Fiscal Cliff Scenarios: Peter Orszag’s Universal Tax Cut

by Reihan Salam

Recently, I was reminded of a Bloomberg View column from late April in which Peter Orszag offered a strategy for a reelected President Obama. If an agreement is not reached on avoiding the fiscal cliff, the Obama White House could do the following:

 

If we get to this point, the administration could step forward with an entirely different concept for decreasing taxes. It could propose, for example, large increases in the payroll-tax holiday and in the standard income-tax deduction. This would reduce taxes for everyone, but do it in a much more progressive fashion than the Bush tax cuts did. The net result of the new tax cuts and the expiration of the Bush ones would be higher taxes for upper-income people, as the administration desires.

The president could then dare the Republicans to vote against the new universal tax cut. Republicans would have a harder time withholding support for such an across-the-board tax cut in early 2013, once the Bush tax cuts are water under the bridge, than they would have had holding firm on extending all the Bush tax cuts in late 2012.

What Orszag doesn’t mention, but what is implicit in his analysis, is that Republicans would be negotiating after a defeat in the presidential election. As Ramesh Ponnuru has argued, this is unlikely to mean that congressional Republicans will be more strongly inclined to cooperate with the president, but it will weaken their negotiating position in the face of a politically attractive increase in the payroll-tax holiday and in the standard income-tax deduction. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.