The Democratic Party’s plan to allow nearly $600 billion of automatic tax hikes and spending cuts to take effect in January unless Republicans agree to raise taxes on upper-income Americans is backed by a single report from a long-time Democrat with no private sector experience.
Numerous financial experts have warned that if Congress does not act to prevent a series of tax increases and spending cuts scheduled to take effect on Jan. 2, 2013, the United States would almost certainly enter another economic recession.
Sen. Patty Murray (D., Wash.), who chairs the Democratic Senatorial Campaign Committee, suggested last week that she was prepared let all of these potentially devastating measures take effect unless Republicans cave on tax increases.
“If we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013,” she said. Other leading Democrats have made similar insinuations. President Obama, for example, has threatened to veto any deal that extends current tax rates on all income levels.
Asked if he agreed with Murray’s position, Senate Majority Leader Harry Reid (D., Nev.) suggested he did, telling reporters: “Patty Murray knows what she's talking about.”
In an effort to justify their strategy, Congressional Democrats are touting a June 18 report from Chad Stone, chief economist at the left-wing Center on Budget and Policy Priorities (CBPP), a group that receives millions of dollars in funding from billionaire financier George Soros.
CBPP communications director Shannon Spillane told the Free Beacon that Stone was “booked solid this week and won't be able to do [an] interview, unfortunately.”
Stone argued in his report that the so-called “fiscal cliff”—the date on which current tax rates are set to increase dramatically under existing law and the $1 trillion in automatic spending cuts agreed to as part of the 2011 debt ceiling compromise will go into effect—is more of a “modest” “slope,” and that it is “erroneous” to think that failing to reach an agreement would plunge the economy into recession.
“Policymakers should not make budget decisions with long-term consequences based on an erroneous belief: that the economy will immediately plunge into a recession early next year if the tax and spending changes required under current law actually take effect on January 2,” Stone wrote.
A “modest delay” in reaching a deal, he suggested, “could produce a policy that is better for the economy over the mid- and long-term” (emphasis Stone’s).
Jared Bernstein, former chief economist for Vice President Joe Biden, concurred with Stone.
“A few weeks, maybe a month down the slope will hurt, but it's unlikely to be seriously damaging to growth,” he wrote in the Huffington Post. “Too often in these situations, someone yells ‘fire’ (i.e., recession!) and policy makers scramble to kludge together something, most often under the heading of kicking-can-down-road.”
Capitol Hill sources tell the Washington Free Beacon that a senior member of majority leader Reid’s staff circulated Stone’s report to an extensive list of lawmakers, as well as to several members of the press.
The report was originally sent to the staff member by Ellen Nissenbaum, CBPP senior vice president of government affairs, who wrote: “We hope this analysis is useful.”
Stone’s analysis runs counter to several reports from leading economic experts. The nonpartisan Congressional Budget Office (CBO) warned in May that if Congress did not act to avoid the “fiscal cliff,” U.S. gross domestic product would contract by 1.3 percent in the first half of 2013, likely causing another recession.
Federal Reserve Chairman Ben Bernanke told members of Congress last month that the “fiscal cliff” posed a “significant threat to the recovery.”
An analysis from former CBO director Douglas Holtz-Eakin and Ike Brannon of the American Action Forum projected that failure to reach a deal could result in the loss of up to 10 million jobs.
The accounting firm Ernst & Young found that the effect of letting current tax rates expire on incomes above $250,000—something Obama is urging Congress to approve—would cost about 700,000 jobs and reduce wages by nearly 2 percent.
Stone, meanwhile, argued the economy would not suffer major consequences so long as Congress could agree on a long-term deal “before March or April.”
Senate minority leader Mitch McConnell (R., Ky.) has blasted the Democratic strategy as an “outrageous ultimatum.”
A number of Senate Democrats have already expressed opposition to their colleagues’ approach. Sen. Richard Blumenthal (D., Conn.) told CNN he would rather extend all of the current tax rates than see them expire.
“My preference is to extend tax cuts because I think that the fiscal cliff is so ominous and so potentially destructive that we need to avoid it,” he said.
Sens. Joe Lieberman (I., Conn.) and Jim Webb (D., Va.) have also said they favor extending current tax rates for all.
Stone, who has held a variety of positions advising Democrats in Congress and the White House over the course his career, and appears to have little to no private sector experience, has a history of promoting Democratic policies and criticizing Republicans for proposing “wrong-headed” legislation that “makes no economic sense.”
Just days after authoring his report on the “fiscal cliff,” Stone wrote a glowing piece for US News and World Report titled: “Why Obama’s Stimulus Worked.”