12/5/2012 7:00 PM ET|
Why not jump off the fiscal cliff?
Washington seems ill-prepared for serious budget work. The shock treatment of tax hikes and spending cuts just might spur responsible action.
We're now just weeks away from the "fiscal cliff" -- an austere package of tax hikes and spending cuts set to kick in Jan. 1, 2013, and worth $720 billion next year alone. Yet the politicos in Washington look miles away from even a short-term extension.
President Barack Obama, charged up by his re-election, opened negotiations by offering a deal (similar to his 2013 budget proposal) that also includes the elimination of congressional authority over the debt ceiling (which will be a big issue early next year). Republicans shifted to a more middle-of-the-road approach originally proposed by former Clinton administration official Erskine Bowles, although he distanced himself from the GOP counteroffer this week. But Republicans still refuse to increase statutory tax rates, preferring instead to increase effective tax rates via deduction limits.
And if there's no deal? Jumping off the cliff would create a mild recession next year, according to the Congressional Budget Office, and push the unemployment rate back over 9%.
But given the smallness of our politics, the best option for the country might be to simply take the leap -- at least temporarily. Here's why.
What would that mean, exactly?
Falling off the cliff would mean a return to Clinton-era income tax rates, higher investment taxes, deep cuts to the defense budget, the end of extended unemployment benefits and the end of the payroll tax reduction. It would also include other items, such as new taxes on the rich, related to Obamacare. (See "7 pieces of the fiscal cliff.")
In a vacuum, this isn't exactly fiscal Armageddon. And yes, it would help close the near-term deficit. But, given our current vulnerabilities, it would hurt economic growth and therefore have less of a positive impact on the deficit than many believe. This is the type of short-term austerity that Europe has been trying, and the results have been dreadful.
So why do it? It would, I hope, change the dialogue from the current emphasis on small fixes -- trimming spending and imposing new taxes on the rich -- toward a deeper discussion on the root causes of the problem and the real, structural solutions required.
For most people, diving into the deficit debate is less exciting than watching paint dry. And that is why the discussion has devolved into schoolyard smallness focusing on the rich paying their "fair share," the strength of Obama's postelection mandate and which side is going to be bad or good this Christmas.
We got here through a series of similar disagreements and a lot of buck-passing. Failed deficit talks in 2011 led to the congressional supercommittee, which also failed, leaving in place automatic spending cuts. Likewise, we've seen repeated extensions of the Bush tax cuts and other supposedly temporary measures, including payroll tax cuts and extended unemployment benefits.
At this point, I don't know if there is any way to get the American public -- which just can't seem to get its head around the scale of the problem -- to understand what's at stake, other than jumping off the fiscal cliff and getting a taste of Europe's austerity nightmare.
A taste of austerity
Joblessness will rise as the economy tips back into a mild recession. Taxes will go up, mostly on the rich but on everyone else, too, reminding people that giving more money to the Internal Revenue Service should always be a last resort and that the middle class has grown too accustomed to what were to be temporary tax cut measures. And defense spending will be slashed to remind everyone that we can either pay for a strong military or overpay for senior care, but not both.
There are no easy levers left to pull. We need growth. We need lower debt, public and private. We need to reduce the cost of health care and the budgetary burden of Medicare, Medicaid and Social Security to ensure their long-term solvency. And we need to do it now, because if we don't help the economy fast, the problem will just get worse.
Good ideas floating around that have attracted bipartisan support in the past include raising tax revenue in a more growth-neutral way via limiting deductions and write-offs for the wealthy; means-testing entitlement programs like Medicare and Social Security so that benefits are skewed toward the needy; increasing Medicare deductibles so seniors self-limit treatment and consider the cost of care; and increasing retirement ages to account for increased life expectancies.
None of this is easy. But we need a game changer.
VIDEO ON MSN MONEY
"Lucas estimates that eliminating the capital gains tax and dividend taxes would spur growth and cause America's productive capital stock of plant and equipment to grow large as it is now -- increasing a productive capacity that hasn't really grown since the late 1990s"
Yea, let's just remove all the taxes on people that own for a living. Trickle down on steroids. It worked so well before, why don't we expand it.
