Nothing is more discussed recently at the White House than the fiscal cliff. The first post-election news conference was held Wednesday, the next day the president met with union leaders. Together with mayors and business leaders, President Obama stressed that he would keep his word from the campaign to tax the rich and protect the middle-class. His plan will call for a $1.6 trillion tax hike.
Many fear that the economy could be dragged to further recession as a series of tax cuts, and other tax alternatives that are set to expire at midnight on December 31, are not extended. We are also worried about whether Congress can avoid deadlock and move the policies forward. Republicans believe in spending tax cuts, while reducing the tax rate across board. The Democrats, however, propose the opposite.
But the current economy may not allow much time for us to watch the show. Several Republicans suggested that raising the tax rate on the rich and corporations may lead to a shrinking economy, since firms may be discouraged from hiring, and would lead to a higher unemployment rate. They believe economic growth in terms of GDP comes first. However, supporters of the president argue that to reduce deficits, we need to increase taxes and decreasing spending. Extending the tax cuts may never solve the deficit problem, which is crucial to the health of the economy.
There are also social concerns. If the base is broadened and the tax rate reduced, like Republicans proposed, can the poor afford it? Apparently, Democrats believe that those who can afford it should bear more of the costs.
So, the rub is which comes first. Should we grow the economy and close the gap in the deficit, or dealing with economic inequality? Each of them is important.
To answer this question, let’s first look at what we do want to build for this nation and what is our competitive advantage.
Being the strongest economy has a lot of privileges. Our currency is still dominating the global market. But the middle class, despite the fact they have been working hard since the 70's, has not enjoyed much benefit in terms of real household income growth, whereas the top 10% has seen their real income almost double.
Nonetheless, nobody likes paying more taxes. Nor does the president himself. One thing is certain. Someone has to bear the burden.
Political rhetoric is the last thing we are looking for at this moment. Can we, as one nation, jump over the cliff of responsibility?