Next Up: The Lame Duck and the Fiscal Cliff
By Jason Hughey
Finally, the 2012 elections are in the history books. President Obama will remain in the oval office through 2016.
For a while, it felt like the madness would never end. The presidential candidates talked about their different plans to fix the economy or healthcare or something like that. Both parties turned whole groups of people (the 1%, the 47%, women, minorities, the unemployed) into political talking points in order to gain votes. Meanwhile, voters were subjected to numerous gaffes (and about a million different memes on social media) regarding Big Bird, binders full of women, and horses and bayonets. In the midst of all of this, many of us sympathized with Abigail Evans, the girl who tearfully expressed her frustration over the campaign season in a now viral YouTube video.
Yet after watching the American people invest so much of their energy and emotional wellbeing into the outcome of yesterday’s election, will they be ready for the onset of the fiscal cliff in December and January? Will the President and Congress be willing to come to a solution that favors lower taxes and responsible spending cuts?
Even though the 2012 election is now over and President Obama will remain the president for the next four years, the nation has yet to face up to the fiscal cliff. With less than 60 days before the end of the year, the federal government could actually allow taxes to rise by over $450 billion in 2013, go back on its promise to finally reduce spending ($109 billion from the Budget Control Act), and vault the United States over its $16.4 trillion debt ceiling.
What would all of this mean for the economy?
Of course, it is old news that the CBO predicts the fiscal cliff will plunge the United States into recession during the first half of 2013. According to their calculations, GDP would shrink by 3.9% in the firstquarter of 2012 and slow by another 1.9% in the second quarter of 2012.
But what does that really look like for the average American?
Lots of people have already given up on looking for work. In fact, if the same amount of people were looking for work today as there were in 2009, the unemployment rate would not be hovering just below 8%. It would be 11.2%. If the United States does come face to face with a recession next year, we could see the official unemployment rate shoot back up to double digits, remembering that many more people are still suffering from the 2008 recession.
Meanwhile, Americans will watch as more and more of their incomes are ravaged by the federal government. Across-the-board increases in marginal income tax rates, capital gains, and dividend taxes will affect Americans at all levels of income, not just the so-called rich as politicians would have you believe. When Americans receive their paycheck stubs in 2013, they’re going to notice less money being deposited in their bank account and more being withheld by Uncle Sam if the payroll tax holiday is allowed to expire.
What’s the solution? Congress is now in a lame duck session with lots to do and a tight calendar. Expecting any good long-term legislative reforms is simply not an option. Even so, the lame duck Congress needs to, at the least, take action to ensure that Americans aren’t subject to crippling tax hikes come January. Economists of all stripes agree that raising taxes in a bad economy is bad policy. President Obama reminded as much in 2010 when he said that allowing these tax hikes would be a “blow to our economy just as we’re climbing out of a devastating recession.” It was true then, and it’s true now.
Congress also needs to start the process of reducing federal spending by living up its commitment under the Budget Control Act to reduce spending by $109 billion this fiscal year. If Congress doesn’t like the way the reductions are allocated by the sequestration, then they should apply those same reductions to other areas without sacrificing the promise that they made to the country when the debt ceiling was raised the last time.