The two months after the election will be more significant than the two months leading up to it because that’s when policymakers must decide what to do about the so-called "fiscal cliff."
That’s the combination of tax increases and spending cuts that many economists say will throw the economy back into recession, which might come as a surprise to the 23 million unemployed Americans who probably think we’re still in one.
Taxes are set to increase by $400 billion because the tax cuts enacted under President Bush will expire at the end of the year. According to the Tax Policy Center, if you are a taxpayer earning between $33,542 and $59,586 annually, you’ll pay an average of $1,843 more next year.
As for the spending cuts, remember last year when Congress and the president couldn’t agree on what to do about the debt ceiling and ended up getting the government’s credit rating downgraded? Policymakers agreed then on $100 billion in spending cuts that will start taking effect Jan. 2. They basically said, "We can’t agree on what to do about this debt now, so we’ll create this deadline with these significant cuts and then come up with a better idea before they take effect." That deadline is getting pretty close.
This is not exactly the ideal way to balance a budget, but it’s the best idea our elected officials have come up with. Unless the American people rise up and demand better – which, so far, we’re not doing – then the country’s best hope is for its economic elite to step up and make members of Congress act like statesmen.
That appears to be happening, at least a little, on both the national and state levels.
Last month, 80 CEOs who lead some of the country’s biggest corporations released a signed statement asking elected officials to address the growing national debt. By the way, it’s now more than $16.2 trillion, or $52,000 for every American, including children.
Organized by the nonpartisan Campaign to Fix the Debt, the 80 CEOs urged policymakers to reform Medicare, Medicaid and Social Security; reduce tax rates; and eliminate loopholes in order to increase revenues. Those last two words – increase revenues – are significant because they acknowledge that the hole is so deep that the government can’t simply cut spending and wait for a growing economy to painlessly make everything all right. Just as in a debt-ridden family budget, more money has to come in, and less has to go out.
The CEOs – who know a little something about balancing huge budgets – are pushing this despite the fact that it probably would mean they personally would pay higher taxes.
In Arkansas, Randy Zook, the Arkansas State Chamber of Commerce’s executive director, will circulate a statement to his board of trustees and executive committee for their endorsement and then send it to the state’s members of Congress. Zook wants Congress to prevent the fiscal cliff from happening and then create a more surgical way of dealing with the country’s bleeding budget. He told me many of the tax increases are "business killers. They’re just terrible."
Moving forward, the National Association of Manufacturers thinks that failing to avoid the cliff will cost six million jobs through 2014 and send the unemployment rate from its current eight percent to 12 percent. The nonpartisan Congressional Budget Office thinks unemployment will hit nine percent.
But no matter what happens between now and the end of the year, Washington’s inaction has already hurt the economy. The manufacturers say one million jobs don’t exist because businesses are delaying investments as they wait to see what happens with the fiscal cliff. Zook is seeing evidence of that throughout the business community.
If Washington worked as it should, policymakers would agree after the election to bring the budget closer to balance while lessening the fiscal cliff’s short-term impact. Then next year they would start a civil, reasoned discussion that results in a long-term solution.
That’s not likely to happen since voters, for some reason, will re-elect most of the same people who are there now. The worst-case scenario is also the path of least resistance: Congress could just create another deadline or do away with deadlines entirely and return to business as usual.
That being the case, some people argue that maybe it’s best to let the government actually go over the fiscal cliff.
I agree with them if the alternative is, once again, to simply put off addressing the problem until sometime in the vague future. Maybe the country must get a taste of the consequences of unchecked deficit spending before it will stop doing it.
Steve Brawner is an independent journalist in Arkansas. His blog — Independent Arkansas — is linked at arkansasnews.com. His e-mail address is firstname.lastname@example.org