The Fiscal Cliff Series: Part 1

The term "Fiscal Cliff" is used to describe the problem faced by Congress at present.  A combination of tax cut expiration and automatic cuts will take effect come January 1st if a plan is not produced to avert the situation.  

Because of Congress's failure to come to an agreement in accordance with the Budget Control Act of 2011, which raised the debt ceiling but left open the ways to cut deficit spending.  Since a bargain was not reached, sequestration will occur, which mandates across the board spending cuts.  In addition, the Bush era tax cuts will expire, as will a 2% Social Security Payroll tax cut, and the expiration of federal unemployment benefits.

If Congress doe snot act, as before, the results could be very grim for our country's growth.  It will have a very detrimental effect on an economy that is still shaky.  

The effect of the Fiscal Cliff on GDP

As you can see above, analysts have projected strong negative effects on our nation's GDP if  we run over the Fiscal Cliff.  The Tax Policy Center has stated that middle income families will pay, on average, $2,000 more dollars in taxes in 2013.  The Congressional Budget Office (CBO) also anticipates increased unemployment  where 3.4 million will lose their jobs.

That being said, the country cannot continue on the path it's on with regards to deficit spending.  at least something needs to be done to curb our spending so that we get back on a sustainable debt track as our economy begins to rebound.  Large deficit spending should really only be done it trying economic times, and we should try to steer clear of that now.

The effect of the Fiscal Cliff on Deficit

Now, as we consider the negative effects of the fiscal cliff on growth, we should also note that it would drastically decrease our spending and cause us to run fewer deficits.  The CBO baseline in the figure above shows that effects of the fiscal cliff.  The blue alternative would be the effect of repealing the automatic cuts and extending the Bush Era tax cuts.  Though this also reduces deficits, at least for a while, more would need to be done to put our nation on the track of long term sustainability.  We'll discuss possible solutions to this problem in following posts.

If Not Effective Government, Please At Least Be Open

Our esteemed United States government, if it finds it fitting to be totally ineffective, ought to at least be open and let the people know what it is going to do.  Bills should be posted on public forums, well before a vote is held, so that constituents can comment and suggest changes to bills.

Congressmen ought to have clear action plans and goals and let their constituents know what those are and how they will benefit the country.  Including how those goals will be met and how people can help would also be welcome additions.

Two Party System is Broken

The two party system is dividing America.  With both the GOP and the Democratic Party's refusal to negotiate or give up ground on key issues, the American people continue to lose.  Instead of enacting reforms that Americans need, the parties have been politicking each move, deciding that electoral security is better than a prosperous America.

We need action.

We need people in the Congress who can form consensuses with others and keep in touch with the people.  Instead of feeding more money to their districts, we need to make government more efficient.  With such streamlining, we can promote growth.    The government needs to act for the people it represents, not just the big donors that bankroll their campaigns.  Most Americans are not so far to the left or right as our representatives.  We need people who will protect and work for the people's interests.

Congressmen Must Take The Lead

Congressmen have to realize that the time for partisanship is over.  In the endless debates in congress over the payroll tax, the debt ceiling, and the budget, politicians seldom realize that it is the American people that lose because of the inaction.  Politicians are even greater procrastinators than students shoving off a huge project to the last night before it is due.  Congress chronically cannot come up with a deal until the 11th hour, and even then, the deal is a weak mix of ideas designed solely to get a jumble of votes pass.  Congress hasn't formed strong. well rounded compromises that will last beyond the election cycle.

Debt Must Be Decreased

The government has to stop kicking the can down the road with America's debt problem.

For years, Congress has been content to push this problem aside, not coming to a consensus on what to do.  Right now, Democrats and Republicans remain fiercely divided on what to do.

In order to form a lasting solution, though, both sides must come together and from a deal that will benefit the entire country.  We need strong reform to entitlements, some of which might hurt.  It will hurt a lot less now than 4 years down the road though.  Spending cuts besides entitlements have to be part of the picture.  The government spends a lot of money of programs that it does not need.  For example, we don't need more government programs to do a whole bunch of jobs.  We just need the existing ones to be more effective.  In addition, increased revenue has to be part of the picture.  Eliminating tax breaks for the richest Americans, those who can afford it, is necessary.  Taxes are necessary for government to function.  It's not redistributing the wealth, the rich are still rich.  But these solutions could go a long way to fix our crisis.  It's time Congress realized they have to do what's best for their country, not what's best for their jobs.

Politicians Must Stand Up For What They Believe In

With two parties dominating congress and controlling votes, some brave congressmen must step up and break away from this system.  The American people don't always want what either of the two parties want, and many of us are tired of the bickering and inaction in our legislature.  People want to be able to live their lives with relative economic security and freedom.  The actions, or lack of actions, on the part of our congressional "leaders" is staggering.  In order to stop the politicking of every single bill, individual congressmen must take the lead and make a stand for their district and the people of this nation.  They should not always vote what their party leaders say they should vote.  They should be beholden to no one except for the people, not their political leaders.