Fiscal cliffhanger: Ignore the partisans
It is never acceptable for elected officials to put partisan politics and special-interest pledges ahead of their country. But when the stakes are great, as they are with the fiscal cliff negotiations, it is reprehensible.
People who talk about the political benefits of heading off the cliff need to have their heads examined. The blunt ax of massive spending cuts, along with huge across-the-board tax increases, would be irresponsible, possibly triggering another recession. It’s offensive for some Democrats and Republicans to suggest their party could “win” under this scenario, since the country and the American people would be sure losers.
Both parties say they want a deal. The key question is whether they will resist their respective wings, special-interest pressures and short-term political considerations to achieve one.
In the past, conservative Republicans have presented obstacles to a solution by insisting that tax increases be off the table. That was no more tenable than liberal Democrats insisting that social insurance programs not be addressed.
Since the election, many conservatives have become more flexible on revenue, while many liberals have become less flexible on social insurance reform. Yet both are needed for any fiscal agreement to be credible and effective.
Given how closely divided the country is and the current balance of power in Washington, for either side to insist that the other must make most of the concessions just isn’t appropriate. It is also a prescription for continued conflict and uncertainty.
Here are a few ideas on a possible resolution:
The Republicans are in a corner, since they don’t want to be seen as blocking an extension of the Bush tax cuts for the middle class. At the same time, they would prefer that tax cuts be extended for everyone, not just couples making less than $250,000. At a minimum, the GOP would like to reduce tax deductions for higher-income taxpayers rather than raise marginal income tax rates. As a certified public accountant, I know that such an approach, if properly designed, can yield more revenue and result in higher effective tax rates for the wealthy than going back to Clinton-era marginal tax rates.
The Republicans understandably want significant spending reductions to be coupled with any additional revenue. After all, though putting our finances in order will require additional revenue and reduced spending, all major bipartisan fiscal reform proposals rely much more heavily on spending reductions than additional revenue over time.
If an agreement is not reached this week, we just may go over the cliff in whole or in large part. This is not in anyone’s interest. It could also trigger a series of political battles next year over the debt limit, the continuing resolution to fund the government and other key matters.
It is promising that House Speaker John Boehner (R-Ohio) has reportedly made extending the debt limit part of the deal, in addition to indicating some flexibility on taxes.
In return, President Barack Obama could show flexibility by agreeing to meaningful mandatory and discretionary spending reductions. He should also ease his insistence on marginal tax rate increases in favor of increases in the effective tax rates (reflecting the actual amounts people pay) that would come from reducing tax preferences for higher-income individuals.
These agreements would be for one year, tied to a process for achieving comprehensive tax reform as part of a “grand bargain” by a date certain in 2013. This should be coupled with specific long-term revenue, spending and debt-to-gross-domestic-product targets that would form a framework for a fiscal grand bargain next year. Failure to do so would result in temporary tax surcharges and spending reductions, both more realistic for both parties to accept than the current “sequester” approach, with its automatic discretionary spending cuts.
This type of fiscal cliff deal could provide a meaningful reduction in next year’s deficit. It could also lead to a grand bargain by setting targets for congressional hearings and the complex negotiations required to achieve a more prudent and sustainable fiscal path.
It is crucial not to ignore the abyss that lies just beyond the fiscal cliff. It is alarming enough that our federal debt has surpassed $16 trillion. But we have actually dug a fiscal hole of more than $71 trillion when you consider our unfunded Medicare, Social Security and other retirement obligations. This amount goes up more than $100 billion a week on autopilot.
If we don’t achieve a grand bargain next year, we will eventually face draconian spending cuts and tax increases, which would put the American Dream at risk for our children and grandchildren. Those who are the most vulnerable would likely suffer the most. That would be irresponsible, unethical and immoral.
There is one other critical element in reaching a lasting fiscal solution. We need a fact-based, options-oriented public education campaign about the U.S. financial condition and why fundamental tax, social insurance and spending reforms must be made.
The fiscal cliff debate has been largely hijacked by the partisan extremes and special interests. We need to address the mainstream public with straight talk about what has gotten us into our fiscal sinkhole and what it will take to climb out. Fortunately, President Bill Clinton’s 1998 Social Security Forums and the Comeback America Initiatives’ recent forums in Ohio and Virginia provide useful models for any 2013 forums.
On my travels addressing fiscal issues since 2003, I have seen that the American people are more willing than politicians to get behind tough choices if they are clearly necessary and fair. Once “we the people” are engaged, they can show our elected officials the way to restoring fiscal sanity and creating a better future.
PHOTO: House Speaker John Boehner (R-Ohio) pauses at a Junes news conference on Capitol Hill in Washington June 28, 2012. REUTERS/Yuri Gripas