Fiscal Lemmings

As of the time of this writing, Congress and the President have a little more than 36 hours to come to some sort of agreement or we will, "go over the fiscal cliff."  It is important to understand what is meant by the, "fiscal cliff."  In its failure to act on meaningful deficit reduction as outlined by the Simpson-Bowles commision and as part of a previous deal to raise the government's debt ceiling, Congress passed a law that mandated certain tax increases and spending cuts to kick in automatically unless a new law aimed at deficit reduction was passed.  The problem many have with the fiscal cliff is that it raises taxes and cuts spending across the board rather than in a targeted fashion.  While the silver-tongued persuasively argue that our deficit should be addressed with surgical precision, using a scalpel rather than a chainsaw, to target tax increases to those who can best afford them and cutting waste and redundancy rather than cutting programs that benefit real people; the realty is such arguments are usually a smokescreen to allow protection of favoured constituencies. 

If no agreement is reached, on January 1, 2013, the payroll tax cut will expire and everyone's income tax rates will revert to Clinton era rates.  Other than poverty assistance programs, all government spending will be cut across the board approximately 8%, including military spending.  Republicans don't want this to happen because they refuse to raise anyone's taxes and they don't want to cut one cent from military spending.  Democrats don't want this to happen because, although they spent years arguing that the Bush tax cuts were irresponsible and Clinton tax rates were appropriate, they only want to raise taxes back to Clinton rates on the wealthy and they don't want to cut entitlement spending.  Currently, both parties are focusing on the effects of the tax hikes on middle class families and on the economy and any "deal" that seems likely to emerge will probably entail skipping the hard spending cuts, making no cuts in military spending, and raising taxes on people making somewhere between $250,000 and $1,000,000 per year, depending on what kind of deal can be reached.  While this would avoid, "the cliff," it would be the worst possible outcome for our country.  We would avoid a short term impact on the economy from higher taxes, but make no progress to reducing our deficit or long term fiscal responsibility.  For twelve years now, Americans have been getting more and more government and paying less and less for it.  This has to stop.  As far as I can tell, the only way to get any meaningful cuts in federal spending from our two political parties is to go over the cliff and accept Clinton era tax rates for everyone (these rates didn't seem to stunt economic growth in the 1990's).

This morning on ABC's This Week, former Governor Howard Dean (D-VT) argued in favour of going over the cliff.  He pointed out that the most important problem facing our country today is our deficit, which desparately needs to be reduced and expressed the opinion that the only way to both increase revenue and decrease spending appears to be at this point to let the New Year roll in without a deal.  He also argued that doing so would cause short term losses in financial markets but that in six months they would rally because uncertainty would be removed:  everyone would know what tax rates would be, everyone would understand that finally there is going to some spending cuts, and everyone would know that the United States is at last curbing its deficit.  He's right and conservatives Marc Thiessen and Avik Roy made identical points in the Washington Post and the National Review on Friday (December 28, 2012). 

A deal that generates minimal increased revenue by raising taxes on only a small fraction of Americans, that does not subtantially reduce federal spending, and that does not cut military spending at all is not in the best interests of our country.  While there are valid concerns about the effects of higher taxation on the economy, continued borrowing and printing is more detrimental as it devalues the currency and must ultimately be paid back with interest, representing an even higher hidden tax on future generations.  If some phony eleventh hour deal is reached, Wall Street will rally and Americans will breathe a sigh of relief at avoiding the scary cliff.  But the reality is, Howard Dean, Marc Thiessen, and Avik Roy are right. We should be rushing like lemmings over this cliff.  Now is not the time for a deal.  Now is the time for Congress to engage in what John Randolph of Virginia called in 1828, "masterly inactivity."