Business Fears the Fiscal Cliff
Published: August 6, 2012
So it turns out that federal spending is important to the economy after all.
As Nelson Schwartz reported in The Times on Monday, a number of manufacturers say they are canceling plans for investing and hiring, in part, because they fear that some $100 billion in budget cuts will take effect in 2013. In all, the law currently calls for $1.2 trillion in automatic spending cuts over 10 years, starting Jan. 1, divided between nondefense programs and defense projects.
Republican lawmakers demanded the cuts last year as part of their brinkmanship over the debt ceiling, and business lobbies have generally supported slashing the deficit. But now that the cuts are imminent, corporate executives seem to have realized that the last thing the economy needs is a large budget cut across the board.
They’re right about that. According to the Congressional Budget Office, the combined impact of the automatic spending cuts plus the scheduled expiration of the Bush-era tax cuts — the so-called fiscal cliff — would cause the economy to contract in the first half of 2013. Some business leaders seem to think the solution is for Congress to act as soon as possible to avert the spending cuts and to extend all of the tax cuts. That would avoid an economic downturn next year, but it would also mean no progress toward long-term deficit reduction.
The best approach is to delay the blow of lower federal spending, thus shielding businesses from a sudden drop in support, and, at the same time, temporarily extend the Bush-era tax cuts for most Americans and let them expire for those making more than $250,000 a year, as President Obama has proposed. That would raise revenue and be a credible step toward long-term deficit reduction, without harming the recovery, because high-end tax increases do not cut deeply into consumer spending.
Politically, such a deal can probably be struck only in 2013, after the spending cuts have kicked in and the tax cuts have expired, assuming Mr. Obama wins re-election. Republican lawmakers, confronting the consequences of the spending cuts, would have to come to the conclusion that delaying both defense and nondefense spending cuts would be best for today’s economy. As for the tax cuts, letting them all expire could pressure Republicans to renew them for the middle class, while letting them end for the rich.
That is crucial because higher taxes for top earners is necessary for the nation to begin to raise the revenue it needs. And until the rich pay more, there will never be a national consensus for tax increases on middle-income Americans, which will eventually be needed to further curb long-term deficits.
Even business leaders are starting to complain. Now it is up to Democrats to force Republicans to rework the coming spending cuts and tax increases in a way that benefits most Americans and the broader economy.
- Editorial: Business Fears the Fiscal Cliff (nytimes.com)
- What the ‘Fiscal Cliff’ Will Mean for You (dailyfinance.com)
- Fiscal Cliff Crisis Rooted in Senate Ploy to Pass Bush Tax Cuts (bloomberg.com)
- Fear of ‘Fiscal Cliff’ Has Industry Pulling Back (nytimes.com)
- Fiscal Cliff: What Really Happens If We Go Over It (dailyfinance.com)
- Racing toward the fiscal cliff (seattletimes.nwsource.com)
- Romney: Delay the Trigger Cuts (news.firedoglake.com)
- The Fiscal Cliff: Another Threat To The Economy (outsidethebeltway.com)
- Fiscal Cliff Already Having Impact on Hiring (news.firedoglake.com)