The so-called “Fiscal Cliff”

I know this isn’t IT or tech related, but for the next few days conversation is going to be dominated by the looming “Fiscal Cliff” more than by tech.  That’s sad for those of us who would much rather see good tech news.  So I wanted to make a non-partisan comment.

I’m not sure what people are really expecting for a solution to the “Fiscal Cliff”, but whatever we get is going to be no better from an overall economic impact perspective.

Really fixing the U.S. Government budget problem requires a massive reduction in spending, a beyond comprehension increase in taxes, and/or some mix of the two.  The problems with the plan of record (“sequestration”) is that it (a) applies no intelligence to how the cuts are applied, (b) relies on expiration of tax cuts enacted in the Bush years rather than specific application of tax increases or fixing the tax code, and (c) doesn’t fix spending problems with entitlements.  It is designed to make everyone unhappy.

I don’t get why people think there is going to be a “fix” to the Fiscal Cliff.  It’s called the Fiscal Cliff because of the fear that the combination of a large tax increase and large government spending cut will push the economy into recession.  But even if the House, Senate, and President agree on a replacement plan that situation is true.  Any replacement plan will include revenue increases equal to or greater than sequestration.  Any replacement plan must include spending cuts equal to or greater than sequestration.  That means we are going over the cliff no matter what form Washington manages to mangle it into.

Given that voters  decided to basically maintain the status quo in Washington we can’t expect much give on either taxes or spending cuts.  A Republican Congressman from a fiscally conservative district is hearing “we don’t care that Obama was re-elected, we still don’t want you voting for higher taxes and we want massive spending cuts” and a Democratic Senator is still hearing from his supporters “we want you to protect government programs and tax the hell out of the rich to do it”.  The amount of give either side has is pretty small.  In truth, the best deal either side is likely to get in the short-term is the one already in place.

So I’m in the camp that Washington should stop searching for a short-term fix to the Fiscal Cliff.  Instead they need to focus on the long-term problems of fixing the tax code, deciding on an appropriate discretionary spending level, and putting entitlements on a solid fiscal footing, all with our long-term economic health in mind.  I have definite opinions on how those should be addressed, but that would launch into a more partisan discussion that I want to keep out of this blog.  Until we have long-term solutions we can live with Clinton-era tax rates and reduced spending levels that are still way above where they were just a few years ago.

My bottom line is that one way or another we are going over the cliff.  Stop trying to pretty it up and focus instead on making long-term structural changes that will keep us from going over another cliff down the road.

With apologies to those itching to turn this into a discussion, I’m going to lock this blog post from comments since I don’t want it to become a distraction.  I’ve said my piece, and now we can return to technical topics.

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