Should Congress Just Kick The Can Down The Road?
Jamelle Bouie argues that the proper way to handle the Fiscal Cliff problem right now is to delay everything that is supposed to happen after December 31st until the economy is in better shape:
Back before the election, Angus King — then a candidate for the Maine Senate seat being vacated by Olympia Snowe — explained one of his ideas for dealing with the Bush tax cuts, “We should consider pegging the sunset of these tax cuts to something non-arbitrary, like a certain amount of GDP growth, or a lower level of unemployment.” He’s right. Given our sluggish recovery, now is not the time for deficit reduction. Far from forcing responsibility now, the country would be best served by a Congress that kicked the fiscal can down the road, and focused attention on putting people back to work (preferably by taking advantage of low, low interest rates).
Thankfully, there’s still time for this to happen. As the New York Timesreported this morning, the White House is at an impasse with House Republicans, who have attacked President Obama’s fiscal cliff proposal as “unserious,” even as they refuse to detail their own plan for spending cuts and revenue increases. “We’ve put a serious offer on the table by putting revenues out there to try to get this question resolved but the White House has responded with virtually nothing,” said House Speaker John Boehner, omitting the fact that neither he nor his allies have offered specifics on revenue or spending.
Rather than try to find a path around this impasse — and in the process, pass a debt reduction bill that will put the United States on the path toward unnecessary (if more moderate) austerity — the Obama and House Republicans should agree to postpone the fiscal cliff until the economy has improved. More specifically, they should peg the Bush tax cuts, the payroll tax cuts, and the unemployment insurance extension to improved economic conditions, as measured by the joblessness rate. Rather than the arbitrary trigger of January 1st, 2013, the United States would not go over the fiscal cliff until it was economically ready to do so. At that point, Congress and the White House can haggle over the right level of spending and taxation.
Essentially, this would be similar to what happened in 2010 when the Bush Tax Cuts, along with the Payroll Tax Cut and the Medicare “Doc Fix” were extended for an additional two years. In part, this happened because the President had been placed in a politically weakened position by the results of the Mid-Term Elections, of course. Additionally, though, there was a recognition by parties on both sides of the aisle that the economy at the time was quite simply too weak to handle a tax increase, even one limited to just high-income earners as Democrats had been fighting for before the November 2010 elections. The situations isn’t all that much different today. Notwithstanding last week’s higher than expected GDP figures, due largely to temporary factors that will not be repeated in the future, the economy remains relatively weak, with some analysts estimating that 4th quarter GDP growth will come in under 2% due in no small part to the fact that many businesses are holding back on investment due to uncertainty about the future, not just of the Bush Tax Cuts but also the sequestration cuts. Add in to all of this the fact that current estimates project that the economy would in fact enter a recession no later than the 3rd quarter of 2013 if we did go over the Fiscal Cliff, and there’s at least a reasonable argument that perhaps we should consider pushing off dealing with these issues until the economy is stronger.
Politically, of course, this kind of strategy does present some problems. For one thing, if a comprehensive deal is going to be reached, it seems clear that it”s going to have to be done either now during the lame duck session or in the early part of the first year of the President’s Second Term. Any later than that, and electoral politics will start to intrude and make a real deal much less likely. The closer we get to 2014 without a deal, the less likely that there will be any deal at all. Looking further down the road, after 2014 the President will become more and more of a lame duck and people on both sides of the aisle will start making moves for the 2016 Presidential race. If a deal is going to get made, it most likely has to happen in 2013.
The other part of Bouie’s idea that could prove troubling is the idea of tying the end of the Bush Tax Cuts and other matters to something other than a definite time limit. For one thing, it’s unclear what measure of economic growth would be the right one to focus upon. Should it be GDP growth, which tends to fluctuate at times? Or, should it be the Unemployment Rate, which tends to be a lagging indicator of economic growth? Moreover, how exactly would this “trigger” work? Who exactly would decide that the economy has slipping into growth mode? How exactly would that be implemented? Finally, I don’t think Bouie fully considers the impact that an idea like this would have on the economy. In essence, it would create a high degree of economic uncertainty because businesses and investors wouldn’t be able to plan for when tax rates might increase again. At least with a fixed deadline, which I think is kind of a dumb idea to begin with, there’s a date certain on the calender that they can refer to.
The idea of kicking the can down the road does have some merit. The economy is still weak enough that it’s worth not taking the risk of pushing us into a recession. At the same time, though, if we don’t deal with these problems now we probably won’t have a chance to do so for years to come. At that point, it may be too late.