Congress, do something soon on 2013 tax, spending cuts
Here is something the Congressional Budget Office said in May: “. . . although there are trade-offs in choosing when policy changes to reduce future deficits should take effect, there are important benefits and few apparent costs from deciding quickly what those changes will be.”
In other words, Congress, do something and do it soon.
This, mind you, is from the office set up in 1974 to provide “non-partisan analysis for the U.S. Congress.”
The prodding was in regards to the “fiscal restraint” slouching toward America and due to arrive at midnight Dec. 31, 2012. That’s when federal tax cuts are scheduled to end and spending cuts are supposed to start. The CBO estimates that the economy will shrink by 1.3 percent in the first half of 2013 and expand some in the second half. The result, in the CBO’s understatement, “would probably be judged to be a recession.”
Others have used more lively terms to describe what lies ahead for the economy: “a fiscal cliff,” “Taxmageddon.”
If nothing is done, the federal government will collect more tax revenue, spend less and see the deficit shrink by $607 billion. Well, not quite that much because sucking that much money out of the economy means more people will be out of work, taxable income will shrink and the deficit reduction drops to $560 billion in the CBO estimation.
The congressional office says there doesn’t have to be this good news (reduced deficit), bad news (renewed recession) joke played on the American people. They set out three possible courses of action for Congress:
1. Extend all the tax cuts, eliminate the spending cuts. The problem with this is that continued deficits cannot be sustained and the longer they go on, the more drastic will be the tax and spending changes needed to overcome them.
2. Do nothing and let the tax cuts and the spending reduction happen. Kiss off making any major purchases in 2013 and don’t give up that second (or third) job if you can help it because economic numbers will drop faster than the Times Square glitter ball bringing in the New Year.
3. “Enact a combination of policies: changes in taxes and spending that would widen the deficit in 2013 . . . but that would reduce deficits later in the decade.” This would have to be done, the CBO notes, in a way that gave consumers and businesses confidence that the actions scheduled for later in the decade would actually take place - a tall order given the stopgap measures Congress has been using to keep the economy running.
Door No. 3 seems the CBO’s preferred escape hatch, but note that this was said in May and no action has been taken. The budget office said quick action was important to avoid dire consequences in 2013 that would extend into 2014 when taxpayers will feel the bite of the increase (if they remained intact).
But uncertainty over what’s ahead is already having an impact as businesses hold off on investments and hiring, waiting to see the shape of the economic landscape.
The political parties are holding off on action to see who wins the White House in November. That means that even if Congress takes action on Nov. 7, the day after the election (yeah, right), the nation will sit in economic doldrums for another four months when something could have been done.
Given that advice from its own budget office had no effect, it’s probably naïve to think an editorial call to action could stir any meaningful activity in the other Washington, but here’s our two cents’ worth (expressed in 2012 value):
Do something, and do it now.
CBO report is at
Achenblog by Joel Achenbach
Postman On Politics