Avoiding the Fiscal Cliff
Over the last couple of weeks, the Episcopal Public Policy
Network (EPPN) has published articles detailing the impact of the federal
government spending cuts that will occur under the sequestration that hits
January 1. By a formula, all defense and
nondefense discretionary programs will lose 8.2% across-the-board. As the EPPN explains, these include the WIC
food and nutrition subsidies and low-income housing assistance at home and
HIV/AIDS prevention programs abroad, among numerous others. The EPPN wants you to contact your
Representative and Senators to tell them how important these programs are to
you.[1].
The EPPN statements highlight the specifics. The impending spending cuts and accompanying
tax hikes are important in their totality as well. Less formally known as the "fiscal
cliff", this is a fiscal policy mess that has come about because Congress
and the Administration have failed since the summer of 2011 to enact the
legislation necessary to begin to curb the deficit and the federal debt. Remember the debt ceiling debacle and the
credit downgrade? Our government
officials still haven't dealt with any of it.[2]
What they did instead was pass a collection of temporary
stop-gap measures that will expire December 31.
These include extensions of the Bush tax cuts, the temporary reduction
in the social-security payroll tax and the emergency extended unemployment
insurance benefits, as well as the spending sequestration. All told, on January 2, when tax liabilities
go up and spending goes down, the federal government will remove $606 billion
from the private sector economy, annualized for 2013, a pretty good chunk to
come out of the economy all at once, at a time when the economy is still in
pretty tenuous condition. Even the
Congressional Budget Office projects the strong possibility that a renewed
recession could set in during the year.
We assume the Congress doesn't really want all that to
happen. Thus, they must "do
something" during the brief lame-duck session after the November 6
election. The election results,
particularly for President, could well have a big impact on the color of the
actions they take. President Obama has
already stated that he would veto any bill that doesn't allow the Bush tax cuts
to expire for the highest-income taxpayers.
Our humble and uninformed opinion is that some broad
extension of everything now in place is the most likely lame-duck outcome; we
can't imagine that substantive, detailed decision-making will take place then. In a parallel situation, no regular spending
appropriations have been enacted for fiscal 2013, which began October 1, and in
mid-September, the Congress did pass a "continuation" bill that
authorizes the spending covered in those appropriations to continue through
March 31 at fiscal 2012 rates. We would
guess that a similar broad scheme will be put in place for taxes and the
spending items affected by the sequestration.
Limping through until Spring with current laws and programs
is fine; it beats falling over the Fiscal Cliff. It does say, though, that we are postponing
the days of reckoning a few months more.
And it still obligates the new Congress and a new Administration [even
if Mr. Obama is re-elected, many of his officials will change] to work together
to make the hard choices they have tried to run away from for some 18
months. We need some discussion about
what it is we want government to do in our country. How much of our money and how much debt do we
want to commit to these efforts? We've
written here before about the ongoing need to reform social security and about the
inherent difficulties in designing an efficient system to finance
health-care. The longer we try to
postpone constructive action, the harder and more expensive it will all
be. The associated uncertainty is
already harming the economy by discouraging private sector planners and
investors from making commitments.
So, yes, indeed, contact your Senators and Representatives
to tell them what programs are important to you – more immediately, go to a
campaign event and tell them in person – but most of all, tell them you want
them to act responsibly in conducting your business as a citizen and a taxpayer. Then we won't fall into this
"sequestration-fiscal cliff" quagmire again.
* * * * *
[1] Here's a link to the most recent EPPN statement: http://episcopaldigitalnetwork.com/ens/2012/10/19/eppn-domestic-programs-whats-at-stake-in-the-budget-2/. The EPPN site itself has a form letter for
you to send; start here: http://episcopal.grassroots.com/
[2] The picture of the cliff is from Fidelity Investments, here: https://www.fidelity.com/viewpoints/fiscal-cliff
Labels: American Society, Economy, Government Policies