We’re approaching sweaty palm territory with the Fiscal Cliff – the day Americans face the expiration of Bush-era tax cuts and an increase in the payroll tax rate, not to mention $100 billion in “sequestration” cuts to defense and federal programs in the next year alone. That day of devastation is Jan. 1, and as we get closer, you’ll surely be hearing about the horror of those cuts from Democrats and Republicans alike, along with countless news items and (ahem) editorials bemoaning the economic disaster the cliff will bring.
Except for this: That kind of fiscal armageddon isn’t going to happen.
As stubborn and dysfunctional as our elected officials in Washington can be, they are not – we think – economically and politically suicidal. While a handful of voices think the fiscal cliff might not be such a bad thing in the long-term, the vast majority of our leaders understand that our economy is too fragile to handle that blow. Raising taxes on 90 percent of Americans while hacking at defense and social programs could send us spiraling back into a recession. That’s what the non-partisan Tax Policy Center said Monday, echoing previous predictions from others.
So the question Americans face isn’t whether we’re going to avoid the cliff, but how would we prefer to? The New York Times reported this week that Senate leaders are closing in on a deal to let Congress wait until after the election to clear its head, survey the political landscape, then work on a long-term deficit reduction deal.
The plan would put off the sequestration cuts and tax increases in exchange for senators agreeing to a deficit reduction target – probably $4 trillion over 10 years – that would be achieved through overhauling the tax code, changing programs like Medicare and Social Security, and making cuts in other programs. What would all those changes and cuts be? That’s where it gets fuzzier. Lawmakers would call on congressional committees to agree on the details. If an agreement isn’t reached, another unspecified plan would kick in.
If all of this sounds like kicking the can down the road again, well, that’s exactly what it is. The plan would delay all the hard things coming Jan. 1 so that Congress and the White House can wag fingers at each other for another year. Our preference, as always, is that our leaders act like the adults we elected them to be and reach agreement on a plan that includes increased tax revenue and meaningful, purposeful reform to entitlement programs. We’re not holding our breath.
A growing chorus likes a third option: Jump off the fiscal cliff, but with a parachute. The concept, whose advocates include former Obama administration budget director Peter Orszag and former Republican senior policy advisor Bruce Bartlett, calls for letting the cliff happen, then quickly enacting a fix before real harm occurs.
The idea’s supporters say that it changes the political dynamic on taxes, which would rise for everyone Jan. 1. Once that happens, restoring the Bush tax cuts for everyone except the wealthy would be seen as a “tax cut,” and Republicans who vowed never to raise taxes could keep that pledge by merely letting the old cuts expire. Republicans and Democrats also would be under significant pressure to give on revenue increases and entitlement reform as an alternative to sequestration cuts, the thinking goes.
Tempting as it might be to see Washington faced with the reality of the cliff, letting it happen for a short time seems an extreme measure that could risk our credit rating and rattle a shaky economy. The congressional panic that would follow wouldn’t likely produce a thoughtful deficit reduction plan.
For now, the sides will continue to argue over how to avoid something most everyone doesn’t want. That fiscal cliff isn’t going to happen in full, even if we reach Jan. 1 without a solution. It’s just a matter of how much damage Washington wants to inflict before coming to its senses.