Fiscal cliff: Simpson and Bowles gloomy on deal chances

Erskine Bowles and Alan Simpson at the Christian Science Monitor Breakfast (28 November) Bowles, left, and Simpson have been called "an improbable buddy act"

Over bacon and eggs and bagels and muffins in a fancy hotel in Washington, one of the US capital's oddest double acts is sounding the alarm.

The American republic, say Erskine Bowles and Alan Simpson, is heading toward the edge of the cliff. Without a deal on tax and spending "we have no idea where it will go".

Perhaps 40 members of Washington's press corps are in the room. Under four huge chandeliers a long table is littered with audio recorders and notepads. TV lights illuminate the scene to an almost maddening brightness. Silverware shines, and light bounces off glasses of iced water.

Both men are softly spoken - the journalists lean in to catch their words.

Mr Bowles is a former White House chief of staff under Bill Clinton. Mr Simpson was a Wyoming senator for almost two decades.

Together they chaired a commission that came up with the last plan - never adopted - to cut the US budget deficit and send its debt in a more stable direction.

They are sounding the alarm over the crunch that will come on 1 January if Congress and the White House can't come up with a deal on tax and spending.

Economic gains threatened

The crunch - the "fiscal cliff" to those who eat and breathe this sort of stuff - is a combination of tax rises and spending cuts that would suck more than $500 billion out of the economy.

The impact of such a sharp reduction in government spending and individual income, reckons the Congressional Budget Office, would be to shrink the economy by 0.5% of GDP (compared to 1.7% projected growth) and add more than a percentage point to unemployment.

It would undo, in short, the rather meagre gains of the past three years.

Mr Bowles sounds almost impossibly gloomy about reaching an agreement on tax and spending to avert the automatic tax rises and spending cuts. He sees a one-in-three chance Democrats and Republicans in Washington can reach a deal.

Mr Simpson talks about about the US reaching a "tipping point" when creditors see a "totally dysfunctional government kicking the can down the road" and decide they want more in return for their loans. And who gets hurt? he asks. "The little guy."

He likes this kind of language - folksy, sometimes pungent turns of phrase. Some Republicans are "as rigid as a fireplace poker but without the occasional warmth". Leaders need to "go big or go home". Playing politics with this issue is "like betting your country".

Everyone around the table - and everyone in political Washington - knows the kind of deal that would avert the fiscal cliff: some tax rises, some tax reform, some spending cuts, and some reform to the giant social programmes to trim future spending.

But the consensual middle has been sucked out of Washington in the past decade or so. Sometimes it seems people have forgotten how to make a deal.

'I'm really worried'

Mr Bowles speaks with less flourish, but is stark about the risks of continuing disagreement.

Already, he says, businessmen are delaying investment and not replacing workers.

Consumer confidence will begin to dip without a deal, and even if a deal is reached in the days immediately after the deadline there will be damage to the economy.

"I'm really worried," he says. "I believe the problem is that we are going over the cliff. It will be horrible for the economy."

There are some signs, both men say, of compromise at the edges. Some legislators have renounced a "no tax-rise" pledge they made. The election has given both sides a bit of wiggle room.

But neither man came to breakfast to give a pep talk. You can almost reach out and touch the gloom they feel about the process. Time is running out, says Mr Bowles, and there's still a big distance between the sides.

From Mr Simpson, the former mountain state senator, comes a populist cry. Americans, he says, "are thirsting for someone to tell them the truth, rather than the hogwash from both parties".

But from Mr Bowles comes a cold dose of Washington realism, and what seems to be the prime driver of his pessimism.

"There's been no punishment," he says, "for intransigence in this town."

Jonny Dymond Article written by Jonny Dymond Jonny Dymond Washington correspondent

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  • rate this

    Comment number 19.

    Perhaps if the USA stopped fighting wars in other countries so often, and stopped all the threats that result in them needing to pay huge amounts of money for increasingly sophisticated defence systems, then there wouldn't be so much being paid out. Perhapd of the USA decided to reliquish its position as "top dog" gracefully, and not petulantly, there would be no need for massive bribes and so on.

  • rate this

    Comment number 18.

    I've read that increasing taxes would only raise billions when the debt is trillions; this raise would keep the govt running for 8 days!
    Spending cuts will seriously hurt the sick and the aged; I'm sure they're worried sick in any case.
    The US needs to stop spending so much on its military, or is killing people more important than taking care of Americans?

  • rate this

    Comment number 17.

    8 ‘Even the tax advocates admit they can't raise enough money by raising tax rates on the "rich" to close the budget gap.’

    True. But AFAIK that’s not their argument. It’s that you need both tax hikes and spending cuts. It was the Republicans who said they wouldn’t accept a tax increase even with a spending cut 10 times as big. And then people say it’s the Dems who are too rigid..

