The last time Congress dallied, the economy paid the price
Congress doesn’t have to drive off the fiscal cliff to do the economy serious damage. All it has to do is stand on the edge long enough acting as if it may jump, and the economy is going to take a hit.
For reference, remember what happened when Congress diddled over whether it was going to increase the debt ceiling in 2011? All but the most stubborn members of Congress knew they were going to have to raise the ceiling or the economy would take an enormous hit. But still, they put off acting just long enough that the nation’s credit rating was downgraded anyway. And the Dow Jones Industrial Average plunged 635 points in a day.
The lesson to be learned is that inaction has its consequences.
And it is not difficult to guess the immediate consequences when Congress is in a position of causing economic uncertainty and reducing consumer confidence just as we’re entering the biggest buying season of the year. The consequences grow as 2012 gets shorter and 2013 gets closer.
Fifteen months after the debt limit fiasco of 2011, the nation is flirting with yet another unnecessary crisis.
Congress started it
Indeed, this crisis is a direct outgrowth of the summer of 2011, because the temporary solution to the long-term problem of fiscal irresponsibility was the Budget Control Act of 2011. That act gave Congress three months to reach a budget compromise — which it didn’t — and then kicked the can down the road, past the presidential and congressional elections of 2012. Those elections are now history. We all know that we’re going to have the same Democratic president, Barack Obama, for the next four years, and essentially the same Democratic Senate and Republican House for the next two years.
It falls to this lame-duck Congress to avert a crisis it put in motion. That’s because under the Budget Control Act of 2011, across-the-board spending cuts will kick in Jan. 1: about $55 billion in defense spending and about $55 billion in domestic spending. Doctors will see their Medicare reimbursement cut by 2 percent.
Oh, and the “Bush Tax Cuts” that were supposed to expire two years ago but have been extended to avoid worsening the recession, will all expire with the first of the year. Other tax cuts are also due to expire, including the 2 percent cut in Social Security payroll taxes, and unless it is amended, the Alternative Minimum Tax will hammer middle-income families for an average of about $3,700.
The net effect will be the loss of an estimated 3 million jobs and a quick descent into a double-dip recession.
White House parlEys
President Obama will be meeting with corporate leaders in the White House on Wednesday and with Republican and Democratic congressional leaders Friday.
He appears ready to use the bully pulpit — and the grass-roots support his organization built during the presidential campaign — to push for a speedy and comprehensive response to a vexing problem.
One of the main sticking points appears to remain the fact that a majority of congressional Republicans are tied to the Grover Norquist pledge that keeps them from increasing taxes, even on Americans whose wealth has steadily grown while the earnings and wealth of the middle class has been stagnant or declined.
It is time for the Norquist pledge to be consigned to the dust bin of history. Norquist is a political charlatan who has never stood for election yet manages to bully gutless elected officials into towing his line.
It’s so obviously incongruous that no less an established conservative commentator as Bill Kristol, Weekly Standard editor, is suggesting that it is time for Republicans to rethink the Democratic position that taxes be allowed to go up on the wealthy.
“It won’t kill the country if we raise taxes a little bit on millionaires,” he said on “Fox News Sunday.” He suggested that Republicans take Obama’s offer, and questioned why the Republican Party would “fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of whom live in Hollywood and are hostile.”
The larger question is why House Republicans would hold the vast majority of their constituents hostage for, as Kristol puts it, “a bunch of millionaires.”
What’s at stake
What Obama is suggesting is preserving the Bush tax cuts except for those at the top rate, who would see an increase from 35 percent after Dec. 31 to 39.6 percent, the rate in place during the Clinton administration. That would raise about $1 trillion over 10 years, but it would also help rationalize spending cuts that are going to hurt lower income people.
It’s time for Congress and President Obama to reach an agreement that reflects the national consensus of last Tuesday’s election and that is in the best interest of the American people. And that interest is best served by avoiding any further and unnecessary economic turmoil.