Auld Lang Syne

The fiscal cliff in New Year’s resolutions: I resolve to panic less about economic crises

January 2, 2013
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Fiscal Cliff
January 2, 2013
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New Year's Resolution: Lose five pounds, increase the debt ceiling by several trillion dollars.
New Year’s Resolution: Lose five pounds, increase the debt ceiling by several trillion dollars.(Charles Sykes/Invision/AP)

Well, it’s over, and after easing past the deadline, the US government reached a bipartisan deal to avoid the near-term effects of the fiscal cliff. As far as made-up crises go, it was a pretty good one: markets didn’t panic during negotiations (thanks to timing the whole mess for a holiday weekend) and the talks achieved their main goal of raising short-term public borrowing to avoid a recession. Taxes are staying low on most Americans, with the notable exception of a modest income tax hike on the wealthiest and the expiration of a 2% cut in the payroll tax (which pays for social security). Spending cuts were delayed two months, and a year of fully-funded unemployment insurance was added; America has made a fairly significant fiscal adjustment. If the US government resolved not to screw up the economy in 2012, well, it just barely kept its promise.

But lawmakers had a lot of different hopes for the deal, and like us, they’re making ambitious promises to themselves for 2013. Here how some of Congress’ most obvious resolutions are already playing out:

I resolve to cut public spending. If you’re really excited about cutting US spending right now, this was a disappointing deal. Then again, there’s no single economic reason why the US should start on an immediate path to fiscal consolidation at the moment, so there’s that silver lining. Luckily, the fiscal cliff spending cuts, the need to appropriate money for the rest of 2013’s government spending, and the US debt limit will all come before Congress in two months, giving us another opportunity to watch Barack Obama, John Boehner (assuming he is reelected Speaker of the House), and all your other favorites from the past two weeks enter a new round of deadline-focused fiscal talks. Obama has said he will not negotiate over America’s borrowing limit, but expect spending cuts to be included in any new package that resolves the government’s funding plan.

I resolve to lower taxes. The most unsatisfying resolution of all! While the merits of the cliff bill can be argued, it undeniably raised taxes on the wealthy. The upside is that it permanently locked in the rest of the Bush administration’s tax cuts, meaning that any future revenue changes will be driven by political calculus, not their carefully-timed expiration. President Obama has said that future spending cuts will be linked to tax revenue increases, a stance Republicans have rejected but one that could be a realistic starting point for talks. A comprehensive tax code overhaul is favored by many in Congress and could be a vehicle for lower tax rates, but it’s hard to imagine overall revenue going down anytime soon.

I resolve to grow the American economy. On the fiscal side, economists have recommended for years now that the US government combine some smart near-term spending on infrastructure with a long-term fiscal consolidation plan focused on managing US health care costs. That white whale of government policy would boost growth in the short term and provide some long-term fiscal stability, but don’t count on the Congress executing that kind of far-reaching vision. After the further fiscal carnage expected post-February, lawmakers might find time to focus on immigration, education, tax reform, intellectual property or climate change, all policy sectors where reform could unlock more prosperity.

I resolve to avoid gridlock all the time. Politicians who are sick of the last two weeks of drama might think about some simple rules changes, when the new Congress starts on Jan. 3, to make it easier for them to do business and make it home in time for the weekend. In the Senate, filibuster reform is gaining ground, which could make it harder for Republican opposition to force a sixty-vote majority on every vote. That, in turn, could make it easier for Republicans and Democrats to pass legislation together, dialing up pressure on House leadership the same way they did to resolve the fiscal cliff. House members have less leeway to change their rules, but they will vote for their leadership, too. While it remains unclear if Boehner will be re-elected Speaker, there’s always the chance that new ideas at the top could create change—or that Boehner, once reelected, will begin to rely more explicitly on Democrats in the House, as he did in order to pass all of the last Congress’ major fiscal bills.

Bonus resolution for the American people:

I resolve to panic less about economic crises. This will be a hard one to keep. All those new deadlines come to the fore in late February or early March, and unlike the fiscal cliff’s austerity trigger, a failure to raise the US borrowing limit could result in a default and real economic chaos in the world. While Americans were nervous about the fiscal cliff’s recessionary tendencies, imagine how they’ll feel when they are reminded about the consequences of overrunning the debt limit, which could paralyze the global economy.

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