Avoiding the 'fiscal cliff'

Avoiding the 'fiscal cliff'

November 20th, 2012 in Opinion Times

Though the direction of the nation's economy hangs on a way to avoid the so-called "fiscal cliff" in January, there is yet no clear path out of the woods in Washington. That's again fueling uncertainty, and it's showing up in the stock markets.

President Obama has rightly, and forcefully, reasserted his position that the Bush-era tax cuts should be extended only for the middle class, but not for the wealthiest 2 percent of Americans, and that spending cuts must be balanced with tax reform, closure of tax loopholes and some new revenue in order to fairly achieve deficit reduction. Congressional Republicans, of course, have fallen back on the routine GOP formula: that lower taxes "for all" -- meaning, specifically, retention of the giveaway Bush tax breaks for the super-rich, and even lower rates for them -- are integral to a deal to avoid a crash over the fiscal cliff.

The latter is not likely, however, and investors apparently sense that the pre-election stand-off on fiscal policy may continue, bringing on a slow-down in the economy, and possibly another downgrade in the nation's credit rating. Monday's market uptick notwithstanding, their expectations are evident in a rising sell-off of stocks and equities in order to capture the profits from the current low rate on dividends offered by brand name corporations, investor-owned utilities and telecommunications companies.

It's possible, to be sure, that the shift is partly due to investors' belief that a bipartisan compromise on new taxes and spending cuts would, indeed, restore the Clinton tax rates on the highest incomes. Such a deal might include a rise from 35 to 39.6 percent in the high-end marginal income-tax rate, and a similar rise in the tax rates on dividends and carried interest, which the Bush cuts dropped to a low 15 percent.

Regardless, achievement of a bipartisan deal on cutting the deficit offers the best outcome for the nation. It could provide closure of the most egregious tax loopholes along with measured spending cuts over the next decade. Return of the Clinton-era tax rates on the highest incomes would alone produce $1 trillion in deficit reduction. A fair bipartisan deal also would prompt alternative investments less dependent on annual dividends and more attuned to the nation's longer term needs. And it would promote higher average incomes for the broad class of American workers and bolster their consumer spending, by far the largest driver of the nation's economy.

Beyond that, a bipartisan deal to avoid the fiscal calamity in January of mandatory spending cuts and broad tax increases on the middle class surely would stave off uncertainty about the nation's larger fiscal path. That, in turn, would bolster government investment in infrastructure and essential services, and set an optimistic course for the nation's fiscal health over the long term.

That should be apparent to Americans of every political stripe. In fact, it is. According to the exit polls in the presidential election, a huge majority of voters agreed that keeping the Bush era tax cuts intact for the middle class, but not for the super-wealthy, was vital for the economy. It's the Republican leadership in Washington that is the obstacle to such an agreement.

Other than their connection to their most faithful, fat-cat political donors, their opposition makes no sense. The nation is posed for steadily growing economic recovery. Thwarting that progress by holding out for extension of deep tax cuts that have disproportionately favored the super-wealthy since 2003 would be a huge mistake for the Republican party, as well as for the nation. Americans deserve better.