No, the fiscal cliff deal just postponed the inevitable
President Obama declared electoral victory and promptly increased taxes on the wealthy on the first day of 2013. This was by way of the agreement that prevented the “fiscal cliff,” a series of spending cuts and tax increases that were due to kick in on January 1, 2013. Left unsaid was that the fiscal cliff deal was really only a band-aid, a short sighted temporary relief, and really did nothing to address our structural, underlying fiscal problems.
Furthermore, Obama ignored the recommendations of the Simpson-Bowles commission, a commission that he appointed to suggest ways to bring about long term fiscal balance, tax certainty and economic growth. Senator Alan Simpson succinctly stated his opinion of the fiscal cliff deal in an NBC appearance: “The mountain roared and gave birth to a mouse.” It could have been a great opportunity for Obama to seize middle ground and implement long lasting financial strategies to avert disaster. But he played politics instead.
Contrast this with the comprehensive bargain that President Clinton struck with a hostile Republican Congress in 1996, which raised taxes on top earners, but also curtailed spending, waste and reformed welfare while preserving essential safety nets and investments in Medicare, Medicaid, Education, and the Environment. The nation not only balanced its budget for the first time but also produced a surplus. The economy rebounded since there was tax and regulatory certainty.
President Obama unfortunately has been unwilling, and worse, unable to provide leadership that the country can rally behind and provide needed reassurance to global markets, investors and creditors.
Our nation has already reached the debt limit without a grand bargain now, the fight simply spills over to voting on increasing the debt ceiling in Congress. While Obama is correct that we cannot renege on our commitment to pay for bills that were approved by Congress, expecting an automatic increase in the debt limit is unrealistic and unwise. We need a vigorous debate on what our spending priorities should be, including reducing waste in defense spending, and calling for a shared sacrifice from all of us.
It is only the President who can provide the leadership to enact a grand compromise, especially now that he is not fettered by the need to ever face another election in his life.
Obama simply needs to take a page from the Clinton playbook. The nation cannot afford this political brinkmanship. Thomas Freidman said it best in The New York Times recently, “It’s time for the president to do some risk-taking—to stop just hammering the wealthy, which is so easy, and to start selling the country on a strategy to multiply them. We need to tax more millionaires, but we also need more millionaires and middle classes to tax. The president was elected to grow our national pie, not just re-divide it.”
Rameysh Ramdas, an SF Bay Area professional, writes as a hobby.
Yes, the fiscal cliff deal prevented a crisis
In June 2011, during the first debt ceiling crisis, President Obama had detailed negotiations with the Speaker of the House, John Boehner. He proposed a grand bargain that had 100 billion in tax increases per year and 300 billion in spending cuts including Social Security and Medicare spending. In other words $3 in spending cuts for every $1 of tax increase.
This was a very reasonable plan and weighted heavily towards spending cuts. For any reasonable Congress seeking to cut spending it would have seemed like an excellent deal. But Boehner rejected the deal and walked away from the talks because he could not round up enough Republican support.
Now fast forward to January 2013. The same Boehner was narrowly re-elected to Speaker of the House because the newer Republican entrants considered Boehner too moderate. So this is the cadre of Republicans who are part of Congress today. The result of this impasse on the debt ceiling in 2011 caused a downgrade of the U.S. bond credit rating.
The downgrade precipitated a weakening of the economy and slower job creation. Having gone through this experience it is understandable that Obama proposed a modest package to avoid the fiscal cliff to avert a repeat of 2011.
In his press conference following the deal Obama clearly stated the modest nature of the deal and expressed disappointment at not being able to achieve more. As the old NFL adage goes you take what the defense gives you. Therefore it is ludicrous to blame Obama and not blame Boehner’s role in the bargaining.
Since 2009 the United States has faced an unprecedented number of economic obstacles. Pulling out of the worst financial crisis since the great depression. Recovering from the worst recession and the worst housing crisis ever. Unwinding from an avoidable $3 trillion war in Iraq and the war in Afghanistan. All of this was legislated with no help from the Republicans.
The 112th congress passed just 69 bills of which 30 were instrumented to repeal Obamacare. This is rated by USA Today as the least productive ever or at least since records began to be kept in 1947. The Senate Republicans for their part have obstructed legislation with a record number of filibusters. Past congresses have not been so extreme.
So disappointment at the modest nature of the cliff deal is justified only if one is first disgusted by the do nothing and obstructionist tactics of Republicans.
The fiscal cliff deal averted near disaster with massive tax hikes and spending cuts. The deal is designed to begin reducing deficit. Under the fiscal cliff bargain, after the first year, government spending will be about 22.7% of GDP and revenues about 16.6% of GDP. But after the first year, revenues will rise and spending fall because the economy is estimated to improve, according to the Congressional Budget Office. So while there is not going to be a rapid turnaround, the cliff deal did avert a near disaster and it is the best from a fractured Congress.
Mani Subramani works in the semi-conductor industry in Silicon Valley.