published Thursday, October 4th, 2012

Avert the 'fiscal cliff'

The debate between President Obama and challenger Mitt Romney aside, there is yet no clear path away from the double whammy of retracted temporary tax cuts (worth $500 billion annually) and mandatory across-the-board spending cuts (worth $109 billion annually) that loom over taxpayers and the economy. When this crisis, dubbed the fiscal cliff, arrives on Jan. 1 as now scheduled, it could trigger a return to recession.

The good news is that cutting the federal deficit and build-up of national debt doesn't have to cause a recession. If Republicans will meet congressional Democrats halfway by allowing a mix of spending cuts and revenue increases — say, by eliminating tax loopholes that let rich corporations and ultra-wealthy megamillionaires and billionaires escape fair tax levels — the federal deficit can be sliced at a meaningful pace without wrecking the economy.

The fear among economists is that far-right absolutists would rather shoot the economy in the foot than agree to a reasonable bipartisan deficit-reduction plan.

Jan. 1 is the date when the Bush tax cuts — passed by a Republican Congress and President George W. Bush as temporary cuts in 2001 and 2003 when the country was enjoying Clinton-era budget surpluses -- are scheduled to expire. It's also the date when the temporary payroll tax "holiday" on a third of Americans' Social Security withholding tax is set to expire.

And it's also the date when mandatory across-the-board spending cuts of 8.2 percent in most federal programs, or about $109 billion are scheduled to take effect unless Congress agrees on a solid bipartisan deficit-reduction plan before then. The across-the-board spending cuts were agreed to by Congress last year to stanch a tea party-contrived crisis over a decades-old routine of increasing the federal debt ceiling to provide federal spending previously approved by Congress.

The Pentagon cuts alone would affect defense industry jobs across the nation. All the other across-the-board cuts in wide-ranging federal spending would seriously aggravate the economic trauma.

The sudden re-imposition of the Bush middle-class tax cuts certainly would reduce economic activity even further. That's because ending the Bush tax cuts would require middle-class families with incomes from $40,000 to $65,000 to pay up to $2,000 dollars more in taxes. Their higher tax burden would erode consumer spending, which accounts for two-thirds of the nation's economic activity.

At current levels of spending and job growth, the economy is expected to grow by 2 to 3 percent next year. The combination of tax give-backs and federal spending could simply douse that growth.

There is, to be sure, a path away from the fiscal cliff. With economic alarm bells ringing in their ears, a small bipartisan group of senators, including Tennessee's Lamar Alexander, have begun trying to revive support for the Simpson-Bowles deficit-reduction plan that the House tea party shunned last year. It would cut federal debt by $4 trillion over the next 10 years, and chart a sane path toward fiscal responsibility.

The Senate's work won't be widely acknowledged, let alone accepted, until it is presented in the lame duck session of Congress after the November elections. Voters who want to see a reasonable route away from the fiscal cliff can boost the chances of that happening before Jan. 1 by voting for congressmen who are willing to reach across the aisle to avert a fiscal calamity.

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nucanuck said...

The fiscal cliff was imposed by Congress and will be set aside by Congress. We don't need to spend time discussing that as a real issue.

That is not to say that debt and the deficit are not destroying our economic system, they are. Both Rs and Ds believe that we must regain strong growth numbers and earn our way to a new prosperity. Sounds good...that's what we have done every time before...and it has worked.

But this time there is a problem. To achieve that growth we have to go out and consume...borrow...spend...do more of what caused the problem. We haven't paid down the debt that caused the problem, and yet we are told that we need to double down and spend some more. That defies all logic.

If we conserve and save, we will contract growth and bring on a mighty economic recession/depression. A middle path is a delaying tactic that may buy a little time.

None of us want the painful path. Most of us know intuitively that we cannot spend our way out of harm's way. So which will it be, spending or saving?

More spending coming up!! Only a catastrophy will stop the course that we are on.

October 4, 2012 at 12:59 a.m.
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