May 24

The Fiscal Cliff: You Must be this Intransigent to Board this Ride, Let’s Go!

DivingIf you’re like me, you love roller coasters, most notably the incarnations that retain the preliminary long steep climb accompanied by the ominous clickity clack of the chain and track below the car until the pinnacle is reached. At the apex, all is silent, and just as you can see nothing but sky before you and the tiny heads of fellow park visitors hundreds of feet below you, the car proceeds downward at a ridiculous speed sucking the breath from your lungs. It’s exhilarating fun, and generally lasts no more than a minute or two. At this very moment, the United States is scaling hill number one while frantically ensuring that the lap bar has engaged properly. On December 31, 2012, a series of economic events are scheduled to take place that many are referring to as the “fiscal cliff.”

The Bush tax cuts enacted in 2001 and 2003, and extended through 2012 by President Obama in a December 2010 agreement, are set to expire. The expiration would adjust marginal tax rates upward across all income brackets and modestly raise the tax on capital gains–income earned from investments–from 15% to 20%. The expiration will also remove qualified dividends from special tax treatment, and undo a temporary patch to the Alternative Minimum Tax, among other smaller changes. Additionally, as part of the deal to raise the debt ceiling in 2011, Democrats and Republicans agreed to automatic across the board spending cuts of $1.2 trillion over the next ten years. The cuts are part of a sequester agreed to by both parties which will go into effect because the two sides could not agree on an alternative as required by the original pact. While certain mandatory outlays are exempted from the spending reductions, the total amount will be split roughly 50/50 between discretionary and defense spending unless consensus is reached before or sometime shortly after January 1, 2013. The federal unemployment extension and temporary 2% payroll tax reduction would also expire at years end. If Republicans are not willing to move into a position of rationality and responsibility, my position is that we should all buckle up and see where the ride takes us, rather than concede to incoherent demands in order to to avert a greater short term disaster. Continue reading