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As President Obama and Republican challenger Mitt Romney meet tonight for the first of their three debates, they should be prepared to respond to this week’s blunt report by the independent Tax Policy Center. The report notes that a middle-income family could see its taxes rise by $2,000 next year if lawmakers fail to renew an expiring package of tax cuts.
And that’s only part of the problem, because the tax cuts are interwoven with the looming “fiscal cliff,” which, in addition to the expiration of the tax cuts, includes looming automatic budget cuts of $1.2 trillion, with half coming from defense.
It is a certifiably disastrous situation, brought on mainly by the refusal of Republican House members to compromise on matters that their Senate peers find tolerable. It is also fair to say, however, that voters also have their fingerprints all over this mess. Americans want it all, from great health care to an invincible military – without having to pay too much for it.
But the chickens have come home. Because of the historic economic collapse of 2008-09, two wars financed by borrowing and the financially reckless Bush tax cuts, the budget deficit has reached proportions that threaten the country’s prosperity. It is the fourth year of a deficit of more than $1 trillion, a period that includes that last year of the administration of former President George W. Bush.
In addition, neither Obama nor Congress could stomach the fiscal prescriptions of the Simpson-Bowles deficit reduction committee, which recommended a diet of budget cuts together with an increase in taxes.
Nor could Congress agree last year on a responsible approach to the deficit as a prelude to raising the federal debt limit. The result: Members kicked the can down the road, creating a bipartisan “super committee” that would either agree on steps to cut the deficit by $1.5 trillion over 10 years or allow the $1.2 trillion in automatic cuts to occur in January 2013. Everyone knows what happened.
Now the choices are limited. As the Tax Policy Institute report shows, to allow all of these tax cuts to expire – including the Bush tax cuts and the reduction in payroll taxes championed by Obama – American wallets will take a beating that will almost certainly bring on another recession.
At the same time, the nonpartisan Congressional Budget Office reports that “a sharp reduction in the federal budget deficit between 2012 and 2013 will cause the economy to contract” even as it puts federal debt “on a path more likely to be sustainable over time.” Surely there is a compromise to be had here.
It is a given that nothing will happen before Election Day, but there will be precious little time to act after. To make it work, Washington needs buy-in from enough constituencies to sell the program. That means budget cuts – painful ones – to entitlement programs and the military along with some tax increases, at least on the wealthiest Americans.
To start, members of Congress should revisit the Simpson-Bowles plan. If they can’t improve on it, they can pass it and render the country a valuable service, even if irresponsibly belated.
They should also keep in mind the “Buffett Rule,” named for billionaire investor Warren Buffett (who is also chairman of The Buffalo News). He objects to being asked to pay a smaller proportion of his income in taxes than his secretary does; no thoughtful person can argue with that.
The problem is, people do, anyway. That’s a big part of our problem.