Both major parties and, of course, the hype-line mainstream media are claiming complete disaster if the Bush Tax cuts are allowed to expire, payroll taxes are raised and the sequester kicks in.
But the fiscal cliff being bandied about as an "economic disaster of historic proportions" really isn’t what your think it is. The Congressional Budget Office released a new analysis of what the impact would be on the economy, jobs, and the deficit if a solution is not reached by the end of the year. You can read the report as linked, but here are the highlights and some perspective to put them in:
1. Unemployment rising to as high as 9.1% in 2013, or basically 1% higher than it was three months ago and perhaps only .8% higher than it actually is today.
2. CBO also projects GDP decreasing by up to 2%(U.S. economists are predicting a GDP growth of 2%).
As such, a 2% decline in 2013 could put the U.S. back into a marginal technical recession under 1%. A 1% decline in GDP in 2013 is a far cry from the Great Recession whose final revised statistics showed over 5% yearly declines back to back. Germany, the EU’s strongest economic member, reported its economy slowed to 1% in the third quarter, and is projecting a no growth to 1% GDP increase in 2013.
The result of the Bush Tax cuts ending and the sequester being allowed to be implemented has an upside of reducing our deficit per the CBO. The CBO projects over $400 billion, including anticipated reductions, in revenues would result if America falls over the fiscal cliff. But CBO notes, the loss of income due to the tax increases particularly the payroll tax increase and the elimination of unemployment benefits will sharply cut consumer spending thus creating the downside potential for recession.
Interestingly, the non-partisan CBO, goes on to report we could extend the Bush Tax cuts, the payroll tax cuts and add 1.5% to 2013 GDP. We could avoid the sequester adding .75% to 2013 GDP. The cost of effectively doing nothing is giving up a $400 billion reduction stimulating the economy toward an estimated 2% growth in GDP, while adding $900 more to our national debt.
On Friday, we heard President Obama explain to the nation:
“We must avoid the fiscal cliff and immediately to ensure 98% of American taxpayers and 97% of small business are not going to see their taxes go up.”
My question is simply, “Why?” Haven’t we Americans been told for a decade, the Bush Tax Cuts are the root of all things financially wrong with our federal deficit? Didn’t the Clinton tax rates work out pretty darn well for everyone from the bottom to the top?
After being slammed with the Great Recession, is anyone other than our representatives in Congress afraid of 9% unemployment and perhaps a 1% recession in 2013 to begin restoring our fiscal sanity?
It appears to me, we are actually on the verge of a fiscal cliff with two choices:
We can again do nothing other than perhaps reduce our annual deficits by CBO’s projected $48 Billion asking the upper bracket to pay a little more leaving an annual deficit of over $900 billion,
Or we can go back to the Clinton Tax rates, accept the spending cuts of the bipartisan negotiated sequester and cut our annual deficit in half to to a peacetime record high $450 Billion.
Respecting the future of today’s millennials, our children and future generations, perhaps it is time to take the plunge over the fiscal cliff and begin saving the CBO’s estimated $6 trillion in reduced national debt between 2013 and 2022.
Somehow Main Street not only survived but also thrived on the Clinton rates. Isn't it past time to base our future on the success of our past?