Fiscal Cliff 2013: How American Can Avoid Going Over the Fiscal Cliff

Our country is anxiously waiting for the president to negotiate a deal with House Republicans to end a crisis precipitated by the fiscal cliff. The issues are clear, but the solution has been elusive. Each side is floundering around, positioning and re-positioning, as time ticks away. What’s missing is negotiating acumen by either of the opposing factions.

The most pressing result of indecision is that America is treading water and unable to move forward economically. It is stunning that both sides are so untrusting of each other as well as their own ability to reach a compromise. Because of this, they felt compelled to manufacture a problem (the cliff) to force a resolution; it is one of the worst tactics ever employed by Congress for such an important controversy.

Both sides should recognize that the other could effectively stymie any proposal. Yet, the president continues to overvalue his influence on the heels of his presidential victory, and recent polls that clearly suggest that the electorate wants to increase taxes on the wealthy.

In any regard, the House can effectively block legislation proposed to avoid the fiscal cliff. The election campaigns are over, so Republicans may discount sentiment throughout the nation and vote based upon their conscience and personal perspective. Obama does not believe his adversaries will take this tact because of the potential political repercussions, i.e. a mid-term backlash from the voters.What we are witnessing is a very high stakes game of chicken.

Philosophy and ego, unfortunately, have impeded a solution. Both sides believe there is an angel on their shoulder. Democrats think it is outrageous that rich people are not enthusiastic about paying more taxes (a very naïve expectation), while Republicans have said they would not agree to a tax hike for the affluent without assurances that the debt crisis will be addressed, preferably by cutting entitlements (this makes a solution an epic challenge). 

The president’s ego has clouded his judgment. He says he will refuse to accept any revenue proposal that is comprised of tax benefit cuts for the rich without an income tax rate hike. This is an indefensible position. What difference does it make where revenues come from, so long as the rich provide them. 

Both sides seem to find comfort in the likelihood that the fiscal cliff will be pushed into the future if no deal is consummated before midnight on December 31. This contingency probably gives many Americans comfort, but it shouldn’t. The problem is that the economy is stalled because businesses are hesitant to do anything with accumulated capital until uncertainty is cleared up. A lack of confidence in the system will impact job creation, the single most important issue affecting economic prosperity, or the lack of it.

The major obstacles to a fiscal cliff decision from my vantage point are:

1. The form in which revenues are obtained from the rich (higher income taxes, less tax benefits, or both).

2. The timing of an extension of tax benefits for those earning less than $250,000.

3. The impending debt ceiling crisis.

4. The inclusion of Social Security, Medicare, and Medicaid in the ultimate solution.

When it is all said and done, Democrats will get revenues, but not entirely from higher tax rates. Republicans will comply with the preference of the electorate relating to higher tax rates and/or tax benefits cuts. The middle class will definitely be spared an increase in taxes. The debt ceiling will continue to be a club for House Republicans, but not for another year and close to the mid-term elections. And, the process of reforming entitlements will finally begin and move the country away from a potential bankruptcy cliff.

All must gain and all must lose something. Businesses will then be in a position to spur economic growth, and they will create more jobs. Everyone in Washington can save face. What could be better?

This is what the art of negotiating entails. Our leaders and legislators had better begin exercising it very soon.