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Nation/World

November 14, 2012

Dems: Go over the 'fiscal cliff,' then bargain

(Continued)

Some budget experts say the spending cuts would phase in gradually. Also, Social Security, Medicare and food stamps are exempt. And agency fiscal chiefs have flexibility to mitigate the effects of the sequester.

But such tools are limited. They might buy only a little time before the spending cuts begin to bite harshly, requiring agencies to furlough employees and causing delays in awarding government contracts.

Many say even talk of going over the cliff is sheer folly.

“You’re going to have big financial market repercussions to this,” warned economist Douglas Holtz-Eakin, a former director of the Congressional Budget Office. “Those sorts of confidence measures you don’t control — and they happen abruptly.”

House Minority Leader Nancy Pelosi, D-Calif., showed no interest in challenging the fiscal cliff. “I want you to be disabused of any notion that there is any widespread thought that it would be a good thing, for our country, for us to go over the cliff,” she told reporters Tuesday.

Some Democrats think Republicans are ready to bargain anyway.

“Republicans have a pretty good track record of not blinking,” said Jim Kessler, co-founder of the centrist-Democratic group Third Way. “But they had a bright white light shine in their eyes on Election Day.”

Third Way is floating a possible compromise, designed to raise $1.3 trillion in new revenue over 10 years without changing the Bush-era income tax rates. It would cap itemized tax deductions at $35,000. Charitable deductions, however, would be exempt, a nod to the powerful lobbies of universities and other charity beneficiaries.

The plan also would move upwardly mobile earners into higher tax brackets more quickly. It would reinstate the 2009 estate tax exclusion to $3.5 million, with a tax rate of 45 percent for values above that threshold. And it would raise the tax rate for capital gains and dividends by 5 percentage points, to 23.8 percent.

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