Oh to live in the world of academia. Tenured pencil neck!
Yes, the money for investment and infrastructure is out there. However, it is much more important to give millions in bonus dollars to failed CEO's/CFO(and other corporate leeches). See the pay off it gives in reference to the recent tap dance with Hostess. Mismanage and overcompensate those who do least...run the corporation into one previous bankruptcy(thanks American Citizens for the write-off)...and then blame the blameless. The blameless are those who sweat near the ovens, drive the vehicles and are the actual wealth creators. I am a proud Veteran and have personally witnessed the excesses involved in sweetheart deals involving contractors(read connected corporate political friends...) In our own State of Indiana the corruption stinks to high heaven and doesn't even garner the occasional, minor headline news. Worship the corporate, school-taught god of capitalism if you want to-it is as broken as any third world corrupt Nation. I am for free enterprise and our current system is simply not it...we operate under a good-old-boy/girl's system of who gets the payoffs.
I am in total agreement that the corrupt government we have in the Senate and Congress should be reformed. However, those who are gathering the tax deductions, rigged bids and corporate welfare are not interested in fixing anything. Hell, look at the money spent by a small group just to try to purchase this last election. And now, those who have paid in all of their lives to social security and other programs are supposed to make the sacrifices and take the cuts. I will be lucky to live to 65. I grow weary when I start to count all of those that I have worked with who never even reached retirement age. And yet....this is our fault??? We should set the salary at a reasonable rate for Senators and Congressmen. The benefits for Federal Employees should be no more than 10% over benefits for Senior Citizens on Social Security and Medicare. The penalty for selling votes and influence should be about twenty years in a Federal Prison. This should be applied for those who also make the corporate purchases of tailored laws...
Please, please, please jump off of the cliff. I will give them my tax check this year if would help the Nation that I love. This would be no small sacrifice. But, I am willing to protect this Nation and do not mind paying. Can you say the same for those who own multiple homes(in multiple Nations), scurry about hiding money/jobs overseas like intelligent rats and whine about paying anything? Corporations are not humans and are not Americans. That this is even stated is how distorted our Nation has grown.
If the deficit is 1.1 Trillion a year, is 150B of tax increase a year really going to do anything? If we don't cut spending in a meaningful way we are doomed. Also people forget lowering rates in 1986 and closing loopholes was the single biggest increase of tax revenues in the history of the US. Lower rates take away deductions and tax revenue will raise and the tax code will be imminently fairer. Stop legislating domestic policy through the tax code. No home mortgage deduction, no charitable deduction, no medical deductions, no investment interest deductions, no losses on rental properties. The only deductions that should be allowed are state income taxes and property taxes because those go to fund government operations.
They always planned to go over the cliff, otherwise they wouldn't have created it. All the rest is just grandstanding.
In the meantime, they need to address the problems that got us here to begin with.
We need to create tax payers. All the taxes and spending cuts do nothing if we don't get our tax base back. Screwing with the unemployment figures to make it look like unemployment is only 8% is pure denial. Unemployment is more like 25% and under employment is just as bad. Admit it and work on it! Quit allowing imports from countries that lock their workers in their factories to burn. Bring the jobs back. We need to make things here! More jobs = larger tax base and less welfare spending . The people didn't go away, their jobs did. Don't t bit_h about welfare spending when you allowed all the jobs to be exported.
Fix capital gains. Trickle down didn't happen. Income from "owning" is income. Tax it like you tax people that work.
We don't need to be defending the rest of the world. As long as we do it, they will never do it for themselves. Perhaps we should charge for it. Our government has no problem charging us for it. Send em a bill.
We need to address the high cost of healthcare. Why can I get surgery done in Thailand for 10% of what it costs here and with American trained doctors and nurses and hospitals that look like luxury hotels??? Buying insurance for everybody does nothing but feed the monster. Fix the real problems. Healthcare is the biggest business in this country and it has no, I repeat no freemarket forces containing it.
We need to quit sending aid to countries that hate us. How dumb is that?
Serving in Congress should not be a career. Limit terms.
Stop the war on drugs. Treat addictions for what they are. Take the money out of it!
Shall I go on?? so much low hanging fruit.
