The Fiscal Cliff and You

Scott Zuke

(12/2012) Last month’s election, while being by all accounts clean and decisive, has done little to answer one question: Are we a deeply divided nation, or simply a thoroughly confused one? The time right after a major election is typically used by politicians to interpret their "mandates" for how to lay out their legislative agenda going into the next term, but such a mandate must be based on a clear signal from the electorate. This time, however, they received fairly mixed signals, both in terms of electoral results and in subsequent polling on various policy questions.

The biggest policy issue for the next few months will be figuring out how to deal with the "fiscal cliff," a combination of sharp tax increases and spending cuts due to go into effect in January unless Congress can come up with a way to avoid it. Interestingly, the fiscal cliff is widely portrayed as an impending calamity that must be avoided at all cost, even though it accomplishes some of the key policy goals that the public has been demanding since the rise of the Tea Party.

What does the cliff mean to you? According to a report by the non-partisan Tax Policy Center, if Congress fails to intervene, middle-income households would see an average tax increase of nearly $2,000 next year. Nationally, this would amount to a significant anti-stimulus policy, almost as big as the stimulus measures enacted to prevent the 2008 financial crisis from turning into a full-fledged depression. The Congressional Budget Office projects that the nation would experience a recession in early 2013, marked by a 0.5% drop in GDP and a temporary spike in unemployment, up to as high as 9.1% (up from 7.9% at the time this was written). On the plus side, though, the dramatic increase in tax revenues, paired with mandatory cuts in government spending, would significantly cut the federal budget deficit and help to slow the increase of the national debt.

So wait, isn't that what we've asking for? In polls conducted by Gallup after the election, 72% of respondents indicated that making major cuts in federal spending should be an extremely or very important part of Obama's second term agenda. A majority, 56%, said they would be open to policies that would reduce the federal deficit either primarily through tax rate increases or in equal proportion to spending cuts. The fiscal cliff essentially meets these demands, and would have a non-trivial impact on the national debt, yet Gallup also found that 82% of US adults (split evenly across party lines) said that it is extremely or very important for Congress and the president to come to an agreement on how to avoid the fiscal cliff (Only 51% are hopeful that a deal will actually be reached, according to Rasmussen).

As we all know by now, the trouble is that people like the idea of cutting federal spending to reduce the debt and deficit, but are unwilling to let go of the services that that spending provides them. An overwhelming 95% of respondents answered that taking "major steps to restore a strong economy and job market" is an extremely or very important priority for Obama's second term. Eighty-eight percent said the same for protecting Social Security and Medicare, the main contributors to the growing debt. And there was relatively tepid interest in seeing major cuts to military and defense spending.

These conflicting priorities give lawmakers a limited policy space to work within, which ultimately leads to more symbolic gestures than real solutions. President Obama's insistence on seeing tax rate increases for the wealthy by repealing the Bush tax cuts for the top income brackets has bordered on being an obsession, yet no one believes it would raise enough revenue to close the budget deficit. Meanwhile, the Republicans, for all of their public bluster on seeking dramatic cuts to federal spending, have only made modest proposals that too often rely on accounting gimmicks to make it look like they're cutting significantly more than they are.

Even their plans that could actually produce significant cuts are little more than political chess pieces. The compromise reached in 2011 that allowed the US to avoid defaulting on its debts through a procedure called sequestration was designed to be equally unacceptable to both parties in order to force a long-term solution to the debt crisis at a future date. Without a deal, Republicans would be forced to swallow sharp cuts to sacred defense spending, while Democrats would be hit with cuts to cherished entitlement programs. A disingenuous proposal put forward by Speaker Boehner would remove the sequestration cuts to defense, supposedly to help mitigate the fiscal cliff. He knows that this is a betrayal to the original compromise, and one that could never be approved in the Senate or by the president, but he put it out there anyway.

Members of Congress make decisions based on whether they will be blamed for unpopular policies. When it comes to fiscal responsibility, policymakers are now in a difficult position because the changes that need to be made and that people are demanding will also be deeply, deeply unpopular with various sections of the electorate.

For readers in northern Frederick County and into Carroll County, the fiscal cliff debate has suddenly become much more important to watch closely. For better or worse, we're no longer being represented by a rubber stamp congressman. Chris Van Hollen, who was reelected to represent the newly formed 8th Congressional District is a ranking member on the House Budget Committee, and was a key player in the 2011 debt ceiling negotiations. It will be important for constituents to monitor his role in the fiscal cliff and other budget talks in the coming months and to communicate their priorities to him when possible. That entails a further responsibility: to weigh the proposals that are out there and ensure that our own priorities and wishes are internally consistent. That is no simple task.