Fiscal Cliff or Cliff-Hanger?
A careful look at what’s playing out in D.C. presently challenges the semantics being used to describe the potential consequences to the American public. I’m referring, of course, to the looming end of the Bush “temporary” tax cuts and other provisional tax reduction measures related to the recent economic downturn combined with the likelihood of mandated spending reductions, the result of an inability of Congress and the White House to come up with a mutually acceptable debt reduction plan—the so called fiscal cliff.
A cliff is a drop with a nearly vertical face; a precipice; a situation of great peril (Some are now referring to this cliff as more of a slope). A cliff-hanger, on the other hand, is a melodramatic adventure serial in which each installment ends in suspense; a situation whose outcome is suspensefully uncertain. If, as Maine’s recently retired Senator Olympia Snow opined, “ We’re no longer governing—everything is seen through the prism of politics,” then the tail of ideological politics is wagging the dog here— it probably is to a (very large) degree—and I suggest what we are witnessing is in fact more political melodrama than economic precipice. No doubt the forming clouds of potential tax increases combined with a government spending slow down in a less than robust economic environment could (and probably would) rain on our personal and national economic parades in 2013; possibly beyond. It might even look like a “perfect storm,” but having forecast it, even if we practically cannot avoid it, we can and should individually prepare for it. We will in all probability weather it.
Does this mean we should be unconcerned? Absolutely not! Decisions in these matters need to be agreed to; a country needs to be governed, and for the benefit of at least most of the people, not just some of the people, all the time. The ending of the temporary Bush tax cuts will affect almost everyone, most seriously the least well-off among us. That’s wrong. But recall, folks, these were to be “temporary” tax reductions! The same goes for the withholding tax concessions made in 2009. So now we should make the wealthier among us responsible for cleaning up our fiscal mess? No, that’s wrong too. But if we want to continue to receive those benefits we get from government, directly and indirectly, they have to be paid for. Tax or borrow seem to be the available sources for this. We’ve borrowed up to the hilt, most would agree. Our government securities issued interest cost (2011 year estimate on this debt is $430 billion) has become a major budget item. Taxes is seems pretty clear need to be increased, and everyone able needs to do his or her fair share here. As I’ve written separately, this means our tax code needs not to be just “reformed” but totally redone. Seems unlikely this can be accomplished in the next thirty days.
On the spending side, there’s little doubt government overspends. A Gallup poll this summer reported a majority in the U.S. still say Government is doing too much. This has been consistent for most of the past 20 years, admittedly with a high partisan profile. Yet, when it comes to cutting, no one wants what they perceive they receive to be considered! So much for what we say, and what we’re willing to put up with. We Americans are, undoubtedly, a fickle, overly demanding part of the problem.
There is little doubt that this melodrama will be worked out politically. It will conclude with a scenario many foresee now: much if not all of the problem will be “kicked down the road.” Each side will claim a victory. But if it’s simply a temporary political victory, it will be a hollow one indeed. It will demonstrate once again the continuing inability or unwillingness of our elected leaders to govern in a manner that considers the consequences for at least most of the people, at least most of the time. And who are these “most?” They are the preponderance of society, the approximately 85%—again, per Gallup— who consider themselves middle class, upper middle class or working class Americans. They are Republicans, Democrats and political Independents who give Congress its deplorable approval rating of just 18% in November (up from a low of 10% last August!); who no doubt make up most of the 69% of polled Americans who are dissatisfied with the way things are going in the US. They are the moderate plurality (45%) who favors reducing the federal budget deficit with an equal balance of tax increases and spending cuts. Aren’t any of their elected representatives listening to them? Well, if they aren’t significant political campaign contributors, probably not. Oh my!
One final suggestion for our hard-at-work representatives: Princeton University’s Alan Blinder has suggested, in a three step approach to dodging the “cliff” issue, to first settle on the broad outlines of a budget agreement and then kicking some cans down the road (paralleling our thought above). His point here: “Don’t kick all the cans to the same stopping point again.” Good suggestion, Alan. Do you think they’ll ever learn? Are their actions the result of excessive optimism, or simply naivety? Neither: It’s most likely due to hyper-ideological party politics, at both ends of Pennsylvania Avenue.
We need a change.
BOOM!
