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.
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Trickle down economics (pissed on) and supply side economics have been tried for the past 30 years, a total failure. We need to return to the policy's that worked (see eisenhower tax rates). The debt that has been foisted on the American people can simply not be paid off. Anthony, you may be on to something saying, let's jump off the cliff, I would take it further than that. Since the debt can never be paid off we as a country would be better suited following Iceland's lead, DEFAULT. Tell the creditors and banks sorry not paying, then pass laws forbidding the government from any type of deficit spending. This coupled with ending outsourcing is the only way out.
stop calling it a fiscal "cliff" it"s not as bad as it sounds...if we fall off the "cliff" we will go back too the Bill Clinton Days where the economy was doing very well. Speak up Bill!!!
LEAD BY EXAMPLE
CUT FROM YOURSELF FIRST
DON'T ASK US TO DO WHAT YOU CANNOT AND WILL NOT DO
AND THAT IS TO DO WITH LESS
Hostess CEO cut everyone elses pay but his own what an outrage
You politicians outrage me just the same
TSA NOT ON THE CHOPPING BLOCK
ATF NOT ON THE CHOPPING BLOCK
DEA NOT ON THE CHOPPING BLOCK
FEMA NOT ON THE CHOPPING BLOCK
DHS NOT ON THE CHOPPING BLOCK
SENATORS ENTITELMENTS NOT ON THE CHOPPING BLOCK
CONGRESS ENTITELMENTS NOT ON THE CHOPPING BLOCK
ie both the senate and congress work less than 100 days a year
EPA NOT ON THE CHOPPING BLOCK
SENATE AND CONGRESSIONAL STAFF ENTITELMENTS NOT ON THE CHOPPING BLOCK
So why are you, granny, grandpa, children and I on the chopping block?
We the PEOPLE COME FIRST ONLY WHEN IT IS TIME TO TAKE FROM US
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