Fiscal cliff looms over Dec. Congress
As pundits move forward from this recent election cycle, a fiscal cliff looms over the next two months as Congress must negotiate the difficult task of preserving short-term economic growth while seeking to resolve long-term debt issues.
For those not familiar with the term, a fiscal cliff refers to the expiration of the Bush-era tax cuts in combination with automatic reductions in government spending across the board that will take place on Jan. 1, 2013. Non-partisan economic studies have shown that the fiscal cliff, if allowed to take place in its current form, could result in economic recession in 2013 that would reserve the recent gains in employment and fiscal growth.
Pundits will choose to frame the debate over resolving the fiscal cliff in terms of partisan strategies. Republicans in congress seek to extend the Bush-era tax cuts to all citizens while reducing government expenditure. Democrats, on the other hand, will attempt to negotiate the extension of these tax cuts to all Americans except those who reside in the high-income tax bracket of $250,000 or greater while also seeking to reduce expenditures.
However, both parties have lost sight of resolving long-term debt and deficit issues in choosing to emphasize current economic growth and stability over solutions to America’s borrowing problem. Since the 2001 Bush-era tax cuts came into effect, Congress has accrued significant long-term debt by using borrowed money to cover the resulting deficit from reduced revenue streams and increased defense and government expenditure over this last decade.
In order to solve the long-term debt issues, the annual budgetary deficit must be decreased and eventually eliminated to stop the overall debt from further increasing. The economy could suffer sharp declines in employment and reductions in GDP over the course of the 2013 fiscal year, yet this short-term economic downturn would allow the government to resolve budgetary deficit issues and begin the process of limiting the growth of outstanding debt.
Although the fiscal cliff will set into motion draconian cuts in spending and increases in tax rates, these policies would dramatically improve the long-term prospects of the American economy by providing long-term fiscal solutions rather than putting into practice short-sighted policies that will only prolong an inevitable economic downturn.