Presidential Leadership Needed on Fiscal Cliff
November 14, 2012
Without presidential leadership, the nation will go over the “fiscal cliff” on January 1. This will raise taxes, implement the sequester, and almost certainly throw the U.S. economy back into recession.
The fiscal cliff’s tax hikes include the expiration of the 2001 and 2003 tax cuts, the Alternative Minimum Tax hitting more middle class families, the expiring employee payroll (Social Security) tax cut, various business tax provisions, and various Obamacare tax increases.
The Budget Control Act’s sequester would cut federal spending in most areas other than safety net programs. Of the $1.2 trillion savings, 18 percent ($216 billion) is interest savings. The remaining $984 billion is divided equally over nine years for an annual cut of about $110 billion split evenly between defense (budget function 050) and non-defense spending.
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Deficit Reduction Is Imperative, but Must Be Done Smarter
Washington’s spending has been out of control for too long, and the resulting deficits and government debt pose massive challenges. Without a credible fiscal plan, we face further downgrades of our government debt by the credit rating agencies. Across the board cuts of the type included in the sequester, however, could do more harm than good. It is better to enact spending cuts that are larger and more precise than those in the sequester. Entitlement reforms and other spending controls will strengthen our fiscal position more than the sequester will.
Another Recession Looming
The Congressional Budget Office has predicted that going over the fiscal cliff will cause a recession, with negative economic growth of 0.5 percent from the fourth quarter of 2012 to the fourth quarter of 2013. Unemployment will reach 9.1 percent in the fourth quarter of 2013.
National Security at Risk
It is especially critical to the nation’s security that the country not be driven off the fiscal cliff. Secretary of Defense Panetta has said the sequester would be “devastating” and would inflict “severe damage on our national defense.”
Presidential Leadership Needed
We must avoid going over the fiscal cliff, and we must take steps to reduce our debt. Both of these imperatives can be achieved by putting in place deficit reduction measures that are more precise and sensible than the scheduled tax increases and spending cuts. Presidential leadership is essential on this issue. The House has already passed a bill to replace much of the 2013 sequester with bigger and more precise cuts. The President and Senate Democrats should join Republicans in Congress to find a solution to the fiscal cliff.
