What Congress ought to do about the fiscal cliff

By on December 5, 2012
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“The Fiscal Cliff” is an exaggeration, but Congress should work to stop the artificial crisis they made nonetheless. For those that do not know, “fiscal cliff” is the term used to describe the plans for sequestration Congress passed during another crisis, the raising of the debt ceiling, and the automatic raising of the marginal and pay roll tax rates. Sequestration was supposed to be a penalty if the House and Senate failed to reach an agreement on a long term deficit reducing plan, and Congress intentionally decided to push this past the election as a way to make it less partisan and more passable. The Bush tax cuts are set to expire as they were never the real tax rates so the combination of these two events is being referred to as the fiscal cliff.

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Nonetheless, the cliff is more like a slope because the only way that the fiscal cliff could cause a recession was if it lasted for a while- weeks to months. If January 1 came and there was no deal, the United States would be in a bad position but not noticeably worse than the day before. Of course, Congress will probably not be working on that day as that day is New Years, and the new session of Congress would be sworn in two days later on the third. So if a deal will be made before then it will be made before the recess for Christmas which should give them about two weeks to iron out a deal.

Congress has three options other than failure: they can “kick the can”, actually solve it, or go off of the cliff temporarily to get a better deal. Kicking the can is the worst option by far because the same players that will be in the debate will be more or less the same. Even though the Republicans lost several of the Tea Party freshmen that made this mess, the Tea Party influence is still lurking in the shadows so the result would be fairly close to one that comes in the next few weeks. The markets and our creditors would undoubtedly punish the economy for Congress’s lack of action far more than if we went over the slope temporarily if they knew that a legitimate long term deal was coming soon.

Solving it can mean many things to many people. To conservatives it is cutting spending and making the Bush tax cuts permanent. For liberals it is letting the top tax rate cut expire and keeping spending and entitlement spending about the same excluding defense. The deal that will most likely be made will resemble sequestration with an increase on the top marginal rate, moderate tax and entitlement reform, and an increase in the debt ceiling, which would be reached in February or March according to Secretary Geithner.

Personally, I hope we go over the slope for a better deal.Something to keep in mind about this issue is that when you decrease spending from the government someone is losing a check and that would be recessionary. There is fraud in the system, of course, that should be fixed. However if we cut spending from the needy, not only are we failing in our basic civil- some would say divine- duty to help our fellow man, we would be harming our economy by slowing- if not stopping and reversing- our already slow recovery. If we do not care about the social impact of an “austerity bomb” we should be wary of the economic impact.

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