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Fiscal Cliff – A Real Crisis, But Artificial Deadline

Fiscal Cliff – A Real Crisis, But Artificial Deadline

The opinion polls seem to be clear that Republicans have lost the debate over the so-called fiscal cliff. The great irony is that it was the GOP that came up with the idea as a way to force government to address a very real and substantive problem – out-of-control spending.

The pundits talk about the devastating impact of the huge tax increases and across-the-board spending cuts that will result on Jan. 1, 2013, unless Congress acts. But it’s not so much a fiscal cliff as a fiscal slope – the impact won’t be instantaneous, but more long-term. Secondly, the deadline was an artificial creation; thus, it can be moved.

The system won’t collapse overnight, and we won’t become another Greece for at least 10 years. So, we can continue to ignore the problem for a little while, but the point of no return will eventually arrive.

On the positive side, most everyone understands that we are rapidly approaching the point where, if we don’t act to restore fiscal sanity, we lose our ability to do so. They talk about a balanced approach, but even that’s become distorted. The problem isn’t a lack of revenue; it’s out-of-control spending.

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The U.S. government can be likened to a business that is growing sales by a healthy 10%/year, but costs are growing by 45%/year. It’s unsustainable and, while adding an additional 5% to the income side may be a noble goal, without aggressively reducing spending, income growth is irrelevant. We can argue about increased tax rates, but our spending is the problem.

At press time, a deal appeared imminent, only to fail at the last moment, but it would have done little to raise revenue, and far less to decrease spending. The problem is that there is no substantive plan to reduce entitlement spending. Thus, the options on the table only agree to kick the problem down the road a little bit longer.

The bald truth is that we are on an unsustainable path. We’ve seen spending grow at a rate no one felt possible just a few short years ago. To continue as we are is to mortgage our children’s future. This debate shouldn’t be characterized by whether you’re on the right or left of the political spectrum, though admittedly your politics will dictate your priorities. The right tends to love a strong military, while the left wants a robust welfare state. But budget irresponsibility for the sake of political expediency and power isn’t something either side should embrace, even though they both have. 

I’ve always found it interesting that some rights are embraced by the left and the right, and others opposed. The left is ho-hum to negative on the Second Amendment, private property rights, freedom of religion, and the freedom of those with capital to employ it as they see best. Yet, they love the interpretation of Commerce Clause that gives the federal government nearly unlimited power, and they embrace freedom of speech and the separation of church and state.

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Meanwhile, the right holds dear those rights included in the original Constitution or those added through constitutional processes, but abhor rights created by the courts – abortion, Title 9, etc.

There are no competing world views here; it’s simply a matter of having the political will to do what is right. Somehow we’ve made this a debate about fairness, but it’s a contrived distraction because neither side has made a proposal that will address the problem.

There are legitimate political realities. The Republicans in the House were elected to the majority by promising to reduce spending and address the financial abyss we teeter on the edge of, without raising taxes and damaging our free market system’s ability to produce economic growth. The Democrats and the President also have a clear mandate, raise taxes on the wealthy and protect social programs.

But despite all the bluster, nobody has advocated removing the safety net for the poor, or forcing them to begin to pay taxes. Nor has either side advanced a position where the wealthy don’t provide the vast majority of the revenue to the government. It’s the great middle class that will pay the price for Washington’s inaction.

The consensus seems to be to continue to operate in the unprecedented manner of not even passing a budget, and pushing the substantive decisions to a later date. I suppose 2014 is better than 2013 if, for no other reason, they’ll have one less year to delay making substantive solutions.

The whole thing is a colossal embarrassment and a testament to both a lack of leadership and a lack of will on both sides. The one thing we hopefully can say is that they won’t let the country go over the cliff, but won’t address the deficit in any substantive way either.

The pundits say this was a major political win for the Democrats, hanging the Republicans’ attempt to force action around the Republicans necks; and politically, it may be a major win. But from a real-world fiscal standpoint, it appears we’ll emerge with simply more of the same. It truly appears now that a sovereign debt crisis, which is inevitable if things continue as they have been, is far more likely than our elected officials in the Washington Beltway acting to prevent it.

TAGS: Legislative
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