he says a deal is “doable within several weeks”. Politico’s Ben White surveys the negotiations and finds reason to agree with Geithner:
There seems little chance the cliff battle will go near or past the December 31 deadline. Nearly every signal from Republicans suggests they understand they have lost the war over taxes going up on the wealthiest Americans and are just trying to figure out how to get the least objectionable deal that includes real spending cuts and a trigger for tax and entitlement reform.
The President made calls to business leaders (including Jamie Dimon) to build support for a resolution to the issue. While the two haven’t exactly seen eye-to-eye of late, Dimon supports the central item of the administration’s negotiation position — tax increases on the wealthiest Americans.
So don’t listen to Alan Greenspan, who says another recession would be a small price to pay for fiscal reform. As Tim Duy says, Greenspan is obsessed with the idea that “large deficits [will] bring economically ruinous high interest rates and, unless held at bay by the Federal Reserve, runaway inflation”. That just hasn’t happened.
Thankfully for the American economy, the President isn’t listening to Greenspan. Much more likely, as Felix highlights, is incremental policy change: tinkering with something as complex as the US tax code is almost always preferable to “dismantling the machine entirely and rebuilding something brand new”. — Ben Walsh
On to today’s links: