Now that Thanksgiving weekend is over, U.S. Rep. Jim Himes (D-4th District) is headed back to Washington, D.C., along with his colleagues for nothing less than what he calls “one of the most consequential negotiations of this generation.”
At issue are the looming expiration of what are known as the “Bush tax cuts” that would raise rates across the board, as well as spending cuts that would automatically trigger since Congress failed to reach a deficit reduction deal last year. Known as the “fiscal cliff,” both of these are set to happen on Jan. 1, 2013.
But in an interview from his office last Monday, Nov. 19, Mr. Himes said the term “cliff,” as in “we’re dead when we go over it,” isn’t the best word for what could happen. He said it originated with Federal Reserve Chairman Ben Bernanke and has stuck.
‘More like a fiscal ramp’
“I think it’s done us a bit of a disservice, and some economists have said it’s not really a fiscal cliff but more like a fiscal ramp, where if you don’t deal with it you start to go downhill and you pick up speed over time from an economic standpoint,” Mr. Himes said. “The reality is that raising people’s taxes or these spending cuts don’t hammer the economy on Jan. 2. They begin to take effect and they pick up steam as time goes by. Unfortunately, what has happened now is that perception has become reality and the conventional wisdom is if we don’t have a deal by Dec. 31 this will be a terrible thing. If he had chosen a less colorful metaphor it might have given us a little more time.”
The upside, Mr. Himes said, is it gives Congress the incentive to act, and he said he doesn’t want to downplay what a failure to move on this will mean. He calls this “a milestone we don’t want to go too far beyond,” because tax hikes across the board and spending cuts might not have instant effect but will have an impact on the economic recovery.
Mr. Himes joked that he has already been told by the Democrats’ minority whip, U.S. Rep. Steny Hoyer, that he and his colleagues “shouldn’t make any plans through New Year’s” once they get back to work this week.
But this is a very serious matter, Mr. Himes stressed, and he is hopeful the framework of a deal can be reached over the next six weeks. With that in hand, he said, the hope is that there could be a continuing resolution that would push the automatic tax hikes and spending cuts — which hit both the military and social programs — into next year for the deal to be finalized.
Mr. Himes, who was elected earlier this month to a third term in Congress, has long said he believes a deal can be reached — and that optimism hasn’t changed.
“I continue to feel that way, and in fact I feel slightly more that way now than I did before the election,” Mr. Himes said. “I think that the president’s re-election and the fact he is now not ever running again frees him up in some ways that were perhaps not true in his first term. I was a little worried, politically speaking, about what a newly elected President Romney would do if he was a bit more constrained by his right wing. But with President Obama re-elected, I am a little bit more optimistic about the prospects for a big deal. I think we heard a very conciliatory tone from the Republican congressional leaders. I saw [Republican Speaker of the House] John Boehner’s various speeches, and he very specifically put tax revenue increases on the table. This is new for him.”
Mr. Himes said the positive responses from Senate and House leadership after a meeting in mid-November with President Obama on the issue is another reason to be optimistic. He also said the lack of gloating from his own party after the election shows Democrats, too, are ready to get to work and make a deal.
What that deal will look like remains unclear. Mr. Himes believes it will take a similar shape to suggested packages like the one put forth by the Simpson-Bowles Commission.
Congress returned to work on Nov. 27 and the new Congress will be sworn in on Jan. 3. In that time, known as the “lame duck Congress,” Mr. Himes said, there will be a lot of negotiating over the top line numbers for cuts and for new revenue as well as reform of Social Security, Medicare and Medicaid. He grants that finishing it all in that short time frame would be impossible, but as long as the structure of a deal is in place, he feels the new Congress can “put flesh on the bones” and finalize the agreement.
“There is still ample opportunity for failure,” Mr. Himes said. “I don’t think that’s likely, but the topics are both very complicated, and how you reform Medicare in an equitable, fair and smart way is a huge and difficult conversation.”
Because of that and other areas in the deal, like tax code reform, Mr. Himes said, there’s a lot of work ahead, and he admits things might not go the way he hopes. One challenge would be if the harder right members of Mr. Boehner’s Republican caucus rebel against a deal, which has sidetracked past efforts.
“I’m not saying it’s a done deal,” Mr. Himes said. “I’m saying it’s probable that it will happen. You know one thing, and that’s that the right wing of the Republican party and the left wing of the Democratic party [are] not going to be at all happy with the final deal. The only question is if they’re so unhappy they knock the whole card table over.”
Mr. Himes added there is “room for some gamesmanship” close to the Jan. 1 deadline, noting the history of Congress striking deals at the last minute.
He gave the example of the top marginal income tax rate, 35%. If the Bush tax cuts expire, it would go back to 39.6%, and he suggested that, for example, a potential deal of 37% could end up being part of some political back-and-forth.
“On Dec. 31, if you would agree to that it would be a tax hike,” Mr. Himes said. “On New Year’s Day, 24 hours later, if you agree to it, it’s a tax decrease,” Mr. Himes said. “You’ve got some funky gamesmanship that could occur around the end of the year, so there is some chance for politics. But at the end of the day, I think getting past that, we will have the outlines of a deal and the process to get there, which I think is very important.”
Any deal that includes reforms to programs like Social Security and Medicare is likely to raise alarm among Mr. Himes’s fellow Democrats. While he is open to the idea of reform, he said there have to be basic protections in place for those who need the benefits the most.
“We can’t harm the least advantaged Americans,” Mr. Himes said. “I don’t know how — after a period of 14 years and two wars, reducing our tax rates in a way that dramatically benefited the wealthier people in this country — I don’t know how you then look at yourself in the mirror after you vote for a Social Security plan that’s going to force a lot of senior citizens into poverty. My line in the sand is that we don’t reform those programs in a way that hurts the most vulnerable.”