Expert: Fiscal Cliff Negotiations Lack Balance

By Mary Silver On December 13, 2012 @ 10:06 pm In National News | 1 Comment

Sen. Al Franken (D-Minn.) (L) and Sen. Ben Cardin (D-Md.) at a news conference about preserving Medicaid funding during the fiscal cliff negotiations at the Dirksen Senate Office Building on Capitol Hill on Dec. 11, 2012, in Washington, D.C. (Chip Somodevilla/Getty Images)

Sen. Al Franken (D-Minn.) (L) and Sen. Ben Cardin (D-Md.) at a news conference about preserving Medicaid funding during the fiscal cliff negotiations at the Dirksen Senate Office Building on Capitol Hill on Dec. 11, 2012, in Washington, D.C. (Chip Somodevilla/Getty Images)

Metaphors are multiplying as fiscal cliff discussions continue. Resolving the issue by the Dec. 31 deadline seems unlikely, yet it could be a fiscal bungee jump if legislators “go over, but there is a deal in the making,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities.

“If we go over and stay over, I suspect the economy will have a negative effect quickly, with the unemployment rate starting to rise as soon as the first quarter of 2013,” said Bernstein. He spoke at a Dec. 13 press teleconference sponsored by New America Media.

Unemployment is not getting as much attention as it should in Washington, according to Bernstein. “There is a real lack of recognition among negotiators that there is a problem out there.”

If more people had jobs and revenue, the tax base would be better, and the strain on social services would lessen. Yet “some people are not looking outside of their own situations,” he said. “They have good jobs and don’t know many people who don’t.”

There are detailed, complex things that need more time and discussion, and then there are simpler things that could be resolved quickly. 

Letting the tax cuts expire now should be one of the simpler things, according to Bernstein. It would not have to affect middle-class earners until they file their 2013 taxes in April of 2014, and Congress could hold off on adjusting withholding in order not to shrink people’s take-home pay. They could then repeal the middle-class tax hikes before April 2014.

“We really have to walk and chew gum at the same time,” said Bernstein.

Complicated things include adjusting Medicare and changing how cost-of-living increases are calculated for Social Security recipients. Those things should be worked out thoughtfully over time, according to Bernstein.

All is impermanence. What is legislated by one Congress can be changed by another.

—Jared Bernstein, senior fellow, Center on Budget and Policy Priorities 

Bernstein said that raising the age for Medicare eligibility is a pointless and cruel example of cost shifting, forcing relatively healthy younger seniors into private plans and out of the more efficient Medicare plan. They will pay more and possibly receive less care, while Medicare will not save much.

What is called the “fiscal cliff” is the law of the land—legislation passed by Congress and signed by the president—according to Bernstein. It would cause temporary tax cuts that began in 2001 to expire, one year after they were first set to expire. It would also end a number of other programs that help people deal with the recession, including a 2 percent payroll tax cut and extended unemployment insurance.

“We can’t deal with things clearly and simply in Washington, so we have to give it an obfuscating name—sequestration,” said Bernstein.

The fiscal cliff means about $500 billion in spending cuts, “a very big deal—if it lasted, it would take about 4 percent of GDP and throw the country back into recession,” said Bernstein.

America is in an unsustainable financial situation and needs deficit reduction through spending cuts and revenue production. “Balance is critical,” said Bernstein.

In federal spending, there are two major types: mandatory and discretionary. Social Security and Medicare benefits are mandatory, or legally required. Certain defense spending is also mandatory. 

Discretionary nondefense, domestic spending is what is on the chopping block in deficit reduction talks, according to Bernstein, yet it has already been cut and includes important programs such as Pell Grants, Head Start, food safety programs, homelessness prevention, infrastructure, and WIC, which is nutritional support for poor mothers and children under 5 years old.

“We already gave at the office,” said Bernstein, referring to $1.5 trillion in spending cuts—$1.7 trillion counting interest payments—that have already been legislated.

In his opinion, what is going on now is “pure political malpractice,” risking economic recovery and placing the most vulnerable Americans at risk. 

The fiscal cliff, slope, or bungee jump can be fixed, however. “All is impermanence. What is legislated by one Congress can be changed by another,” said Bernstein.

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