  • rate this

    Comment number 16.

    It appears that the "Bush's fault" crowd never ends, even after 4 years of Obama. It's not a tax problem, its a spending problem. If the "rich" were taxed at a 90% rate, it would pay for less than a week of current spending. There's just WAY too much pork in the budget. Billions in grants and funding BS projects and way too much foreign aid. Why borrow from China to give it away?

  • rate this

    Comment number 15.

    I think a deal will be reached at the 11th hour because the alternative would be a political disaster, especially for the Republican Party.

  • rate this

    Comment number 14.

    Where did all those lost zillion$ go? It has not vanished into thin air, its sitting in offshore accounts far from the US Tax Authorities! Some accounts are held by good old'e US citizens, including a lot other wealthy foreigners! If you have the proof tell your citizens to come clean and relocate their monies back into domestic accounts or else disenfranchise them from US citizenship etc.

  • rate this

    Comment number 13.

    Reaching out to the obdurate Republicans, Obama is bending himself backwards to secure a deal. The GOP is driven by a desire to thwart Obama every step of the way:discomforting him after his thumping victory makes the problem even more stark! When will the Republicans see real sense?Supporting the rich to the hilt could torpedo all efforts to reach a pragmatic solution.The poor need to be helped

  • rate this

    Comment number 12.

    Let the cliff come! It's the only way of actually reducing that monstrous deficit, because no politician has the nerve. Disaster looms for the USA and the world if the deficit is not reduced, yet the the politicians want to agree a way of increasing it! Absolute madness.

  • rate this

    Comment number 11.

    The 'cliff' can be our friend. Once entered, the Bush tax cuts are gone. Incumbents may vote to retrieve half the cuts, and still leave us with debt reduction equal to the aborted 2011 'grand bargain'. Transparency, and accountability to the 2014 electorate, may overcome the false opportunistic rhetoric gripping our public dialogue, and allow us to resolve the 'cliff', sequestration, and more.

  • rate this

    Comment number 10.

    ref #7The fiscal cliff can be surmounted if the Republicans acted less as an opposition and yielded to taxing a bit more the richer class, failing that America will be doomed
    But the Dems must agree to major untitlement cuts and stop spending without restraint. That is the problem and Obama, Reid and Pelosi refusal to compromise and listen are the problem

  • rate this

    Comment number 9.

    Too bad Cliff Richard isn't around much any more. I can't think of a single "Fiscal Cliff" Richard joke. I must be getting as old as Cliff himself, with even less money than him. Maybe that's the joke!

  • rate this

    Comment number 8.

    Bottom line, the US has to reduce the deficit of the Federal Government or at least slow its growth. What the tax advocates miss is that raising taxes pulls investment money out of the economy and gives it instead to the government. Investment creates jobs, governments do not.

    Even the tax advocates admit they can't raise enough money by raising tax rates on the "rich" to close the budget gap.

  • rate this

    Comment number 7.

    Both the Democrats and the Republicans should arrive at a consensus in the best interest of the American nation and its people. The fiscal cliff can be surmounted if the Republicans acted less as an opposition and yielded to taxing a bit more the richer class, failing that America will be doomed.

  • rate this

    Comment number 6.

    The problem is there is no QED. No reason to believe those two guys claiming answers. They may not even be asking the right questions. I would rather believe nothing, than these two. Here, their use of colorful language is a negative. They would use cute instead of demonstrated proof. False experts imply it's too complicated to understand. Try me. No interpretation jousts. No authority. Just QED.

  • rate this

    Comment number 5.

    President Obama won the election NOT the Republicans but they still want to play the political hostage game that the american people rejected and sided with Obama's agenda for the country including hitting the rich for they they ought to pay. Obama must not give a inch to these coporate fascist thugs. Let things go off the cliff it will be the end of the Republican party which needs to die.

  • rate this

    Comment number 4.

    Mr Bowles has cut to the chase. It's as close as anyone has come to "None Dare Call it Treason."

  • rate this

    Comment number 3.

    Purely result of people voting dislikes,rather than for needs. Negative ads of $1.2 Bil apiece for Obama & Romney trumps Sensible Policy.Right,Left-Wing is the extent of Political debate in N America with Truth the victim.
    Waiting Lists for spots in parking lots to live out of cars is not considered rock bottom anymore. Fiscal cliff naturally follows Political Bankruptcy.

  • rate this

    Comment number 2.

    The fiscal cliff is not an issue of partisan politics but rather a threat to the great values of the US that will require by partisan solution. The America people except Elected officials to compromise on the avoidance of the fall from the clif & not drawing a line in the Sand.The people have spoken & they should be heard.

  • rate this

    Comment number 1.

    So, this "fancy hotel in Washington", was it the Statler?

    Waldorf, maybe?


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