Wednesday, November 14, 2012

The Biggest Problem Isn't The Fiscal Cliff

Whether you call it a cliff, curb, staircase, or even an austerity crisis, the fact is, time is running short for the President and Congress to deal with the tax and budget issues most in the media are calling the "fiscal cliff."

As Ezra Klein, Chris Hayes, Lawrence O'Donnell, and many others have noted, the metaphor of a "fiscal cliff" that Ben Bernanke coined back in February is less of an accurate description than a dramatic phrase. It's obvious that Bernanke chose the word to scare some of our less than brilliant members of Congress into actually working together to get something very serious accomplished.

To be clear, we are absolutely not in denial of the "fiscal cliff", like some kind of weird climate change denial nuts who've suddenly changed our focus to taxes and budgets. The need for a detailed plan and quick actions to avert a potential hit to our fragile American economic recovery is no hoax.

The solution behind preventing the crisis though, is much more simple when you understand what we're facing.

As our friend and colleague Rick Ungar explained for Forbes this past weekend, there are really three large pieces to the tax and budget problem facing Congress and the President.

The first big piece is the Bush Tax Cuts, that were initially scheduled to end in 2010. In case you've forgotten, those tax cuts were never meant to be permanent - and one look at the causes of our debt and deficit show the Bush Tax Cuts are a huge government giveaway we simply can't afford to continue in their entireity.

The second piece of the problem is an assorted group of expiring tax cuts, like the payroll tax cut President Obama pushed through in 2010 to help working families get through the Bush Recession. This piece of the problem also includes the return of the AMT, the Alternative Minimum Tax, which is yet another tax problem Congress has kept putting off fixing until the third Tuesday of never.

The final piece of this tax and budget fiscal disaster that is due to begin January 1, 2013 is the sequester, the massive across-the-board spending cuts that came from the Republicans' hostage taking negotiations on the debt ceiling in August of 2011. It should also be noted no one in Congress ever seriously intended the sequester to go into effect.

While there are many of our colleagues in the media who continue to be worked up about the danger of this tax and budget problem, there are many more - including Mr. Klein, Mr. Hayes, and even Paul Krugman - who have correctly pointed out; the fiscal cliff is not really a sharp disaster.

As Kevin Drum points out in his comprehensive Q&A on the subject, the reason this fiscal crisis is more like a fiscal staircase is simple.

If Congress does nothing, all the taxes we've talked about will go up on January 1, 2013. But not all of the $600 billion in new taxes will be due right away. That would be a cliff. Instead, only about $1.6 billion will be due every day - a hefty sum, yes, but an amount that's small, relative to our economy. Think of it as a $1.6 billion cattle prod that gets bigger everyday, in order to move obstructionists in Congress towards a compromise that matches up with the candidates and ideas that voters just put into office.

One of those ideas, in fact, is that more tax revenue needs to be collected from the rich and corporations, while the working and lower classes get to keep their tax holiday a little bit longer - at least until the economic recovery has reached poorer Americans too. In meetings on Tuesday with labor and progressive leaders, President Obama seemed to be highly aware of what the majority of American voters said they wanted, making it clear that while he's looking for compromise with Congressional Republicans, he's not going to back down on tax hikes for the rich.

You might think that would make a final deal tougher to reach, but as we already noted, the solution to this tax and budget problem pileup isn't the tough part.

The tough part is getting the obstructionists - who are still standing out on their ledge insisting taxes never be allowed to go up on anyone - to understand that they don't have the leverage of the American people behind them. In fact, they never did.

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