The debate between President Obama and challenger Mitt Romney aside, there is yet no clear path away from the double whammy of retracted temporary tax cuts (worth $500 billion annually) and mandatory across-the-board spending cuts (worth $109 billion annually) that loom over taxpayers and the economy. When this crisis, dubbed the fiscal cliff, arrives on Jan. 1 as now scheduled, it could trigger a return to recession.
The good news is that cutting the federal deficit and build-up of national debt doesn’t have to cause a recession. If Republicans will meet congressional Democrats halfway by allowing a mix of spending cuts and revenue increases – say, by eliminating tax loopholes that let rich corporations and ultra-wealthy megamillionaires and billionaires escape fair tax levels – the federal deficit can be sliced at a meaningful pace without wrecking the economy.
The fear among economists is that far-right absolutists would rather shoot the economy in the foot than agree to a reasonable bipartisan deficit-reduction plan.
Jan. 1 is the date when the Bush tax cuts – passed by a Republican Congress and President George W. Bush as temporary cuts in 2001 and 2003 when the country was enjoying Clinton-era budget surpluses — are scheduled to expire. It’s also the date when the temporary payroll tax “holiday” on a third of Americans’ Social Security withholding tax is set to expire.
And it’s also the date when mandatory across-the-board spending cuts of 8.2 percent in most federal programs, or about $109 billion are scheduled to take effect unless Congress agrees on a solid bipartisan deficit-reduction plan before then. The across-the-board spending cuts were agreed to by Congress last year to stanch a tea party-contrived crisis over a decades-old routine of increasing the federal debt ceiling to provide federal spending previously approved by Congress.