Fiscal Cliff 2013: The Real Reason Congress Made a Deal

If we want to follow the “fiscal cliff” analogy, then we have “fallen over” the fiscal cliff and Congress brought some rope to climb back up. There are several incentives for Congress to erase the effects of the fiscal cliff, but the most important one is that members of Congress want to keep their jobs.

Here are two reasons why climbing back up the fiscal cliff will help this to become reality:

1) Congress members don’t look bad.

If we had not climbed out of the fiscal cliff debacle, families would have been affected with thousands of dollars in tax cuts and many would have lost their jobs. The economy would have worsened and the stock market would have declined due to hundreds of billions of dollars in spending cuts. This would have hurt household economies which would make voters unhappy. When voters are unhappy, Congress people lose elections – something that no congressperson wants.

Without congressional salvation, Congress members would have appeared to be utterly incompetent. Maybe Congress is incompetent, but at least they don’t appear to be that way when they create a compromise that ends tax increases and spending cuts. This again helps their re-election chances.

2) Congress members look good.

If we had gone over the fiscal cliff, the average person would have seen their taxes raised by about $3,500 per year. Congress made themselves look good by compromising to bring that number down to, $0. Thus, Congress members can go home to their constituents and say “look at how good of a job I’ve done. I’ve decreased taxes for you!” In reality, of course, tax rates did not change from 2012, but they can say that they have lowered taxes without completely fibbing.

Congress members appear to be even better at their jobs if they decide to increase spending. Increased spending leads to more-profitable businesses and job creation which means more money in the hands of the average American (although this money is borrowed by the government). With more money, Americans are happier and are less-likely to vote politicians out of office.

This kind of spending increase is exactly what we saw in the congressional compromise as it includes $332 billion in spending increases. Although detrimental to the economy in the long-term, increased spending helps Congress members to keep their jobs and that’s one reason as to why we’ve increased spending for decades.

As to why Congress waited as long as they could to pass fiscal cliff legislation, imagine a world where Congress compromises with ease and no one has to worry about whether or not their taxes will increase. A world where government jobs are never in jeopardy and last-minute deals are nonexistent. In this fictitious world, the media doesn’t report the fiscal cliff because the fiscal cliff was solved a year before the Jan. 1 deadline. This world is boring.

It’s much more electrifying when Congress waits as long as possible to compromise. In our world, the fiscal cliff was reported because it occurred in the eleventh hour. By forcing the nation to wait for a fiscal cliff response, Congress gains media attention where they can portray themselves as tax-lowering, job-saving heroes.

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I realize that there are other factors that go into the decision making progress for our elected officials, and that the above view of American politics is very cynical. But with the Congress increasing the debt year after year, it seems that selfishness must play a role in the voting process.

The above proves as incentive for congress members to pass deals that will nullify any negative, short-term effects on the economy. There is a strong possibility that Congress will use the sequester and debt ceiling crises to increase spending and decrease taxes yet again. Assuming this happens, our debt will continue to increase as fast as ever and one day, we will have to deal with the real fiscal cliff: that point in time when we must pay off our debt, but can’t.