The real cliffhanger comes after the election, when Congress and President Obama must together confront the inertia of past failures to deal with major problems that finally threatens to push the entire country over a fiscal cliff. Could be those Mayans knew what they were talking about after all.
Several ticking time bombs are set to simultaneously explode at or soon after the end of the year:
- The Bush tax cuts are set to expire at the end of 2012.
- A payroll-tax holiday and extended unemployment benefits also end on December 31.
- The Alternative Minimum Tax, a levy originally aimed at the rich, is set to hit 30 million middle-class Americans.
- Medicare will slash payments to doctors by nearly 30 percent.
- Automatic cuts in federal spending are due to start on January 15th, due to the inability of a congressional “budget supercommittee” to reach a debt-reduction deal last year.
The problem is that the deficit hawks are wedded to tax cuts and defense spending, two things that won't be happening if we march over the cliff. So they are on the horns of a dilemma of their own making. They want deficit reduction, but they don't want to cut defense spending and they do want to keep revenues suppressed. Of course, Democrats are equally fiercely opposed to cuts in entitlement spending.
A few months back, the rhetoric was very doomsday in tone. Life on the planet as we know it would end unless a deal was reached. Now there seems to be a softening of that expectation, partly because a lot will turn on who wins in November. Remember, the newly elected president and Congress don't take office until January 20, 2013, so the current office-holders will have to take the first bite out of this poisoned apple.
If Romney wins, the Republicans will definitely want to wait until he takes office, so you will start hearing a lot of talk about how the cliff is actually a gentle slope with plenty of time to do, undo, and redo things without ruining the economy. The Democrats, meanwhile will amp us the pressure in hopes of forcing a deal before January 20th. If Obama wins, he can use that same rhetoric about the gentle slope to argue that letting everything lapse isn't such a bad thing, putting pressure on the Republicans who want to preserve the tax cuts and avoid defense cuts.
Standing on the sidelines taking all this is in are business people who want to know what the future holds before they invest in it. Over and over you hear that uncertainty about the politics of deficit reduction is why businesses are not expanding. Can't say as I blame them. Why invest in an economic environment that could be vastly different in just a few months from now? Better to wait and see how things work out.
Much as I hate to say it, I wish we were back in the days when Ronald Reagan was president and Tip O'Neill was Speaker of the House. Say what you want, they were two old pros who understood that the essence of the American political system was compromise. You can't say that about the current crop of politicians.
It seems as though they have forgotten the simple lessons we learned in high school civics class, the lessons passed on to us by the giants of earlier eras: fierce partisan debate followed by a compromise that gave each side a little of what they wanted. Now, everybody has to have their own way. As a result, nobody gets their way. That is not the American way.