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.