A good cliff is a rather breathtaking affair. I’ve always been impressed by the Mexican cliff divers in Acapulco, but I’m talking about something even bigger. Think White Cliffs of Dover or Half Dome at Yosemite. Now, those are some gargantuan cliffs.
A cliff – with its massive, sheer vertical wall of rock or earth or ice – will get your heart pumping and head spinning, because by its very nature, a cliff is a dangerous place. Witness the exploits of Wile E. Coyote and the tragic Buzz Gunderson.
For that reason, I give cliffs a wide berth. You’ll not see me hovering near a ledge, as self-preservation has meaning to me now that I have survived my youth.
You would think our illustrious members of Congress, none of which are teenagers (but prove to be fully capable of acting like ones in late night frolicking along the Sea of Galilee) would also have an appreciation for safety and prudence, but with an 12 percent approval rating, you really have to wonder.
From all outward appearance, it would appear that our Congressmen are intent on periodically taking us to the brink and back. My theory is that they want to be taken seriously or at the very least be noticed.
And so they are now the focus of our attention as we approach what is being called a “fiscal cliff,” to which most economists and now a growing chorus of business leaders say is a precarious thing as it would tip our economy into a new recession.
The fiscal cliff refers to a series of tax increases and spending cuts that would take place in January 2013 unless Congress reaches agreement to forestall those measures. And therein lies the scary part, as we find ourselves actually dependent upon Congress to agree on something and take action. Now why is this important?
Well, the nonpartisan Congressional Budget Office, which ostensibly works for the Gang That Couldn’t Shoot Straight, came out with a report that past week that said that if Congress does nothing, and that we all take the plunge over the fiscal cliff, that while the outlook of the federal government’s budget deficit would improve, the unemployment rate would push back up to 9.1 percent by the end of 2013, and produce economic conditions “that will probably be considered a recession.”
In short, it would mean 2 million fewer jobs than if the tax cuts are renewed and the spending cuts averted, said Douglas Elmendorf, the budget office’s director. In 2013 alone, the combination tax increases and spending cuts would be a more than $500 billion hit to the economy.
The CBO’s latest fiscal outlook is great fodder for the dueling camps as the Nov. 6 elections approach. Republicans, including presidential candidate Mitt Romney, want to postpone the biggest chunk of the cliff – $331 billion in tax increases – to give Congress time to overhaul the tax code. Democrats, including President Obama, say they will not delay tax increases set to hit the richest Americans.
As you can imagine, the Romney camp jumped on the CBO report like a dog on a bone, while the White House said it was all the fault of those wascally wepublicans.
“Today’s CBO report is another indictment of President Obama’s economic policies that have resulted in overspending, increasing debt, and a growing financial burden on the next generation,” said Romney campaign spokesperson Amanda Henneberg.
The White House said the CBO report showed it is time for the Republican-led House to approve tax cuts for all but the nation’s highest earners.
“They’re willing to hold the middle class hostage unless we also give massive new tax cuts to millionaires and billionaires – tax cuts we can’t afford that would do nothing to strengthen the economy,” White House spokesman Jay Carney said of Republicans in a written statement.
The Obama administration seeks to renew the expiring tax cuts but let rates rise on amounts exceeding $200,000 annually for individuals and $250,000 for couples. Republicans insist that all tax reductions should be continued.
One thing for certain, if Congress doesn’t act, just about everyone is going to get hammered big time.
According to a study by the nonpartisan Tax Foundation on the perils of the nation’s fiscal cliff, Americans would face the biggest tax increase since the end World War II if the Bush tax cuts are allowed to expire at the end of 2012.
Connecticut residents would get hammered the worst, with an additional cost of $5,783 a year, while New Yorkers would get hit $5,542 on average. Mississippi residents get the least impact, at $1,310 on average, but 29 of the 50 states will see taxpayers get hit at least $2,000, according to the Tax Foundation.
New Jersey residents would take the third-highest hit at $5,030, with Massachusetts ($4,277) and California ($4,242). Besides Mississippi, Residents in states lease affected would include New Mexico ($1,465) 49th, Alabama ($1,496) 48th, Tennessee ($1,522) 47th, and West Virginia ($1,530) 46th.
If the Bush cuts expire, top tax rates will increase from 35 percent to 39.6 percent. The capital gains rate will jump from 15 percent to 20 percent while dividends also would revert to a higher rate.
The uncertainty of how and when lawmakers will resolve the issue is hurting business confidence and weighing heavily on companies’ investment and hiring decisions. This is clear if you listen to what some prominent CEOs are saying.
Travelers Cos. Chairman and Chief Executive Officer Jay Fishman said that businesses are curbing spending and hiring because U.S. lawmakers haven’t addressed fiscal imbalances the country faces in the next decade.
“The best thing that could happen right now is a bipartisan solution” to the nation’s mounting debt and widening deficit, Fishman told Bloomberg. “The sense of gloom and despair would lift and, in fact, businesspeople would be more optimistic.”
Customers of Caterpillar are “scared to death” that tax rates will rise as public expenditure stalls, said company CEO Doug Oberhelman.
“It’s starting to hold us back,” Oberhelman told Bloomberg. “For the contractor base and customers in this country, it’s worrisome. It has a chill in the air.”
The Obama administration forecast July 27 that the country’s budget deficit will be $1.21 trillion this year. Government spending exceeded revenue by more than $1 trillion annually since 2009 as the U.S. sought to stimulate the economy and spur job growth after the longest recession in almost eight decades.
Gross domestic product, the value of all goods and services produced, slowed to a 1.5 percent annual rate in the second quarter from 2 percent in the first three months of the year as limited job growth prompted Americans to curb spending, according to U.S. Commerce Department data. The jobless rate has remained above 8 percent since January 2009.
Between 2013 and 2022, the CBO expects $10.7 trillion will be added to the national deficit if policy makers extend current policies, including the 2001 and 2003 tax cuts. U.S. debt is expected to total 73 percent of gross domestic product this year, rising to 93 percent in 2022.
Now that is not sustainable, whether you are a liberal or a conservative. That dog just won’t hunt.
After his first month in office, President Obama spoke passionately about the need to reduce the deficit. He sounded very much like the adult in the room, which at the time gave me pause and a degree of confidence.
“Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration or the next generation. We are paying the price for these deficits right now,” he said.
“We risk sinking into another crisis down the road. As our interest payments rise, our obligations come due, confidence in our economy erodes and our children and our grandchildren are unable to pursue their dreams because they’re saddled with our debts. But I refuse to leave our children with a debt that they cannot repay, and that means taking responsibility right now, in this administration, for getting our spending under control.”
Since then, I have lost my confidence. Federal spending ($3.7 trillion in 2012 with $2.2 trillion of that earmarked for Medicare and Social Security) under control? Mr. President, with all due respect, sir, this would be the fourth consecutive year the U.S. would run a trillion-dollar budget deficit.
But the day of reckoning is coming. We can only kick this can down the road so long. Judging from the campaign rhetoric coming from both sides, entitlements will not be seriously curbed anytime soon. Privately, thoughtful conservatives and liberal members of Congress acknowledge that any meaningful deficit reduction plan must include increased revenue along with spending cuts.
But they will not tell you that. Not now, not while they are trying to get elected.
No, they will promise you the moon, while skirting the truth. And the truth is that if we are going to seriously tackle our nation’s long-term debt, spending cuts alone will not make it happen. Whether we like it or not, our taxes are going in only one direction and it’s not south.
And that is even if we avoid the cliff.
Dean Barber is the principal of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at email@example.com Please visit our website at www.barberadvisors.com