Driving over the fiscal cliff has dire consequences
While the economy is showing signs of rebounding, many fear that trend could be reversed if our political leaders don’t find a way to address the nation’s growing debt and budget issues.
Meaningful actions on both have been desperately needed for years, but those on both sides dug in their heels and refused to compromise. It was clear election year politics has played a role in waiting until the last possible minute to act.
Many business and economic experts agree the nation is on a precipice commonly referred to as a fiscal cliff.
If Congress refuses to act, two things will automatically happen by the year’s end. Tax cuts enacted over the past decade will expire and automatic spending cuts that will cut the deficit by half in 2013 and by roughly 70 percent over the next decade will take effect. This is a $7 trillion deficit reduction package.
The solution was purposely crafted as a stark one — something tailored to force Congress to quit bickering and arrive at a more reasonable solution. Even that has failed to trigger civility and serious talks.
U.S. Rep. Heath Shuler has been championing fiscal responsibility for the past six years and seems confident Congress will act by the year’s end, one that coincides with the end of his tenure as a lawmaker. For the past year, he has been drumming up support for a $4 trillion deficit reduction package, one that will be painful to many economic sectors, but isn’t as likely to trigger the recession many believe will happen if no action is taken.
Another alternative Congress and the President may select is to set a course that includes even a smaller deficit reduction in hopes a growing economy will handle the rest.
A recent Tribune Media article reported that toppling over the fiscal cliff would cut spending by $136 billion and increase taxes by $532 billion, where an estimated 80 to 90 percent of the U.S. taxpayers would see a tax hike next year. Middle-income households would likely see an average increase of more than $2,000, and there is little support among either party to continue the 2 percent payroll tax holiday granted in 2010 to stimulate the economy.
Federal benefits for the long-term unemployed would expire and the Earned Income Tax Credit provided to lower income workers would likely drop.
Tax rates for upper- and high-wage earners will rise from a 25-percent level up to nearly 40 percent for those earning more than $388,999 a year and the estate tax will increase to 55 percent for estates above $1 million.
Inaction will be a bitter pill to swallow. Congress and the President need to strike a budget/deficit deal. It is time for political posturing to end and for politicians to act like statesmen, not spoiled children.