Avoiding the fiscal cliff may require more of a political commitment than economic

What is this thing called the fiscal cliff? (Or, as most students would spell it – the “physical cliff”.) The picture I have is the Roadrunner in cartoons, who was always running down the road and going off a cliff. (But, the Roadrunner never got hurt!) This has been a main topic of news since the election.

The fiscal cliff refers to the consequence of Congress and the President failing to pass a bill that would stop some policies from taking effect. The main parts to the issue include taxes, government spending cuts and the national debt. Earlier this year, when the U.S. debt ceiling was being reached and Congress could not agree to raise it (normally a simple matter), the compromise reached was that Congress would increase the debt ceiling if efforts also were made to reduce the deficit by the end of 2012. If not, well, Congress came up with the worst possible threat to almost everyone:

(1) Elimination of the Bush era tax cuts for everyone, raising taxes on the typical taxpayer by nearly $2,000 per year, but also raising taxes on the rich by much more. President George W. Bush and Congress had cut taxes tremendously without any corresponding spending decrease to pay for them, resulting in a huge increase in the budget deficit. The Bush tax cuts included reducing the marginal income tax rate for the rich, reducing the tax rate on capital gains (which primarily affect the wealthy), complete elimination of the tax on inheritances and a small tax cut for others. These tax cuts were set to expire a few years ago, but were continued because of the Great Recession.

(2) Reduction of spending across the board – including military spending, education, unemployment, general spending and social programs. Although critics might wish to trim one or more of these programs, as a whole they include something for nearly everyone. Cuts would affect everyone in some way, especially lower income people who receive most of these benefits.

(3) The effect of the bill was supposed to reduce the growth of government, and therefore the deficit. Most analysis of the tax-and-spending consequences of doing nothing by Dec. 31 predict it would throw the economy back into a recession and raise the unemployment rate to about 9%. So, Congress passed a bill that was so bad, members were sure it would never be allowed to be implemented. Nobody actually wanted the results of the whole bill, while many wanted some provisions.

Now, here we are after the election and Congress is trying to fix the problem by passing a bill that will satisfy everyone. And, as before, Congress is having trouble finding a solution, with this impending disaster to the economy looming.

It is not an economic issue, really, but a political issue. Who will blink first?

Advocate Staff