Averting a Fiscal Cliff – RantAWeek
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Averting a Fiscal Cliff

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Posted by Tyler Miksanek on November 18, 2012 at 4:58 pm

At the beginning of 2013, a group of tax cuts that includes the Bush tax cuts is scheduled to expire.  At the same time, many key government programs will be cut or reduced as spending is drastically lowered.  But these measures aren’t designed as a fiscal belt-tightening of the federal government.  Instead, this ‘fiscal cliff’ – as it has been dubbed- is a dangerous combination that politicians are scrambling to avert, as most lawmakers are in agreement that allowing taxes to be raised at the same time spending is cut could hurt an already fragile economy.

But even though most politicians agree that the fiscal cliff should be averted, the same bickering that has epitomized Washington continues in regards to the technicalities.  Republicans believe that the Bush tax cuts should be extended for all income earners, while Democrats argue that the top two percent of income earners no longer need the cuts.  Still, a  route for compromise exists.  Negotiations have already begun over the possibility of closing some loopholes and deductions for higher earners without necessarily raising the top income tax rates.  This idea, essentially a middle road between the two party’s stances, appears to be the most bipartisan plan so far.

The coupled political and economic risks involved in not extending these cuts makes the situation ripe for compromise.  However, the high likelihood of a compromise does not mean these economic trade-offs will reflect well on the American political system.  Conversely, the fact that these budget talks have already been dubbed ‘negotiations’ by the media show the high tensions that still divide leadership in Washington.  Just because an amicable solution can be found does not mean that the politics behind the solution will be friendly.

That being said, any compromise is better than a stand-off.  Across the board tax hikes and program cuts would lower individual spending and hurt consumer confidence.  Additionally, these tax hikes would also affect businesses, which would be less likely to seek growth as a result of increased taxation and more economic uncertainty.  If businesses aren’t looking for growth, they won’t be investing in our economy or hiring workers.

And as much drama as the media may put on this fiscal cliff, lawmakers can also simply put off the most important decisions.  While a final decision on the Bush tax cuts is needed, many of the budget cuts that were simply delayed as the result of debt ceiling negotiations back in 2011 can be delayed again.  The overarching problem – that of an unbalanced budget and a growing national debt- will likely remain unsolved.

This refusal to solve the big budgetary issues should hardly be a let down; Congress has refused to tackle many tough issues in the last few years.  However, the willingness of politicians to delay these big decisions represents a disappointing trend in American politics.  As much as Americans decry stalemate in Washington, they choose to reelect politicians who only break stalemates through short-term solutions.  If Americans were more open to large-scale solutions that didn’t necessarily match their ideology, politicians would find it more politically viable to make long term structural fixes to our economy.

It seems likely that Washington will find a way to compromise and avert the fiscal cliff.  Unfortunately, even this compromise doesn’t fix Congress’s disappointing track record on delaying problems instead of finding long term solutions.

Filed under Economy
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