In any good-faith negotiation, both sides lay out their positions, then begin the difficult task of deciding how each can move toward the center. When it comes to avoiding what some are calling the “fiscal cliff” at the end of the year, President Obama and House Speaker John Boehner did just that on Friday.
The troubling thing, however, is that both sides laid out exactly the same terms that have been on the table for more than a year. The president is demanding tax hikes on the rich, which he has defined as those making more than $250,000 per year. He has vowed to veto anything less.
The House speaker is holding firm on no tax hikes at all, demanding instead that the income tax system be overhauled and that certain deductions be eliminated.
The election, which many politicians hoped would provide some clarity to the matter, left the country essentially right where it had been all along. It will be up to the nation’s leaders to put some of their political capital on the line and make compromises.
And they need to do so quickly, using a lame-duck Congress composed of some members who will leave office in January.
At least, experts say they have to do so quickly. No one knows for sure what would happen if no deal is reached, other than that taxes would rise and a series of across-the-board cuts would go into effect. The non-partisan Congressional Budget Office has said the fiscal cliff would cut the annual budget deficit by $503 billion between now and September, but that the economy would shrink by 0.5 percent, which would cost millions of private-sector jobs. That could signal a new recession and an increase in the unemployment rate.
The CBO also estimated a growth in the nation’s gross domestic product of almost 3 percent if the Bush-era tax cuts and Obama’s temporary payroll tax cut were extended, along with current long-term unemployment benefits.
It must be noted, however, that those tax cuts would increase already dangerously high budget deficits if not coupled with corresponding cuts somewhere, and that Obama’s payroll tax cut makes it harder to fund Social Security, which already is facing the burden of funding retirees from the so-called baby boom generation. The automatic cuts, known as sequestration, would at least shrink the size of government, which is something politicians otherwise have been unwilling to do.
The fiscal cliff is only one immediate aspect of the nation’s budgetary problems. Long-term issues are far more important.
It isn’t hard to see what needs to happen over the coming weeks. Democrats will need to compromise, most likely increasing the threshold on income subject to new tax hikes and agreeing to some tax and entitlement reforms. Republicans will need to back away from the trench they have dug against new taxes.
There will be angry constituents, and future political opponents will gather weapons they can use in campaigns.
There is no better time to do this, however, than during the weary weeks after a hard-fought election. The coming days will be a good test as to whether politicians finally are capable of working together to share the political pain of reaching a solution. That will signal whether the American people can expect answers to the bigger economic questions in coming years.
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