Is this the deal that will end the austerity crisis?: We’re 42 days away from the beginning of the austerity crisis, and the strangest thing is happening: Washington appears to be preparing to deal with it in a smooth, timely, reasonable way…. Dec. 21 is considered to be the deadline for a deal if you want to avoid even the slightest of economic disruptions…. [T]he key question in the deal was whether the Bush tax cuts expired for people making more than $250,000, as President Obama is insisting, and thus tax reform began from there, or whether there’s simply a framework with revenue and spending targets, as Speaker John Boehner has proposed….
Here’s how it could work: The top-income tax cuts expire, as Obama wants. Those cuts only raise about $80 billion in 2013, so they’re a “down payment” on reform. And their cost is that the Democrats identify roughly $80 billion in spending cuts that can be passed into law now — so Republicans also get a “down payment” on the bigger deal. And all this happens in the context of a framework for a larger deal…. Republicans will need to feel that Democrats, now that they’ve pocketed the Bush tax cuts, have some incentive to come to the table for the final deal. So we’re going to be discussing triggers and sequesters and other kinds of penalties again. But that’s an easier discussion…. If Republicans are no longer inclined to fight to the death over the Bush tax cuts for income over $250,000 — and many in their coalition aren’t — this could go surprisingly smoothly.
Leaving to one side the fact that $80 billion of spending cuts in 2013 would shrink 2013 real GDP by $160-$240 billion and raise the long-run burden of the debt, is there any reason to think that Cantor would approve of such a deal, or that Boehner would cross Cantor?
Each side fears that if it is blamed for taking us over the fiscal cliff, it will lose in the court of public opinion. Thus each side is eager to say that it is willing to make a deal--and that if a deal is not made, it is the fault of the other side. But that does not mean that both sides are willing to accept a common deal without first going over the fiscal cliff.
Until and unless Cantor says that a deal along such a framework would be acceptable to him, we are still in Lucy-and-the-football territory...