Countdown to the cliff
Democrats and Republicans in Washington each had spent two years counting on Tuesday’s election to give their party the upper hand in their furious cage match over federal spending and debt. But both tribes of gladiators awoke Wednesday to more of the same: Democrats still hold the White House and Senate; Republicans still hold the House.
Guaranteed gridlock? Not necessarily. With Washington’s power equation constant, this is, surprisingly, the ideal moment to take unpopular steps and rescue our government from potential doomsdays — the first of them scheduled for Jan. 1, less than eight weeks away:
If leaders of both parties swallow their pride for a few weeks, this lame-duck Congress and re-elected president could give the American people a marvelous holiday present: the sort of “Go Big” deal that almost erupted in mid-2011. If, though, Democrats and Republicans maintain their rigidity of recent years, they’ll blithely squander a perfect opportunity, further imperiling this nation and its slow-growth, jobs-starved economy.
Democrats and Republicans, make this happen together and neither party can hold it against the other in the 2014 election cycle: Most Americans will be grateful, and those who gripe will blame all of you. For both parties, then, equivalent (and low) risks.
The more dangerous risk is yet another of the some-other-time delays that got us where we are: slipping toward the so-called fiscal cliff, plus a crisis moment for our federal debt, plus the rising prospect that Medicare, Social Security and other entitlements can’t meet their obligations.
For decades, presidents and Congresses spent money they didn’t have. Last year, President Barack Obama and the current Congress set Jan. 1, 2013, as a day of reckoning so dreadful that surely The Other Party would cave long before it arrived. Didn’t happen. So buckle up.
In 54 days, unless Democrats and Republicans cut a deal (or chicken out and delay), our economy likely begins to topple off what Federal Reserve Chairman Ben Bernanke labeled a fiscal cliff. Taxes will rise sharply, automatic triggers will slash federal spending and economic growth will plummet. The Congressional Budget Office expects another recession. Some specifics:
As is, federal taxes are slated to rise in January for six reasons: The Bush-era tax cuts expire. Some temporary tax cuts that were part of the 2009 stimulus expire. Congress hasn’t extended dozens of short-term tax breaks that routinely expire. The 2-percentage-point payroll tax cut for Social Security expires. New taxes to fund parts of Obamacare begin. And for lack of another patch to the alternative minimum tax, millions of taxpayers will be vulnerable to the onerous AMT not only for 2013 but retroactively for 2012.
The Tax Policy Center, a Washington research group, says these hikes would raise taxpayers’ liability by 21 percent, or $536 billion: “Nearly 90 percent of all households would face tax increases averaging nearly $3,500. Middle-income taxpayers would see an average increase of almost $2,000. … The average marginal tax rate would increase by about 5 percentage points on wages and salaries, by about 5 percentage points on interest income, by about 7 percentage points on long-term capital gains and by more than 20 points on qualified dividends.”
What’s more, the abruptness of the spending cuts is more than our economy could comfortably absorb. Defense, already scheduled for reductions, would take another huge hit; other cuts would fall across the board. A George Mason University study estimates in the aggregate the cuts could cost 2.1 million jobs.
The prospect of sailing off this cliff, plus rising health coverage obligations under Obamacare, have kept many employers from hiring workers. Too much uncertainty, too little faith in Washington to act.
The fiscal cliff is but one January peril. Last week, the Treasury Department warned that the U.S. is likely to reach its borrowing limit of $16.4 trillion before then. Obama and the Senate surely will want to raise the debt ceiling; the House, arguing that America’s debt bomb already risks a European-style calamity, will want offsetting cuts in spending.
Two more factors: Each day, our entitlement programs edge closer to insolvency. And each day, the need for tax reform that lowers rates but cuts loopholes, deductions and wrongheaded incentives comes clearer:
The Simpson-Bowles commission is one of many voices to offer sensible solutions for these problems. Washington, though, has lacked motivation, courage and the humility to compromise.
One macro deal could solve all of this, before Jan. 1. House Speaker John Boehner spoke Wednesday of a multi-pronged solution: “It would be an agreement that sends the signal to our economy and to the world that after years of punting on the major fiscal challenges we face, 2013 is going to be different.” Obama has offered similar suggestions.
Gentlemen, Americans have had enough of your quibbling on the parameters of that macro solution and on its details. Get this done. Not next year, now.