Counterparties: Obama’s austerity one-step
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President Obama said in an interview with Bloomberg today that to reach a deal on the fiscal cliff, “we’re going to have to see the rates on the top 2 percent go up, and we’re not going to be able to get a deal without it”. The President pushed back against a proposal from Speaker Boehner, saying an insistence on tax increases is “not me being stubborn; it’s not me being partisan. It’s just a matter of math”.
Josh Barro was not impressed by Obama’s comments:
The President’s frame on what the fiscal cliff is is completely wrong. The fiscal cliff is an austerity crisis…we are going to have tax increases and spending cuts that are going to drag down the economy in 2013 if they are not reversed. [The President’s] top priority going forward is a tax increase…but raising taxes has nothing to do with relieving austerity. And then what he talks about giving in exchange for that is entitlement cuts.
The present danger from the fiscal cliff is automatic austerity — the simultaneous imposition of across-the-board tax increases along with huge spending cuts. Reverse those actions and the cliff is averted. The President’s broader proposals indicate that he does get the idea: he wants to stop the automatic tax increases for all but the wealthiest, and he also wants to enact short-term stimulus.
If you’re going to negotiate around the fiscal cliff (and Paul Krugman, for one, thinks the Democrats shouldn’t do that), then it makes sense to do more than simply avoid an austerity bomb: it would be nice to make a little bit of progress on the deficit at the same time. So it’s hard to blame the President for including a long-held preference for dealing with the debt as a condition for a deal. When Erskine Bowles — the epitome of what Krugman would call a Very Serious Person — says that he supports “mid-point of the public offers put forward during the negotiations”, it’s only common sense that those public offers wouldn’t themselves be compromises. — Ben Walsh
On to today’s links: