Our View: Cut a deal to avoid 'fiscal cliff'
With the election over, Congress and the president must grapple with the most pressing issue: the "fiscal cliff" approaching Jan. 1. A combination of about $400 billion in tax increases and $100 billion in automatic "sequestration" spending cuts portends a shock that could crash the fragile economic recovery.
Before the election, the Republican majority in the US House of Representatives insisted on no new taxes. But President Barack Obama and the Democratic majority in the Senate demanded tax increases on the "wealthy" making more than $250,000 a year. Voters confused matters by keeping Republicans in charge in the House, and Democrats in power in the White House and the Senate.
"One way or another they'll reach a compromise," David Brownstone told us; he's a professor of economics at UC Irvine. "The consequences are so severe that they will have to do something." He pointed to the "austerity" budget Great Britain adopted in 2010, including tax increases and sharp budget cuts, which backfired and hurt the recovery.
"The world economy also is weak," Brownstone said. "The obvious thing" for the president and Congress to do, he said, "would be to postpone the day of reckoning for a couple more months."
House Speaker John Boehner, R-Ohio, seemed to be conceding the need for higher taxes. A CNBC news article reported that he "offered Wednesday to pursue a deal with a victorious President Barack Obama that will include higher taxes 'under the right conditions' to help reduce the nation's staggering debt and put its finances in order. 'Mr. President, this is your moment,' Boehner told reporters, speaking about the 'fiscal cliff' that will hit in January. 'We want you to lead.'"
But Boehner was misquoted in this and other media, J.D. Foster told us; he's a fellow in the economics of fiscal policy at the conservative Heritage Foundation. "Actually, (Speaker Boehner) said that Republicans will be quite content to see revenues rise, but only if the economy grows, and revenues along with it. That's not tax increases." Foster pointed out that the media misquote made Boehner "sound more moderate," which could help in negotiations.
Foster said that November in Congress is likely to be taken up with procedural matters, with real action on fiscal matters occurring only after Thanksgiving. He believes that the starting point will be where it was last summer, "House Republicans passed a bill preventing the fiscal cliff, the Senate did nothing, and the president said nothing." He agreed with Boehner's call for the president, now re-elected, to take the lead.
For us, this seems a good time for a compromise that promotes economic growth through tax and regulatory reform. In her meeting with the Register's Editorial Board just before the election, Sen. Dianne Feinstein, D-Calif., spoke of mending fences with Republicans to avoid the fiscal cliff. Now that she has been re-elected, we encourage her to follow through, and for other responsible Democrats and Republicans to join her. The price of failure would be too high.