Daily Archives: Jan. 5, 2013

Pro-con: Is fiscal-cliff agreement a positive step?

It would have been grand if the fiscal-cliff package traded Medicare reforms for higher tax rates and a tax-code overhaul. It doesn’t; Congress is too polarized to reach such a deal. Still, the agreement doesn’t deserve the derision it’s getting from some. For now, Congress has found enough common ground to defuse a $600 billion fiscal time bomb – no easy feat considering our divided government and the deep ideological differences between the parties. The agreement’s economic effects also could surprise the naysayers. It sensibly retains some short-term fiscal stimulus while increasing revenue in the long run. And lest we forget, Congress already made more than $1 trillion in spending cuts in 2011. An additional $1.2 trillion could be saved or raised later this year. When added to the just-concluded pact, the total could come close to $3 trillion in spending cuts and tax increases over the coming decade. Deficit reduction in fits and starts is still deficit reduction. – Bloomberg News

So Congress has passed a bill to avoid the tax cliff – hallelujah. This is the way to look at it if you have a pre-Copernican view of politics where Washington is the center of the economic universe. The better way to see it is that the tax bill on the private, productive part of the economy is now coming due for President Obama’s first-term spending and re-election. The Senate-White House compromise grudgingly passed by the House is a Beltway classic: The biggest tax increase in 20 years in return for spending increases, and all spun for political purposes as a “tax cut for the middle class.” But taxes on the middle class were only going up on Jan. 1 because the politicians had set it up that way, manufacturing a fake crisis. The politicians now portray themselves as scrambling heroically to save the day by sparing the middle class while raising taxes on small business, investors and the affluent. – Wall Street Journal