Tax talk, fiscal cliff and the grand bargain

President Obama yesterday called for an extension of the current tax rates for income up to $250,000, with an increase in tax rates (back to the rates from 1993-2000) on income above that. As CBO notes, if all of the policy changes that are set to take place by default at midnight December 31, 2012 actually occur we will likely tilt back into a recession (there will be a very large tax increase (payroll and income taxes) along with the budget cut set up by the August 2011 budget deal, aka the sequester). There are various calls to lessen the planned tax increases as well as planned budget cuts to avoid this outcome. Something of this nature makes sense in the short run, but it leaves open the question of how we ever get to the long run, where taxes must rise and health care costs must be addressed to ever have a sustainable federal budget?

The Supreme Court has allowed the ACA to go forward, but the political wrangling over the law is not done, with the House set to repeal the ACA for (apparently) the 32nd time today. The Republicans are really opposed I guess, but still haven’t gotten around to what they are for.

The obvious next step for all of these policy questions is the November election. If the President* wins re-election, with the Republicans keeping the House and the Senate being close (what I expect), then the political set up for a grand bargain will exist. Such a bargain will entail a deal on the tax code, presumably with short term cuts as compared to the baseline default, but with an increase in taxes over the long run. Similarly, a deal of some sort on the ACA will then come about, with Republicans finally coming to grips with the law not going away, and the President and Democrats needing tweaks/modifications as well that get at least some bipartisan buy-in so that we can actually begin to move ahead on the hard work of expanding health insurance coverage while addressing cost and quality.

My book Balancing the Budget is a Progressive Priority provides my version of what this grand bargain should look like, premised on the notion that both the country and both political parties actually need a deal on health reform that makes both responsible for the hard work on addressing health care costs in the future. The trickiest part of all this is how to navigate the short term so that we can get to the long term.

*If Republicans get a clean sweep, I expect the ACA to be repealed, the sequester to be abandoned, and all the current tax rates to be extended.

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

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