Monday, November 12, 2012

U.S. Fiscal Cliff Can Easily Be Avoided

Public Policy

An article by David Leonhardt in the New York Times rightly points out that U.S. President Obama has a tough job ahead of him in dealing with the fiscal crisis, dubbed the "Fiscal Cliff" — essentially the ideological battle on whether wealthier individuals ought to pay more in taxes, once the tax policies of George W. Bush expire on December 31st. Such is an apt metaphor to describe not only the U.S. economy but the thinking of many politicians in Washington. 

One of President Obama's options is to increase taxes on the highest income earners, which makes perfect sense for everyone except the Republicans in Congress:
If he can persuade the Republicans to increase taxes on the affluent and leave them low on the middle class and poor, he will take a step toward reducing economic inequality. Those tax increases, combined with more military cuts than Republicans favor, would also leave the federal government with money to spend on education, scientific research, clean energy, roads and mass transit, all of which Mr. Obama calls crucial to the economy of the future.
Perhaps his strongest weapon in the debate is that Americans mostly agree with him on these issues — in greater numbers, in fact, than they voted for him last week. Polls generally show that strong majorities support higher taxes on the affluent and more spending on a handful of tangible domestic programs, like schools and infrastructure.
“What I hope the White House does is take this case outside the Beltway to the country,” Senator Michael Bennet, Democrat of Colorado, told me. Senator Charles E. Schumer of New York, the third-ranking Democrat in the Senate, added that he thought the election — both the outcome and the exit polls — had two mandates. “One was for both sides to come together,” Mr. Schumer said. “Two was to raise taxes on the wealthy.”
Higher taxes on the affluent cannot solve the long-term deficit, which is foremost a product of rising health costs. But higher taxes can make a significant dent over the next decade. That is in part because upper-end taxes have fallen so much over the past 30 years.
Many budget analysts have called for about $500 billion in annual deficit reduction by 2020. The expiration of the Bush tax cuts on income above $250,000 would cut $110 billion. Other tax changes that many Democrats favor, like restricting some loopholes for high-end taxpayers, could add another $50 billion to $100 billion. Spending cuts and tax increases on the middle class or poor would still be necessary, but many fewer of them than if taxes do not change.
If the election revealed anything it's that President Obama has a mandate from the American people, and that the Republicans find themselves on the wrong side of history; that in itself ought to be sufficient to convince House Republicans of what they ought to do. And, of course, this makes perfect sense to the individuals who are not earning more than $250,000 a year. It's not about class warfare; it's about necessity and fairness.

But such rational and necessary arguments will likely not prevent Republicans in Congress from acting as they always do when it comes to casting their votes in favour of paying more taxes. That and their intense dislike for President Obama and his public policies will make the next four years a testy one between the Congressional House and the White House. That will only alienate more Americans from the Republican Party.

Perhaps I am wrong, but it seems that House Republicans would rather allow the economy to go over a fiscal cliff before electing to work with the White House—in other words, compromise; that being the case, it might take a giant economic crash before such (selfish) individuals understand what's really at stake.

You can read the rest of the article at [NYT]