Students debate how to avoid the imminent fiscal cliff
Published: Friday, November 16, 2012
Updated: Tuesday, November 20, 2012 16:11
A national crisis is looming — the consequences of which could be economically deleterious. The country is polarized beyond words. The state of Texas has threatened to secede from the union, but enough about the Civil War. Let’s talk about the national debt.
Journalists and pundits have been warning of a “fiscal cliff” for months. Effectively, if Congress fails to act in its lame duck session by the end of the year, over $600 billion in tax increases and previously agreed upon spending cuts will kick in for 2013, possibly raising the unemployment rate to 9.1 percent by the end of next year and causing a decline in real economic growth by 2.9 percent. We might have another recession on our hands.
Sounds scary, right? However, I personally would not be too frightened. Congress stands a much better chance of reaching a long-term deal since President Barack Obama has been re-elected. Negotiations on managing the debt have been going on for years, and if Mitt Romney had won, Congress would likely only pass another stopgap “kick the can” measure and, in this case, negotiations between the president and Congress would have to start all over again.
But I’m still a cynic, so I can’t say I have a whole lot of faith in Congress getting this done by the end of December. Whatever happens, we’re getting to the point where we’ll need to raise our debt ceiling again in February or March when the next session of Congress starts. I wouldn’t be surprised if Congress wants to wait until then to tackle this issue more fully.
However, kicking the can down the road is no substitute for coming up with a genuine and fiscally viable solution to our increasing national debt. Under the alternative fiscal scenario, the CBO estimates that the U.S. government debt would approach 200 percent of our GDP by 2037. Moreover, the effect that our fiscal uncertainty has on the market can’t be understated. As long as investors are uncertain about the tax rates they’ll pay, they have a huge incentive to delay their investments. Over the summer, Forbes reported that companies are currently sitting on record amounts of cash that they’re simply not spending. Additionally, a report by Nomura said uncertainty alone could reduce GDP by half a percentage point over the next year.
From the point of view of businesses, it really doesn’t seem to matter whether or not we choose to make things like the Bush tax cuts permanent or let them expire. The constant uncertainty about their fate for the past two and a half years is most detrimental to our economic growth, and if we could simply come up with a more permanent solution, businesses might have more incentive to invest and hire.
Nevertheless, the problem remains: how exactly are we going to balance the budget? Congress has suggested that the solution should come from a combination of reforms of Social Security and Medicare as well as overhauling the tax code.
Even John Boehner has suggested he’s ready to accept a budget deal that raises revenues as long as it’s linked to entitlement and tax code reform. If we can come up with a way to reform our monstrosity of a tax system as well as make Social Security solvent again (which most certainly could include raising the retirement age), I would be overjoyed.
But I still remain cautious. Simply closing tax loopholes and cutting spending will not get the job done. I remain convinced that President Obama’s plan to let the Bush tax cuts expire remains one of our best options.
Taxes alone would not be sufficient unto themselves to put our financial house in order, but they’re a vital part of what will hopefully be a broad series of reforms and spending cuts, and I think the president’s re-election will hopefully give him the political capital he needs to finally get his desired tax policy passed.
Bub is a junior majoring in history, English and political science.
The United States has been nearing the edge of the fiscal cliff for quite some time. Now we find ourselves poised at the precipice of a financial meltdown at the dawn of the new year. What is this “fiscal cliff” everyone keeps referring to?
Well in layman’s terms, it is the end result of a number of laws that if left unchanged would cause tax increases, spending cuts and a corresponding reduction in the budget deficit, which would impede economic growth beginning in 2013. Sounds bad, right? That’s because it is.
The cliff will come to be as of Jan. 1, 2013, and would increase the average family’s taxes by $3,700 and leave lawmakers on both sides of the aisle scrambling for last minute ways to resolve this impending crisis. The liberal solution is, shockingly, to raise taxes on only the “rich.” Republicans however have taken a more logical approach. Why not close loopholes and deductions and increase taxes on no one? The tentative Republican plan would seek to simplify an incredibly complex system and not raise taxes on anyone, regardless of income.
However, rather than actually deal with the matter, Congress has taken to belittling the opposite party counterparts and caused fear among Americans that a deal to avoid this crisis will not be reached in time. Republican House Speaker John Boehner spoke recently about his belief in this being President Barack Obama’s time to lead the nation out of crisis, but offered no conciliatory remarks for his party’s position to not approve any plan that calls for raising taxes.
I personally resent the idea that has been presented repeatedly by the mainstream media that it is the responsibility of the Republican Party to compromise. Though not always directly stated, it has a number of times been strongly insinuated that it is the responsibility of conservatives to be bipartisan and compromise their positions in the interest of dodging the cliff — painting liberals as martyrs at the hands of greedy Republicans unwilling to spread their wealth.