The fiscal cliff is a term that describes the retirement of the Bush tax cuts and forced spending cuts baked into the budgeting agenda for the government. To deal with it properly we need to do several things. First, set aside our personal bias and second, set aside our politics. We, America, is in a bind and we need to work together to get back into safer economic territory.
The simultaneous effect of expiring the Bush tax cuts and a corresponding reduction in the budget deficit beginning in 2013 will impact economic function. The cumulative effect of the expiration in 2012–2013 is projected to result in a 19.63% increase in tax revenue and 0.25% reduction in spending.
The Budget Control Act of 2011 was devised in order to bring the parties together and work out the problem. Generally speaking this problem has been known about for a long time and it seems our politicians have been sitting on their hands because both sides of the aisle were waiting and hoping their side would win the 2012 presidential election, which would determine how the cliff and the debt would be handled.
The key may be to turn the fiscal cliff into a ‘fiscal slide’
While questions remain as to how bad this fiscal cliff is, keep in mind that it’s just a name and in an of itself can be seen as a major problem as well as an over-dramatized phrase to induce action. Also keep in mind that the one thing markets do best is adjust to reality. Expiring the Bush tax cuts may not be as bad as emoted by some, while reducing spending and making government more efficient is always a good thing. The trick is not shocking the system and keeping things we ‘really’ need to keep our nation strong. The key may be to turn the fiscal cliff into a ‘fiscal slide’, that is well planned and enables a smooth transition.
It is notable that there will be an impact and readjustments will be required if both occur simultaneously and in full.
- Retiring the Bush era tax cuts, much of which was intended as economic stimulus via the trickle-down concept, as well as general incentive to get the economy moving in tough times; and
- a corresponding reduction in the budget deficit due to the requirements of the Budget Control Act of 2011 and our current debt load.
Some things to keep in mind:
- Deficit spending is sometimes needed but has a high cost.
- Deficit spending as a habit is fiscally unsound and expensive.
- The ‘National Debt‘ is too high.
- The ‘National Debt Obligation‘ is way too high.
The Fiscal Slide
Negotiations in Congress between the Executive Branch and the Parties will hopefully result in achieving a ‘fiscal slide’ as opposed to a fiscal cliff, that eases our economy into a more responsible mode for relative health.
To define the differences between wants/desires and needs between the left and the right it might be summed up as:
- The left wants to keep unaffordable benefits.
- The right wants to keep unaffordably low taxes leaning toward an outcome similar to the situation Greece has found itself in.
Both of these wants/desires are untenable. Our politicians are still addicted to the candy that makes each, respectively, look good to their senses, sensibilities, and constituencies.
- reduced spending,
- increased revenue,
- and a smooth transition.
If our leaders, pundits, and people really can ‘rise above’ the politics and keep the needs of the nation and the short and long term strength of The United States of America as their number one priority they will raise taxes and reduce spending and adjust the transition to reduce the stress to our economy.
The starting point has to be a pragmatic including a needs verses capacity analysis in relation to short and long term costs and benefits.
- The top 0.1% above the 250k income bracket were ‘loaned’ a gift from President George W. Bush, in the form of the ‘Bush Tax Cuts‘, it’s time to give it back (think progressive taxation).
- We need to look at abusive practices by all parties and politicians on the entitlement side. The ‘US of A’ is the most powerful nation and some benefits ‘should’ be affordable, and actually have economic benefits associated with them.
The numbers show we have gone down the wrong path and steered away from fiscal responsibility with too much candy being handed out to make politicians look good. We need to balance the needs of the people and the nation with sound fiscal practices for short and long-term economic health.
If America is going to remain strong these goals (reduced spending, increased revenue, smooth transition) are imperative to prevent the impact of going over the fiscal cliff. Instead, let’s go down the fiscal slide. How responsibly we do this is simply a matter of negotiation and well-reasoned consideration. Besides falling off a cliff does not sound fun, and going down a fiscal slide seems a better idea than hitting whatever is at the bottom of the cliff.
Rich Eubanks says:
Jan 21, 2013 10:36 AM
You know? I, personally, wanted them to just let it go over and raise taxes on everyone plus let the automatic cuts happen.
We’ve got to get reduce our debt. My wife and I have no children but we seem to be more concerned about future generations than many who do.
John P. Reisman says:
Jan 22, 2013 06:34 AM
I also am unconvinced that it would have been so treacherous as described by the media… They tend to hyper-inflate at times 😉
Markets adjust to reality, whatever that reality is. I’m not deep enough in the numbers though to say one way or another on this particular issue. But reducing the debt is important, even though some still believe that we can somehow keep printing money and that is ‘okay’.
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