Posted December 20, 2012
Failure to reach a substantive fiscal agreement will have ramifications that no American can ignore
By Steve Bell and Shai Akabas
With all of the “fiscal cliff” issues and jargon being tossed around, the fact that most Americans are struggling to follow the back-and-forth negotiations comes as no surprise. “Debt!” “Tax hikes!” “Benefit cuts!” These are the snippets that Americans hear in the media and there is understandably little time or desire on their part to sift through the sound bites. Knowing that, policymakers are focusing more on the headline messaging of their fiscal cliff positions than on actual solutions to the nation’s problems.
If the public digests one fact about the current state of play, it should be this: Neither the Democratic nor the Republican “backup” positions will do anything of lasting significance to address the vital economic issues facing the country. Neither one would boost economic growth to support the recovery. Neither one would address our long-run fiscal imbalance by reforming entitlement programs and the tax code. And neither one would remove the ongoing self-inflicted damage that derives from uncertainty over federal policies.
We hope that a final agreement emerges – perhaps this weekend – between the president and Congress that includes a framework for fundamental, multi-year tax and entitlement reform as part of the deal. Without such a mandate compelling action on a major plan in 2013, we fear that the kind of agreement that America’s looming fiscal crisis needs will be ignored.
We continue to stress that the present predicament between the president and Congress is merely a firefight, inside of a larger battle, inside of a major war. During the last firefight – the debt ceiling debate of 2011 – policymakers settled for a meager agreement that accomplished very little and actually had substantial consequences. A piddling resolution to the fiscal cliff will similarly do virtually nothing to win the battle, which is a battle to aid the recovery while enacting policies that begin to stabilize federal indebtedness relative to gross domestic product (GDP). The war is the struggle to resolve our long-run debt problem and return to “full speed ahead” on economic growth.
Without a framework that demands greater action next year, the president and Congress may well emerge from the current firefight and feel that fiscal matters have been resolved. That would be a mistake. Even with some tinkering around the edges (e.g., raising taxes on millionaires), the nation faces debt nearing and soon to surpass 100 percent of GDP. Clearly, as the International Monetary Fund, Chairman of the Federal Reserve Board Ben Bernanke, and many other analysts have warned, the present debt trajectory of the nation is unsustainable and will eventually cripple America’s economy.
While the various tactics surrounding the fiscal cliff provide lots of media forage, they do little or nothing to bring fiscal stability in the long run. Through these present shenanigans, Congress and the president may stumble upon a solution to the cliff, but if that is all they can accomplish, they will fall far short of real fiscal sanity, strong economic growth, and certainty for businesses and individuals.
The precise details of a broader deal being negotiated between the president and Speaker Boehner may go unnoticed by the vast majority of Americans. Failure to reach a substantive agreement, however, will have ramifications that no American can ignore.
Economic Policy Project