As a current events enthusiast with a special affinity for fiscal policy, I’ve come across the semi comical phrase “fiscal cliff” quite a few times over the past several months. Odds are this particular term will continue to trend in weeks to come, especially as President Obama and congressional leaders, in a rare display of bipartisanship, try to avoid the very situation it entails.
I, for one, believe that said situation is in need of a new name. And here’s why: If you think about it, the cliff metaphor only suggests two real outcomes. When one nears an oncoming cliff, one can either avoid it, or fall to certain death. It is, in this sense, completely binary. And that’s a problem.
Although “fiscal cliff” certainly makes for a euphonious metaphor, it simply does not accurately entail the problem Washington policymakers face today. The fact of the matter is, our nation’s exhaustive economic dilemma is anything but binary.
The so-called “fiscal cliff” refers to both the expiration of countless temporary tax breaks as well as an array of spending cuts. In short, the expiration of lower tax rates implemented under George W. Bush’s first term and the 2-percentage-point cut in payroll orchestrated by Barack Obama in 2010 paired with massive cutbacks in social programs such as unemployment benefits will, if neglected, result in an economic disaster. Conservatives, who argue that tax increases will hinder the already frail economy, welcome the symbolism. On the other hand, Liberals, who argue against federal budget cuts, support letting the Bush tax cuts on the wealthy expire. While all of these simultaneous changes could in fact reduce the federal deficit, economists from the Congressional Budget Office predict another recession.
On the bright side, the massive spending cuts and tax hikes only amount to a “cliff” if Congress ceases to take action. Although policymakers have neglected to show our bloated tax code some much needed TLC in the past few years, I would not go as far as to peg them as hopelessly irresponsible. Furthermore, with an exception to the unemployed, whose federal benefits will end, the majority of Americans will not feel the complete impact of these changes immediately. While paychecks will shrink due to taxes, federal budget cuts will most likely be spread over the remaining nine months of the fiscal year. In this sense, it won’t be as drastic as falling off a cliff at all. And that’s the worst case scenario.
Chances are Congress will either postpone most of the cuts and extend the majority of the tax breaks, thereby postponing the economic ramifications, or take a more moderate route by pushing back a portion of the cuts and allowing some of the tax breaks to lapse. Both of these plans would, in turn, deliver a much softer blow to the economy than across the board cuts and hikes.
So what is the correct phrase to describe the economic problem policymakers face today? Is it, as Democrats like to say, a “fiscal slope”? Is it Derek Thompson’s “fiscal fast” or Brian Beutler’s “austerity bomb”? In classic Shakespearian fashion, would a “fiscal cliff” by any other name sound just as threatening?
Either way, it is becoming increasingly important to focus on our nation’s exhaustive economic dilemma. This year marks the fourth consecutive year in which the federal deficit exceeds $1 trillion. Furthermore, it is no secret that after years of repeated lobbyist abuse and ongoing IRS neglect, the US tax code is in severe need of reform. Unless both of these issues are addressed, the federal deficit will remain astronomical, the US tax code will continue to prove problematic, and as a result, the United States will continue its course towards hazardous economic conditions.