Wednesday, December 12, 2012

How Bad Is the Fiscal Cliff?

First of all, the term "fiscal cliff" is pure scare-mongering.  When you fall off a cliff, you die.  Usually.  If we "fall off" this cliff, we'll be uncomfortable.  We won't be dead; countries rarely die, although we might lose some less-well-off citizens.  We almost certainly will be back in recession, and who knows when we'll pull out again.  Everyone's taxes will go up; a lot of people will lose jobs when government departments are cut.

Second, the U.S. debt burden isn't that bad, and the Republicans are the only ones who think it is.  Or say they do.  If the financial markets thought the U.S. debt burden was a problem, we wouldn't be paying .65% on 5-year Treasury bonds.  (Yes, we are.)  Our real problem right now is that we haven't yet emerged from the worst fiscal downturn since the Great Depression (which took 10 years and a war to pull out of, remember).  We're spending money (yes, borrowed) on things like extended unemployment insurance, welfare, and food stamps.  Take a look at this graph:

United States Debt as a Percentage of GDP (1940-2012)

The estimated U.S. debt at the end of 2012 will be about 100% of GDP.  Before you freak, look where it was in 1946 (121.7%) and remember what happened to the U.S. economy in the next 15 years.  When, I might add, the top marginal tax rate was 90%.  Compared to the European countries in trouble (on the same graph), our debt isn't unreasonable;  Ireland's debt is 1300% of GDP; the UK's is 413%.  Greece's debt is 168% of its GDP (but Greece's tax collection rate is only 10%).  Japan's debt is 233% of GDP.  Even at 100% of GDP, we're in better shape than any of them, which is why our credit rating was downgraded in 2011 not because of our fiscal position, but because Congress wouldn't agree to raise the debt limit, normally a routine item that doesn't even make the news.

You might also note that the budget deficit has been consistently lower since President Obama took office in 2008.

I recently got an email from the White House which suggested that, if we go over the "fiscal cliff," it would cost a "typical middle class family of four" about $2,000.  If you're paid twice a month, the way I was, that's $83 less per paycheck (or about $6 a working day), which anyone would notice; but it wouldn't all come out of the paycheck; some of it would show up the next year when you paid income tax.  The White House didn't mention the income level of this family of four; the 2011 Census Bureau estimates range from $54,500 in New Mexico to $102,127 in Connecticut.  So the impact will vary wildly depending on where you are.

Still, if you're one of the many families living paycheck to paycheck, the fiscal cliff changes could tip you over a very unpleasant edge.  Which is why it would be much better if we didn't do it.  I wish I thought our elected representatives were capable of negotiating an alternative.

I'm not trying to argue that we should keep spending at the rate we have.  We shouldn't.  We need to think about what we're spending, and what we want to accomplish with the money for the nation, and not just for the various Congressional districts. And we all need to remember that taxes are the price of living in a civilized society (to paraphrase Oliver Wendell Holmes).  They buy amenities like roads, schools, libraries, clean water, clean air, and police and fire protection.  In Princeton, NJ you can still see buildings with the medallions on them that told the 18th century private fire companies which houses they were being paid to put out, if they caught fire.  Do we really want to go back to that??

We have time to stop, think, and make rational decisions - or we would have if we didn't have this idiotic "fiscal cliff" staring at us.

It still infuriates me that we have the fiscal cliff because the Republicans didn't want to raise the debt limit, and wanted to get spending under control; but now that we're looking at it, they don't want it because it would raise taxes on the rich and cut the Defense budget in irrational ways, even though it would reduce the deficit.  And these people were elected to national office, and in many cases re-elected.

1 comment:

  1. It's pretty obvious that the Republicans are largely responsible for the debt load we now have.

    They gave the surplus "back to the people" under Bush. The giving mostly benefited the rich, but no one talks about that.

    They started two preemptive wars of choice, neither of which was paid for. The costs were "off the books" in each year's budget. How does that work?

    They passed a huge drug bill provision after hours. Unpaid for.

    They voted to bail out the financial industry which had been playing by a different set of rules. Then refused to put regulations back in place to protect us from it happening again.

    During Bush II, the Republicans said "the debt" is not an issue. Relax, it's a tool in the tool-box. Now it's gloom and doom and we have to raise taxes on the middle class and cut social security and Medicare and welfare and food stamps. Suddenly, "entitlements" are "back on the table."

    Who the hell decided that conducting a war of choice in Iraq was more important than Social Security? Not to speak of the fact that Social Security isn't a discretionary spending item in the first place; it's an entitlement program funded through trust funds. That trust fund money is supposed to be off-limits for paying other bills.

    What is the sound of one hand clapping?