Looming 'fiscal cliff' makes election friction look tame
“No amount of planning can mitigate the effect of these cuts,” the OMB report read. “Sequestration is a blunt and indiscriminate instrument. It is not the responsible way for our nation to achieve deficit reduction.”
If a solution does emerge before Dec. 31, Emsbo-Mattingly believes it will at first take the form of a six-month breathing space.
If no short-term deal is reached, she fears that over $500 billion in new taxes and $109 billion in spending cuts beginning Jan. 1 will shock the system — much like what occurred in Spain or the UK in recent years.
What Emsbo-Mattingly hopes for is “a credible plan that solves the fiscal problem over the long-term” to give investors confidence and move them off the sidelines.
What investors really need is clarity, she said. “The corporate sector wants to know what game they are playing. Are they playing soccer or baseball? What’s happening now is that the corporate sector is unwilling to play any game because they don’t know what the rules are.”
Pushing the problem off a year ago likely reduced economic growth through investor uncertainty, Emsbo-Mattingly said, and more of the same would lead to more of the same.
In the final analysis, it may be less important what the balance of revenue and spending cuts is, and more important that the mix be reasonably permanent. “It has to be rules-based, and it can’t be gimmicky,” she said. “We’ve seen a lot of gimmicks.”
Emsbo-Mattingly’s biggest fear is that Congress will kick the can down road down again, leaving investors flummoxed in their long-term planning and sidelining their investments.
“We don’t need another Band-Aid solution. We need something that will get us back on track,” said Jonathan Romano, spokesman for Fix the Debt, a bipartisan project backed by scores of high-profile civic and business leaders.
Backed by scores of CEOs, Fix the Debt is a well-funded project launched by former U.S. senators Erskine Bowles (D-NC) and Alan Simpson (R-WY) after their 2010 bipartisan budget solution was widely ignored.
“Our goal is to create an environment where voting yes on a comprehensive debt deal is seen as good policy and safe politics,” Romano said.
In addition to fixing Medicare and Medicaid cost explosions, Romano said an acceptable plan should “include a comprehensive, pro-growth tax reform that will broaden the base and lower rates, but also raise revenue and reduce the deficit.”
“We are not endorsing one specific plan. We just want to get back on a sound financial footing,” Romano said. “Everything should be on the table.”
Most business leaders face the onrushing fiscal cliff with angst and agree with the goals of Fix the Debt, but there is still marked resistance to raising taxes.
“Putting America’s fiscal house in order is an urgent priority and we welcome this effort from several top CEOs,” said Bruce Josten, executive vice president (government affairs) of the U.S. Chamber of Commerce, in an email exchange, referring to Fix the Debt.
“We agree that lawmakers must reduce spending, reform entitlement programs like Medicare and Social Security, and pass comprehensive and pro-growth tax reform that would broaden the base, lower rates, raise revenues and reduce the deficit,” Josten said.
But Josten issued no carte blanche on taxes. Raising taxes on “successful small businesses and individuals, investments and capital gains,” he argued, “would discourage capital accumulation and job creation."
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