Wednesday, December 26, 2012

Happy New Year -- Thelma and Louise style!

America, prepare to be driven over the fiscal cliff.  The nation's leadership is at a standstill over the budget and the debt ceiling, and their inability to work out a solution will cause raised taxes, less services, and an economy that will be ground into the dirt as a result.  The news is that bad.

If you haven't been made aware of exactly what the 'fiscal cliff' is (a term coined by Fed Chairman Ben Bernanke), party leadership in both houses of Congress created a political doomsday scenario where, if they could not pass a budget by this year's end, the Bush-era tax cuts would expire for all citizens and automatic cuts would be applied to all areas of the federal budget, including a significant decrease to defense spending.  Democrats and Republicans both presumed this would be a significant incentive to pass a budget.  Essentially, this solution to our deficit spending problem would penalize everyone for their massive failure.  

The key sticking point over the budget -- President Obama's proposal to eliminate the Bush-era tax cuts on the top 2% of American earners.  Additionally, the president wants budget cuts in defense.  Republicans, led by House Speaker John Boehner, want to cut entitlement programs and remain revenue neutral.  

Do I believe we are going over the cliff?  Probably so.  Not because politicians cannot work out an agreement, but because both parties are holding the nation hostage of partisan politics.  Polarization of the nation's two major political parties has both Democrats and Republicans refusing to deviate from their proposed courses of action.  A few points I'd like to make.


Economy Congress Capitol fiscal cliff generic



First, make no mistake about this, Democrats have the high ground in this battle.  The elections last month saw President Barack Obama re-elected by a strong margin and Democrats gain seats in both the House of Representatives and the Senate.  A number of referendums and voter initiatives around the nation saw a liberal slant.  Momentum is on the side of Democrats.  If the GOP does not yield to Democratic policies, they will be seen as the obstructionists who pushed America over the ledge.

The nation could also be seeing a fracture in the Republican Party.  Speaker Boehner, the de facto leader of the GOP, attempted to craft what he referred to as "Plan B" (the sheer irony of that phrase is not lost upon me, considering its etymology).  Boehner offered a compromise, sensing the inevitable truth that he was indeed, going to be the fall guy if a budget agreement was not crafted by year's end. In his proposal, Boehner would support raising taxes on Americans making more than $1 million, in exchange for entitlement reform.  

Republican House members revolted against Boehner's compromise, refusing to even allow the bill to come to the floor for a vote.  Boehner has been significantly embarrassed by his own party, creating serious doubt about his return to his leadership position.  Several Republicans openly spoke of replacing Boehner as Speaker.  Such open opposition to the party leader creates a less tenable bargaining position with Obama and the Democrats.  If the party no longer supports Boehner when the House elects its Speaker, they run the risk of seeing the return of Nancy Pelosi to the chair.  This is a far cry from two years ago, when Boehner took the gavel with undivided support from his party.

Moreover, Republicans are divided in where they stand on fiscal policy.  Boehner garnered little support for his Plan B, angered the more conservative wing of the GOP.  A small segment of Republicans demonstrated a willingness to cede the issue to the president, in light of the recent election results.  

Democrats are keenly aware of the dissension in the GOP, and will not back down.  The president is willing to make concessions in working out a budget, but the expiration of tax cuts on the top 2%  is non-negotiable.  Budget cuts will include defense spending.

The only way the Republicans avoid the label of 'bad guys' is to accept defeat in the battle, and continue the longer struggle.  I'm quite certain accepting this Faustian deal represents the bitterest of defeats, but not relenting might wreck the party and create financial hardship for all Americans.  If the Republican Party stands its ground (albeit very shaky ground), they will be blamed for the results of going over the fiscal cliff.  

Ironically, the best long term solution might actually be having the United States endure the economic hardships brought on by the expiration of tax cuts and across-the-board budget cuts.  Yes, this result would be harrowing in the short term.  American families would have significantly less income, and the markets would take a sharp turn downward.  Spending would decrease and ecnomic activity would stagnate.  The fallout would create a recession, but perhaps that's precisely what America needs.

The United States has been living beyond its means for a long time, delaying the difficult decisions and passing the buck to the next Congress or a new presidential administration.  And now, our nation is facing a financial day of reckoning.  Ultimately, the nation would recover.  We might as well embrace the conflict now and make the long term changes to government and society needed to prevent this from occuring in the future.  We cannot continue to hand this problem down from one generation to the next.  

Another pleasant side effect from going over the fiscal cliff would be that it might actually awaken a slumbering citizenry to act against the dregs of humanity that inhabit Congress.  A time of economic hardship might cause us to clean out Congress of both parties and the stalwarts who impede real progress.  (Sidenote:  Isn't it strange how Congress can routinely have a low approval rating, yet continue to see incumbents winning re-election rather easily?  We never think our House member or Senator could be the one causing problems in the country.)

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