The two sticking points are the tax cuts on the “wealthiest,” and the level of spending cuts. Neither of those issues warrants sending America’s economy into another recession.
Republicans will have to recognize the political and fiscal reality that “revenue increases” alone won’t satisfy Democrats enough to justify a compromise. Worse, those revenue increases, gained by closing as-yet-unnamed “loopholes,” could do more damage to the economy than those rate increases on earners making more than $200,000.
One of the biggest loopholes, for example, is the mortgage interest deduction.
“Could the talks to avoid the ‘fiscal cliff’ place the popular mortgage-interest deduction in the cross hairs?” the Wall Street Journal asked. “As we write today, taxpayers in high-priced coastal markets derive the most benefit from itemized deductions, such as the ones for mortgage interest and property taxes. However, any proposal to cap deductions — one level being discussed in policy circles at the moment is $35,000 — is sure to lead to an intense outcry from the real-estate industry. It would represent a significant change to a longstanding policy of federal support for the housing market while the housing market is finally recovering from a severe recession.”
Capping deductions would not only affect home sales, it also would affect charitable giving. Tax breaks aren’t the reason people give, of course — but they do affect how much is given.
Republicans should realize the ramifications of relying solely on closing loopholes (read: eliminating deductions) before they completely rule out rate hikes.
Likewise, Democrats must come part of the way on spending cuts — in particular, they must agree to at least some entitlement reform. Sen. Dick Durban acknowledged as much on Sunday, when he said on a talk show, “those who say don’t touch (Medicare) are ignoring the obvious.”
Yet he indicated to ABC’s George Stephanopoulos that the most obvious fix — raising the eligibility age for Medicare — isn’t on the table.
Of course, that’s what Obamacare is supposed to do.
What appears more likely, sadly, is a temporary fix, something Speaker of the House John Boehner calls “a down-payment” on reform.
That’s not avoiding the cliff. It’s not even slowing the fall. It’s time for real compromise. Everyone agrees on that, at least.