Falling off a cliff is never a good idea. Then again, neither is digging yourself deeper into a hole.
Those are the messages, contradictory but compelling, embedded in a new report from the Congressional Budget Office (CBO) about the fast-approaching “fiscal cliff.” The economy will confront the precipice at year’s end, on account of a confluence of tax cuts set to expire and spending cuts scheduled to kick in.
The combination would result in a dramatically slowed economy, with growth dwindling to 0.5 percent in 2013. Indeed, the CBO warned, in the first half of the year the economy would contract at an annual rate of 1.3 percent. In other words — and the CBO actually used this word — a recession.
The wrong lesson to draw from the report is that the spending cuts and tax increases should be postponed entirely. This approach would create equally, if not more, serious problems — only later.
The mushrooming debt would drain money from private investment, divert scarce government funds to rising interest payments and constrain the nation’s ability to respond to emergencies.
So what’s the sensible lawmaker to do?
Typing this sentence, I’m not sure whether to laugh or cry. Because the sensible lawmaker may be Washington’s elusive Sasquatch, rumored but impossible to find.
Consider the Irresponsibility Olympics now taking place in the House of Representatives.
Speaker John A. Boehner (R-Ohio), who surely knows better, has announced he will not entertain the notion of increasing the debt ceiling without securing additional spending cuts.
Yes, the debt-ceiling debate is back, too, within a few months of the cliff-jumping. And because the likely (and probably most rational) response to the cliff is a short-term extension to limp past the lame-duck session, the debt ceiling and the cliff are intertwined.
Having managed to downgrade the country’s credit rating with last year’s shenanigans, Boehner & Co. — emphasis on the company, because it’s the crazies in his caucus who are driving the speaker to these lengths — seem prepared to do it all over again.
The notion of debt ceiling as useful “action-forcing event” was a respectable theory the first time around: It resulted in the congressional supercommittee, which could have produced a debt deal.
Except it didn’t. A big piece of the looming cliff debate involves how to defuse the bomb of spending sequestration that was supposed to force compromise. To consider debt brinkmanship again is sheer lunacy.
Competing on the other side of the Irresponsibility Olympics is House Minority Leader Nancy Pelosi, who sent a letter to the speaker Wednesday demanding a quick vote to make all but a sliver of the Bush tax cuts permanent.
Yes, you read that right. The Republican position is that all the tax cuts must be made permanent, although they were passed in a long-gone era of budget surplus. President Obama has argued that the cuts should be extended for families making less than $250,000 a year. The difference amounts to about $850 billion over 10 years; $1 trillion, when interest costs are included.
But because Republicans have held the so-called “middle class” tax cuts hostage to continuing tax cuts for the wealthy, Pelosi upped the pressure. She proposed extending the tax cuts for income up to $1 million.
The official scores aren’t out, but I’m told this would lose about half the savings gained by letting tax cuts expire at income above $250,000. And because even millionaires — even billionaires, actually — would reap the benefit of paying lower marginal rates on income below $1 million, half of those savings would go to . . . millionaires.
Think about it: In an age of inevitable budget austerity, Pelosi proposes using about half a trillion dollars to help the wealthiest Americans. She knows that Boehner isn’t likely to take her up on the offer — her letter is more a messaging ploy to make Republicans look like millionaire-lovers — but this hardly excuses her move. Now the astonishing new normal is that tax cuts should be extended up to $1 million.
My mythical sensible lawmakers would let some tax cuts expire — the supposedly temporary Social Security payroll tax holiday plus some corporate pork — and postpone the real day of reckoning for six months. Rep. Sasquatch would then work to rewrite the tax code — in a way that raises revenue, and not by the phony magic of assuming economic growth. Meanwhile, Rep. Bigfoot would deal with entitlement spending.
But here’s the question: What party do these lawmakers belong to? Not one that resembles the current lineup.
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