Douglas: Confronting The Cliff

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As we pause this Thanksgiving to reflect on our many blessings, former
Vermont governor and commentator Jim Douglas observes that our officials
in Washington have more on their plate than turkey.

There’s a lot of talk these days about the ‘fiscal cliff.’ That’s the
automatic year-end spending reductions and expiration of some tax cuts
included in last year’s budget. Congress was paralyzed by a partisan
standoff, so they passed something they assumed would be so
objectionable to both sides that it would force a compromise before the
nation falls off the cliff.

Economists agree that, if
implemented, these measures would cost millions of jobs and drive
America back into recession. That’s because lower Federal appropriations
would mean less contracting and higher taxes would restrain consumer
spending. It’s an event that most don’t want to experience.

political bickering and posturing has already begun. Republicans say
that lower tax rates are essential for everyone and that the proposed
defense cuts must be avoided. Democrats counter that wealthier taxpayers
need to pay more and that no reductions should be made in social
programs. President Obama claims that a mandate from the recent election
bolsters that view.

All this doesn’t appear to be a framework
for success, although it’s hard to know how much flexibility might
emerge in negotiations. The House Speaker has agreed, for example, that
some tax deductions could be eliminated as long as rates aren’t raised.
That might accomplish the Democrats’ goal of increased revenue.

heard a presentation earlier this year by a retired general who
insisted that the scheduled cuts in the defense budget would eviscerate
the Pentagon and render the nation less secure. Some other former
governors were in the audience and we looked at each other skeptically.
We had just managed our states through the greatest recession in 80
years, making tough decisions to balance our budgets, and we weren’t
convinced that the Defense Department couldn’t tighten its belt.

while entitlements are exempt from the current exercise, the insistence
by some Democrats that they can’t be touched is equally troubling. In
the coming decades domestic spending is projected to decline and social
security will rise slightly. Medicaid & Medicare, however, will
increase unsustainably. The aging of our population and more expensive
medical care will consume a growing proportion of our Federal budget and
our economy, crowding out other programs. We can’t keep kicking the can
down the road.

Congress is quite accomplished at doing as
little as possible and they could get away with it for a while. The
‘fiscal cliff’ isn’t really a cliff, although the term is helpful in
encouraging action. Some economists call it a ‘fiscal slope’ or ‘fiscal
hill,’ because, even if the automatic spending cuts and tax increases
were to go into effect, lawmakers could reverse any or all of them: the
sooner they did that, the less the economic damage.

But let’s
urge them to come to an agreement now. The country just spent $6 billion
on a campaign that ratified the status quo. The voters again chose
divided government, but we expect it to work. That would be something
for which we’d all be thankful.

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