Let us presume that we had advance knowledge of a terrorist attack Dec. 31 on our economy and financial system. The attack would be sufficient to end the present fragile economic recovery and throw us back into recession.
Let us also presume that we had measures at hand which we knew would avert the Dec. 31 attack. Would we apply them?
The situation is precisely what we face with the pending Dec. 31 "fiscal cliff" in which measures will kick in which will end the Bush tax cuts, end payroll-tax relief, end extension of unemployment benefits, and make substantial and arbitrary cuts in Defense and non-entitlement spending. Various estimates show this lethal combination of actions cutting 2013 economic growth to zero or worse.
The ready measures at hand include an alternative deficit-reduction plan which would include both entitlement reform and the end of some so-called "tax expenditures" (that is subsidies and loopholes benefiting favored activities that shrink the federal revenue base). These measures would not damage the near-term economy as the fiscal-cliff measures would.
The doorway to such a deal was opened, if only slightly, Thursday night in President Barack Obama's nomination acceptance speech in Charlotte. Obama offered then to negotiate in good fatth with Republicans on a deficit-reduction plan based on the 2010 recommendations of his own Simpson-Bowles bipartisan commission, which the president rejected at the time. (His 2010 opposition presumably was one of the unspecified mistakes Obama said in his speech that he was willing to confess.) Rep. Paul Ryan, the Republican vice-presidential nominee, served on the commission but also did not embrace Simpson-Bowles in 2010.
A small bipartisan group of Senators and Members of Congress, including Rep. Adam Smith, has been trying to frame a package of proposals to avoid the fiscal cliff. But they have been fighting their own parties' congressional leaders. Sen. Patty Murray, co-chair of the special congressional committee that failed to agree on such a package, has publicly stated that Democrats would be best served to let the country go over the cliff, then blame Republicans for it. More likely, voters would blame both parties if that happened.
Until now, Obama has mainly focused on the Dec. 31 deadline by saying he would leave tax cuts in place for the middle class but raise taxes for the rich. That alone, however, would not yield sufficient revenue to come even close to meeting the deficit-reduction
requirements attached to the Dec. 31 deadline. Nor would it help the small businesses, payroll employees, or unemployed whose benefits also would lapse Dec. 31. Nor would it avert the arbitary cuts looming in Defense and in domestic programs.
Republicans have insisted on extension of all the Bush tax cuts for all income groups. Moreover, they want Defense increases rather than even modest cuts.
In a less fevered partisan environment, the president's Thursday night olive branch on Simpson-Bowles would be seen as an obvious door-opener for a first-phase deal to avoid the Dec. 31 cliff. Will Democrats and Republicans rise above themselves and try to get something done together?
If they do not, smart money is betting on no action before the November elections and, then, a post-election "continuing resolution" by a lameduck Congress which will make the Dec. 31 cliff a March or April cliff to be dealt with by a new Congress and a whoever is the new president. In other words, kick the problem down the road while debt and deficits continue to mount and financial-market and international confidence continues to erode.
Lack of constructive action before Dec. 31 will signal to Americans and non-Americans, alike, that our country is not yet governed by grownups able to take serious action in a serious situation. Constructive action, on the other hand, would give a tremendous lift to Americans' shaken confidence in their leaders and, also, tell the world that we can do better than Greece or Italy after all.
And for those who gauge everything by whether it gives their own party and candidates a political edge: You might find Americans grateful that Democratic and Republican leaders, together, for once did the large and right thing. That would be good poltics for everyone.
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