WASHINGTON—The day of reckoning is approaching when Bush-era tax cuts expire and automatic government spending cuts kick in, but amid the panic over the fiscal cliff, there is a growing chorus cautioning against rushing into solutions.
“My professional and personal message is: Don’t panic!” said Dr. James Galbraith, son of renowned economist John Kenneth Galbraith and chairman of Economists for Peace and Security, an organization concerned about world economy.
“Do we face a disaster if we fail to act in the next six weeks but instead defer decisions … until the early part of next year?” Galbraith asked at a forum on the fiscal cliff in Washington, D.C., Tuesday. “No!” he concluded.
There is no doubt that the effects of the fiscal cliff will be dramatic should it be allowed to run its course. The consequence of Congress’s failure to reach an agreement last year on how to address America’s over $16 trillion budget deficit manifested in the Budget Control Act of 2011.
If enacted, the act will see sequestration occur in the form of $1.2 trillion worth of automatic spending cuts across defense and nondefense discretionary programs over 10 years, beginning Jan. 1.
According to the Congressional Budget Office, government spending will be cut by around 8 percent across the board, but Sen. Tom Harkin (D-Iowa) estimates that it could be even higher. In a report on his website titled “Under Threat: Sequestration’s Impact on Nondefense Jobs and Services,” Harkin lists cuts to Health and Human Services in each individual state.
No state will be immune. The areas to be affected include school programs, early childhood programs, health programs, and facilities for women, veterans, the elderly, and the disabled.
“The time for ideological posturing is past,” said Harkin in the report. “We all must come together with good will to hammer out a balanced agreement.”
Meetings and Compromise
President Obama met with labor leaders Tuesday, beginning three days of meetings on the fiscal cliff, which will include discussions with business and civilian leaders Wednesday and with congressional leaders Thursday.
We all must come together with good will to hammer out a balanced agreement.
— Tom Harkin, senator, (D-Iowa)
Last week, in his first official address since his re-election, the president pulled out a pen and said that he was ready to sign a deal. He emphasized that the deal must be “balanced,” however, and he reiterated his campaign platform, asking “the wealthiest Americans to pay a little more in taxes.”
“This was a central question during the election. It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach,” he said in the address.
House Speaker John Boehner has hinted that he and other House Republicans may be keen to avoid last year’s congressional gridlock, conceding that tax revenue increases were an option as part of a package to address the fiscal cliff.
“It involves making real changes to the financial structure of entitlement programs, and reforming our tax code to curb special-interest loopholes and deductions,” Boehner said, speaking on the fiscal cliff.
For economist Michael Lind, co-founder of the think tank the New America Foundation, any suggestion of rushing through entitlement reform as part of “a grand bargain” on the fiscal cliff sets off alarm bells.
Ideas, Input, and ‘Renewed Interest’
Lind believes that politicians, keen to cut entitlements, are creating an “artificial sense of urgency” around the fiscal cliff, describing it as a “brilliant political strategy” that would “bury the cuts in some grand comprehensive strategy.”
Reducing the cost of entitlements such as Medicare and Medicaid is a legitimate concern, according to Lind. However, it is a complex process requiring thorough discussion, and it would be better achieved over the long term, he said.
“We will revisit all of these things for generations to come, but we won’t have a sense of urgency and won’t have the ability to ram through a lot of ill-considered, ill-debated questions in the middle of the night right before a deadline,” Lind said at the Washington forum.
Political scientist Dr. John Hudak said that there is no need to nut out details on how to address the fiscal cliff before the end of the year anyway. The better strategy would be to focus on a timeline “and map out a plan of action,” he said.
President Obama has said that he has already proposed a plan to reduce the deficit but is “open to new ideas.”
And of those there are plenty, even from Mitt Romney. In order to raise tax revenue, Romney suggested setting a cap of $35,000 on tax deductions.
This week, Sen. Kent Conrad (D-N.D.) linked Romney’s plan to an earlier proposal by Obama that limited income tax deductions to 28 percent.
“Let’s just say there’s a renewed interest,” Conrad, chairman of the Senate Budget Committee, told The New York Times. “Part of it is people reflecting on Obama’s proposal, but when Romney said what he said, it just added fuel.”
Obama is also seeking ideas from the business community, meeting with CEOs of some of the biggest U.S. companies Wednesday, including Honeywell CEO David Cote, American Express CEO Kenneth Chenault, and Ford Motor Company CEO Alan Mulally.
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