Dangling on the Fiscal Cliff

Conspicuous by its absence on the main stages of the Republican and Democratic national conventions has been talk about how the country can avoid careening off a fiscal cliff next year.

The fiscal cliff is real and its impacts known. Its pressure on the political system is palpable. Yet no one wants to venture forth to describe what is likely to happen after the November general election as national leaders watch the clock of a $1 trillion time bomb count down.

Congress triggered the time bomb itself to create a bipartisan political dynamic to come up with a budget and tax plan or face draconian budget cuts and automatic tax increases. Spending reductions for defense and other spending programs and hikes on income tax rates and Social Security payroll tax rates threaten to jolt the U.S. economy back into recession.

Despite widespread dire warnings, President Obama and Congress, especially the GOP-controlled House, are so badly stalemated, they haven't even made a serious effort to disarm the time bomb.

And now they aren't even talking about the fiscal cliff on the campaign stump because any significant compromise budget plan will involve spending cuts and higher taxes neither party wants to own heading into an election.

For the cynic used to watching Congress dither until the last minute on a deal, this isn't anything new. However, the scope of this self-created booby trap has already generated a reaction in the private sector. Reductions in federal spending resulting from automatic budget cuts could lead to 2 million lost jobs – 500,000 in professional and business services, 350,000 in manufacturing and 300,000 federal workers. Some government contractors are starting to make cuts now in anticipation.

Instead of concrete alternatives to the fiscal cliff, Republicans talk about shrinking government and cutting taxes, while Democrats hail the need to make investments in education and infrastructure and make everyone pay his fair share of taxes. Noble sentiments passionately argued by partisans, but not anything close to a solution to the national budget dilemma.

Understandably, politicians want to talk about growing the economy and creating jobs. But they would be well advised to talk about how to avoid a massive, self-imposed job loss by failing to enact a meaningful budget.

A stagnant or weakening economy is viewed as a favorable political wind for the GOP. But as the fall presidential campaign wears on, its policies of shrinking government and tax revenues may not appear like a match to the puzzle posed by the fiscal cliff. Democrats may not be able to pin the tail on their donkey either by emphasizing more targeted spending and higher taxes on the wealthy.

Much has been made this political season about how the world now views the United States. That world view may have less to do with our foreign policy or military strength and instead hinge on whether American political leaders move from denial to determination to address our fiscal crisis.

There is room for respectful disagreement of what to do – an austerity plan versus a mild stimulus tied to budget deficit reduction. What is becoming clearer as the clock ticks closer to fiscal midnight is that doing nothing isn't a credible solution.

Obama appointed the National Commission on Fiscal Responsibility and Reform, known as the Bowles-Simpson Commission after its chairs, to develop a bipartisan budget plan. Republicans blame Obama for ignoring it. Democrats note GOP vice presidential candidate Paul Ryan was a member of the commission and voted against the plan. Nice sound bites. Bad fiscal policy.

Cliffs are dangerous places, especially in the fog of an election season.

Links: