How to pull back from the ‘fiscal cliff’
Credit: Federal Reserve
Throughout the sluggish recovery from our Great Recession, there has been a lot of discussion about what can be done to help the economy get back on its feet and get companies growing, hiring, and investing again. The answer is as simple, if not easy. What American business needs is for the federal government to get its fiscal house in order.
Unfortunately, instead of coming together in a bipartisan manner and enacting a smart, sensible plan to reduce the debt as a percentage of the economy, our leaders in Washington — at least in their public pronouncements — seem content to allow the country to careen toward the “fiscal cliff” we face on January 1.
That cliff is a series of economic events that includes the expiration of the 2001 and 2003 tax cuts, $1.2 trillion in automatic, across-the board cuts in defense and domestic spending (sequestration), an immediate and steep reduction in Medicare physician payments, and the disappearance of the budget patch that protects millions of middle class taxpayers from the Alternative Minimum Tax (AMT).
Allowing these rate hikes and spending cuts to take effect simultaneously would create an immediate fiscal contraction and, according to the non-partisan Congressional Budget Office, trigger a second recession in 2013.
The economic damage isn’t waiting for December to start taking effect. The uncertainty surrounding the fiscal cliff and doubts about whether Congress and the President can work across partisan lines on a plan to stabilize the debt are already negatively impacting the U.S. economy. According to a recent New York Times article, “A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth.”
And the Federal Reserve Bank of San Francisco recently issued a report stating that “uncertainty has pushed the unemployment rate up at least one percentage point in the past three years.”
As the chairman and CEO of Seattle Hospitality Group, a company that serves other companies in conducting meetings and events across the globe, I am acutely aware of the effect that uncertainty has had on our clients and our own business. I am also certain that resolving the looming fiscal crisis and addressing our long-term national debt would go a long way toward reviving the economy.
What’s happening in Washington is simply not right, and it’s no way to run a business; common sense dictates that we need to get the debt on a sustainable path. In the business world, you have to balance priorities and make tough choices. We need our elected leaders to do the same, before it’s too late.
Fortunately, there are real alternatives. In 2010, a comprehensive, credible, and long-term solution was put forward by the President’s National Commission of Fiscal Responsibility and Reform, which produced the report commonly known as “Simpson-Bowles.” Simpson-Bowles would have enacted budgetary savings of more than $4 trillion over the next ten years. It would have gone after every sacred cow, while protecting the most vulnerable in our society and investing in education, infrastructure, and research and development. The plan called for pro-growth tax reform that would rid the tax code of more than $1 trillion in tax expenditures, using those savings to both lower tax rates and reduce the deficit. The plan also addressed rapidly increasing health care costs and put Social Security on sounder financial footing.
Alan Simpson and Erskine Bowles have subsequently co-founded an organization called The Campaign to Fix the Debt, a bipartisan effort to educate Members of Congress, thought leaders, and citizens across the country about the need to address the nation’s fiscal challenges. Participants come from a broad array of political affiliations, interests, and backgrounds and are united in their belief that this is a moment to look beyond self-interest and come together as a nation to restore faith in our government, and reclaim the path to prosperity for future generations. More information about the debt, and the Campaign, is available at their website.
I remain optimistic about America’s future, If we can come out of our ideological trenches and do what all agree is necessary to secure prosperity for the generations that follow. As with any challenge the country has faced, be it beating back tyranny in World War II, putting a man on the moon, or winning the Cold War, it will require us to focus on a cause greater than our own self-interest, but the rewards will be great and the alternative unacceptable.
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