By Satish Mohan
To build a long-lasting bridge over the fiscal cliff, we must understand our nation’s current economic status.
At the end of 2012, our national debt will be $16.35 trillion, seven times the 2012 income of $2.47 trillion, or a debt of $142,000 per household. We paid a net interest of $225 billion. According to the president’s budget request, our 2013 expenditures of $3.8 trillion will be $901 billion higher than our income of $2.9 trillion, or 31 percent more than income. The annual deficits, after 2013, will rise at an average rate of $643 billion per year for the next nine years to accumulate to $25.93 trillion in the year 2022, or a debt of $226,000 per household.
The fiscal cliff has two main items to resolve: automatic spending cuts in 2013 and beyond, and expiration of the Bush tax cuts. The automatic $110 billion per year spending cuts ($55 billion in defense, and $55 billion in domestic programs) were approved in the 2011 Budget Control Act in exchange for an increase in debt limit. Any compromise now will violate the sanctity of our laws.
If Bush tax cuts are ended for all, $310 billion will be added to the 2013 revenue, but the majority of the people have spoken that the top 2 percent only should pay a higher tax rate. This will add $80 billion annually to the revenue. President Obama has proposed additional revenue of $60 billion annually from cuts in tax breaks and loopholes; House Speaker John Boehner has proposed $80 billion from such cuts.
Three other elements in the fiscal cliff include: restoring 2 percent payroll taxes ($100 billion), ending unemployment benefits ($30 billion) and extension of the Alternative Minimum Tax.
We can clearly see steeper cliffs ahead. This fiscal cliff is an opportunity to start putting our house in order, after two wars.
The solutions lie in seeking answers to the following questions: Should a family spend 31 percent more than its income?, Should a household loaded with a $142,000 debt continue borrowing, or organize to pay back the debt by cutting spending and working harder to earn more? Should our leaders manage the people’s economic future differently than they would for their families? Does it make sense to take a lesser pain today to avoid more pain tomorrow?
If all of the spending cuts take effect and the Bush tax cuts end for all, the 2013 budget will have a savings of $610 billion against the projected deficit of $901 billion.
Let us fix the AMT, extend unemployment benefits and utilize the spending cuts and tax savings to reduce the debt; the Congressional Budget Office has estimated that the economic output would drop by 0.5 percentage in 2013, but the U.S. economy would, in the longer run, return to better growth rates.
Satish Mohan is an associate professor of civil engineering at the University at Buffalo and is former supervisor of the Town of Amherst.