30 yrs of tax breaks w/ a guarantee of more jobs
They just didn't say where those jobs would be created
LMAO @ all who believe tax breaks create jobs
Where are all the jobs promised?
I like all the finger pointing and "someone else" pay for it. The reality is we all played the game in some fashion. All my life (I'm 70), it's been I want a whole lot more than I'm willing to pay for. We wanted a massive military, health care paid for by someone else, roads, sewers, new subdivisions and all the rest of a long, long list. Pay for it, not me!! Charge it!! You know, just like you, personally, have been doing for yrs. Now it's "Let's not pay for it" even now. It might hurt the economy. So we're still hearing the advice: "don't pay for it now". Pay for it in the future. Same old tune, same old bs. I've never seen a problem that can't be made worse by procrastination.
Decades ago when Nixon talked about wage/price controls my neighbor stated, very clearly, the American solution: "I'm all for it but I want them to wait until I get my raise". He said this dead pan serious. The author writes in the same vein. Let's wait and we'll magically grow our way out of this. Same old bs, hundredth time around. We'll deal with the pain in the future. My present neighbor says, again a favorite American solution: "I don't like to deal with problems, prefer to deal with consequences".
A recent GAO estimate says that going over the fiscal cliff creates 500 billion surplus. This number is probably to high as it underestimates the recession caused by drastic cutting/taxation. Yet its probably a good place to start. Last years debt was about 1.2 trillion give or take a few hundred billion. This gives us an almost woarkable set of assumptions: Go over the cliff and you have perhaps 600 billion in tax cuts and monies you can restore. It will not balance the budget but it will get you on the path or see that we must cut 600 billion out of next years budget. I hate to point out something so simple but the wars cost about that much.
Don't waste any more money on Iran Afghanistan and Pakistan.
No more foreign aid. If they are a threat nuke them and get it over with.
Let's all hold hands and sing KUMBAYA as we leap off the cliff---------The jump off is not going to kill us///
The landing is another matter but at least everyone has some skin in this leap///////////////////
Anthony raises 1 valid point, can they get to a debt deal that looks better than the cliff? No matter which way they do it there will have be tax increases and spending cuts, entitlment reforms and military cuts.
The real question is this; IS THE CLIFF THE DEAL?
Unfortunately Washington doesn’t get it either, but most of Washington is run by political dynasties exacerbated by both political parties buying votes and taking care of family dynasties, and family businesses, rather than providing the leadership and stewardship needed to ensure the survival and growth of our nation. Tax the rich, great propaganda line. If the President gets his tax hike on those making over 250,000 a year it will run the country for 8 days at the current rate of spending. What are we suppose to do for the 357 day that remain. We need to figure out how to get the big business to bring back our jobs. They already have the tax code rigged they are laughing at us and both parties work for them.
The Age of Redistribution
This neglect ushered in an age of redistribution of wealth by government kowtowing to any and all special interests, except for those who just wanted to left alone. That is why today money in politics far surpasses money currently going into research and development and productive entrepreneurial efforts.
The material benefits became more important than the understanding and promoting the principles of liberty and a free market. It is good that material abundance is a result of liberty but if materialism is all that we care about, problems are guaranteed.
The crisis arrived because the illusion that wealth and prosperity would last forever has ended. Since it was based on debt and a pretense that debt can be papered over by an out-of-control fiat monetary system, it was doomed to fail. We have ended up with a system that doesn’t produce enough even to finance the debt and no fundamental understanding of why a free society is crucial to reversing these trends.
If this is not recognized, the recovery will linger for a long time. Bigger government, more spending, more debt, more poverty for the middle class, and a more intense scramble by the elite special interests will continue.
DR RON PAUL
The rich feel you don't deserve to make enough to live on if you work for them
All the rich people keeping their money offshore and do not want to invest in Americans...
YOU CAN EXIT AMERICA W/O YOUR MONEY ANYTIME YOU WANT.
Rich ppl hate the working class.
They say we are over paid and under worked and should be given commy wages and have the Gov subsidize your food (stamps) because you don't deserve to make enough to live
The richest of all is Wal Mart their employee's are eligible for food stamps...How can you deny this?
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