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Fiscal Cliff Deal: Obama and Congress Play Chicken, And We Lose

You just can’t trust them.

This time, President Obama and Congress told us, they truly had to take action to resolve our debt crisis. This time, you see, the problem facing us was so great that our lawmakers would have no choice but to make the hard decisions, to get serious about the future of entitlement spending, and to fundamentally reform our tax code.

They even–with the help of the media–gave this opportunity a catchy name (the “fiscal cliff”) and a sexy deadline: New Year’s Eve, at the stroke of midnight.

But after weeks of grandstanding and negotiating, Washington politicians did what they swore they couldn’t do this time: put a Band-Aid over our gushing fiscal wound and resolved to check up on it in a couple months.

The “Fiscal Cliff”: DC’s Latest Scare Tactic

What was the fiscal cliff? Last month, I broke down what was at stake and explained a few ways that Obama and Congress could resolve the crisis–by passing Obama’s plan, working out a compromise, or “going over the cliff” by taking no action. However, I left out the lazy man’s solution–dealing with politicians, I should have known better–and that was precisely the path the President and Congress chose.

Faced with a choice between accepting drastic tax increases and spending cuts or working out a long-term deficit reduction deal, Washington instead chose Door 3, passing enough new taxes to sustain our levels of borrowing and spending, while postponing the difficult decisions on spending and the budget until later this year. At the earliest, that is.

The tax hikes included in the deal are less than those President Obama asked for, and significantly less than those that would have come had we gone over the cliff. Income tax rates will go up only for the very wealthy–families making over $450,000 per year–and an assortment of new taxes on capital gains, dividends, and estates (the death tax) are all aimed at the highest earners. Everyone, however, will be affected by higher payroll taxes and the new Obamacare taxes, so all Americans who work for a living will see a smaller number on their check each payday.

The other half of the fiscal cliff–the spending cuts–are largely delayed until March, giving the politicians more time to avoid, or at least put the best spin on, cuts to defense and popular social programs. Don’t be surprised if they find a reason to delay the cuts once again.

Shameless Manuevering

Alone, it isn’t so much a problem that the President and Congress deferred on enacted the spending cuts. It’s that politicians teased us with the “fiscal cliff” as a self-imposed deadline to act on our nation’s problems, and then saw their shadow and ducked for cover at the last minute.

The fiscal cliff originated during the debt crisis of summer 2011, when Obama and Congress could not agree on any meaningful tax increases or spending cuts. Rather than continue what had become a long, ugly political fight, the politicans agreed to punt on the hard questions until December of 2012–after Election Day, before the new Congress would be sworn in, and during the holidays, when Americans pay less attention to politics.

Thus, we didn’t reach the “fiscal cliff” on December 31 because we were due to run out of money on that day. Rather, Obama and Congress chose that day because it seemed like the only possible time when the parties might be able to agree on tax reform and spending cuts–the time when politicians were under the least amount of pressure from citizens and the media. And despite the manufactured panic surrounding the cliff, Congress was free all along to delay action as they did, and could very well do again.

What’s Next

Because the fiscal cliff deal is barely a start–it raises $600 billion in revenue from the wealthy over a period that will see the debt grow by $8 trillion, or 13 times the revenue–Obama and Congress will face at least three more major political fights in the coming months. ┬áSequestration–the pending cuts to defense and social programs–has been delayed until the end of February, and Congress will need to approve a budget and raise the debt ceiling by midyear.

The old mantra in politics is “Never Waste a Crisis,” but if you’re optimistic that politicians will use these three crises to reform entitlements or restructure the tax code, you’ll be severely disappointed. The great sham that was the fiscal cliff shone light on the true priorities of our President and Congress, and those priorities certainly aren’t serving the people. Rather, Washington will be content to save face and pass the big problems off to whoever is next in line.

They told us this time would be different. What fools we were to listen.

Kevin Palmer

Staff writer at Franklin Center. Contact me at kevin@watchdogwire.com

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Categories: Budget and Finance, News

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