The infamous Rodney King in his first interview after his beating by over-zealous LAPD officers said “Can’t we all just get along?” While not the smartest guy in the world, he had wisdom that we all should live by.
Resolving the bickering in Washington over the upcoming “Fiscal Cliff” slated for January 1, 2013 should be a no-brainer.
“Fiscal cliff” is the popular term used to describe the dilemma that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.
Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron’s, over 1,000 government programs – including the defense budget and Medicare are in line for “deep, automatic cuts.”
In dealing with the fiscal cliff, U.S. lawmakers have a choice among three options, none of which are particularly attractive:
- They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.
- They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States’ debt will continue to grow.
- They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.
If the current laws slated for 2013 go into effect, the impact on the economy could be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by fourpercentage points in 2013, sending the economy into a recession (i.e., negative growth). It also predicts that unemployment would rise by almost a full percentage point, with a loss of about two million jobs. With the current slow recovery and elevated unemployment, the US economy is not in a position to absorb the hit this would bring.
Want some more bad news? The fiscal cliff isn’t the only problem facing the US. In the first quarter of 2013, the country will again hit the “debt ceiling” – the same issue that killed the markets in 2011 and triggered the automatic spending cuts that make up a portion of the fiscal cliff.
Should we walk off the cliff or can we can avoid all this by using some basic common sense? I vote for the latter. This is basic stuff. What’s good for America should trump all else. I vote for America, not the Republicans or the Democrats, but Americans and the values many of us have fought for.