Tuesday, November 22, 2011

Compromise and the Ratchet

One aspect of the discussion over the deficit and possible compromise is the ratchet effect:
  • if the Republicans accede to the Democratic demand for tax increases, that is not a permanent change--it's something which will be changed down the line.  Look at tax rates after the Reagan/Rostenkowski tax deal in 1986--they've gone up and down as it seemed appropriate and according to the power of the parties.
  • if the Democrats accede to the Republican demand for changes in entitlement programs, those are permanent changes.  Look at the Greenspan/Reagan Social Security "fixes" in 1983--the change in the age for full eligibility for Social Security was changed to 67. No one expects that change to be changed--it's a ratchet effect.
In this context, see Ezra Klein on why Republicans should like Simpson-Bowles.

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