Month: November 2012

Why You Should Really Be Angry About the Fiscal Cliff (Hint: It’s not the deficit)

So, the election is over. While I could continue to rant about policy makers with no connection to reality (and likely will do so at a later date), I’m a little burnt out on the political side of things at the moment. That being said, there’s another issue we can’t pretend isn’t barreling towards us at full speed- that damn fiscal cliff. And given the soapbox proselytizing I’ve had to listen to over the past week, my brain is going to explode if we don’t have a little chat about what all this means and why it’s happening… that isn’t led by cable station pundits.

What is the Fiscal Cliff?

The fiscal cliff refers to a series of tax increases and spending cuts set to take effect at the beginning of 2013. These include the expiration of the Bush Tax Cuts across the board, the expiration of the Payroll Tax Holiday, substantial cuts to entitlement programs and the military budget, and more.

Why is this happening?

Last August, it came time to raise the U.S. Debt Ceiling, or face a technical default on our debt. We had never defaulted on our debt, and no one really knew what would happen if we did. It wasn’t a concern, because this just isn’t one of those things you mess around with, and the idea of us not raising our debt ceiling sounded absurd. Fiscal Conservatives in Congress, however, chose to use the debt ceiling debate as an opportunity to take a stand on the expanding deficit.

The deficit is large, and is going to take a really long time to pay off. We should probably get that in check. However, it should be noted that raising the debt ceiling has NOTHING TO DO WITH ADDITIONAL SPENDING. IT SIMPLY ALLOWS US TO SPEND WHAT HAS ALREADY BEEN CONGRESSIONALLY APPROVED. 

Anyway, the debate got ugly, with Democrats saying there’s no way they were all for cutting spending across the board, and Republicans saying they refused to raise taxes. It was mostly showmanship. When it became clear that they weren’t going to figure it all out in time to prevent, ya know, major economic calamity (or something like that), they decided to compromise in a really absurd manner. The debt ceiling would be raised by a pittance, but in the wake of that action, a “supercommittee” would be formed to come up with a solution to the deficit problem. If they couldn’t figure it out, then a series of automatic spending cuts would go into place.

Supercommittee failed. Shocking, right? And here we stand, on the precipice.

So, why does it matter? Isn’t it good that we’re decreasing the deficit?

It’s not that simple. Yes, decreasing the deficit is probably a good idea in terms of our credit rating and general expense to the population, but these cuts are not gradual, and they are steep. AND they’re coming into play at a time where costs for businesses are about to go up in the areas of healthcare and payroll taxes. So we’ll be pulling government stimulus at a time where businesses are cutting costs (read: bad). The projected impact on the economy is a sharp drop off in GDP growth and a spiral back into recession.

Damn Republicans, wanting to cut all that spending.

Hold your horses. Let’s be realistic- we’re spending a lot right now. And we need to reign in some of that spending if things are going to get better. Some cuts are necessary, and they may cause pain, but they have to happen. It’s a matter of being smart about the cuts, and gradually introducing them.

Damn Democrats, not wanting to cut spending.

Nope, wrong again. The Democrats are not as cut-happy as the Republicans, but that’s because they think we should pair the cuts with selective increases in taxes.

Damn Democrats, stealing all my money.

Honestly, the only way this works is with a combo approach. Increasing taxes in some capacities isn’t necessarily a bad idea. We had much higher GDP growth in decades past where the tax rate for corporations and the top 1% was substantially higher.

Damn them all.

There ya go.

So what now?

They debate it out on Capitol Hill, and likely fail.

So we’re all just screwed.

Sort of. Maybe. Only time will tell. The truth of the matter is that it’s unlikely that Republicans and Democrats will find an effective compromise. In this vein, it’s almost preferable that we go off the cliff.

WHAT?!

Stay with me. Republicans don’t want to raise taxes. We need to. Democrats don’t want to cut spending. We need that, as well. If we go over the cliff, both things happen, and no one can point at anyone and say, “IT WAS THEM!” If we go over the cliff, and in the month following, walk back some of the cuts and some of the tax hikes, everyone wins… in a really twisted way.

Ok. So I don’t need to worry?

I didn’t say that. You should probably worry a lot about what this whole debacle says about the people you keep sending back to Congress.

What do you mean?

Remember when I said that the whole debt ceiling debate was a bunch of crap? This is an extension of that crap. AFL-CIO President Richard Trumka put it best:

What we’re facing is an obstacle course within a manufactured crisis that was hastily thrown together in response to inflated rhetoric about our federal deficit. Don’t misunderstand me. I don’t for a moment think that America’s deficit is not a long-term problem. It is, but it’s not our short term crisis. But all the deficit chatter has distracted us from our real crisis—the immediate crisis of 23 million unemployed or underemployed workers, a crumbling national infrastructure, an under-supported manufacturing sector, all of which require significant federal investments, all of which will allow our economy to grow out of this crisis, instead of digging us further in.

That sucks.

Yes. Yes, it does. Look, the stock market isn’t tanking right now because Obama won. The stock market is tanking right now because Europe sucks, and investors don’t trust Congress to suck any less. They’re pricing in the idea of us going off the cliff today because they have that little faith that our leaders will pull through before the end of the year. And it will get worse.

But the world also isn’t ending. Remember- it’s a MANUFACTURED CRISIS. So take a deep breath, maybe write an email to your Congressperson telling them to quit acting like a petulant partisan child, and try to ignore the next several weeks of bullshit. And if, come January 10th, they still haven’t figured this shit out- by all means, form an angry mob. And then elect smarter people in two years from now. Deal?