(Heritage.org)—Having squandered most of 2012 with posturing and delay, Congress and the President are now careening toward a budgetary precipice of their own making. The so-called fiscal cliff will be reached just after New Year’s Eve—bringing a nearly $500 billion tax hike in 2013 and a devastating 10 percent reduction in national defense spending—unless lawmakers and the White House change course.
They need to act swiftly but not hastily, nor should they overreach. Lawmakers ought to take care of the task at hand, focusing solely on stabilizing the immediate situation. They should:
- Preclude the huge tax hike known as Taxmageddon;
- Prevent the reckless, automatic defense cuts, preferably by choosing alternative savings;
- Renounce any other tax increases;
- Resist the temptation to conjure further ad hoc budget schemes and grand bargains; and
- Return as soon as possible to the regular practice of congressional budgeting.
A Crisis of Their Own Making
A brief review of recent history shows how Congress and the President consciously manufactured the current dilemma.
After the sweeping Republican takeover of the House in the November 2010 election, lawmakers faced the expiration of a broad set of tax policies enacted in 2001 and 2003. The result would have been across-the-board tax rate increases and a range of other economically damaging tax hikes.
Then, as now, President Obama sought to raise taxes on higher incomes, but congressional Republicans refused to support any tax hikes. During what some called the “Zombie Congress” of December 2010—due to its large group of “walking dead” defeated Members—Obama relented, citing a weak economy.
The two sides agreed to extend all the tax policies but for only two years, dropping the issue squarely in the middle of this year’s political campaign and thereby ensuring that it would not get resolved until after the election. Meanwhile, the uncertainty over tax policy sapped the economy, making employers reluctant to hire—a key contributor to slow job growth in the current recovery. Growth in real gross domestic product plunged from 3.9 percent in the first quarter of 2010 to 2.3 percent in the fourth quarter. That was still better, though, than the 2.0 percent growth in the third quarter of this year. Preventing tax hikes is just as crucial now as it was two years ago.
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