Nobody can actually want to go over the fiscal cliff. The new year will bring automatic tax increases and cuts in social programs. It could cause a new recession. It would have an especially adverse impact on the lower and middle classes. The program cuts would also result in hundreds of thousands of public sector employees losing their jobs, with a resulting rise in the unemployment statistics. But today, just four days away from the new year, I don't see much hope for avoiding that fate.
It should never have gotten to this point. Television personality Jon Stewart calls the problem “imminently solvable.” The problems are clearly defined: The United States spends too much for some things while not taking in enough money to pay for them. Apart from the fiscal cliff issue, the statutory debt ceiling limit of $16.4 trillion will be exceeded unless Congress raises the limit. In order to get a long-term handle on that problem, the wealthiest Americans must pay more in taxes. In addition to that, the capital gains tax should be increased and tax loopholes for corporations have to be eliminated.
Ultimately, the defense budget has to be severely reduced. In 2011, the United States spent an unbelievable $740 billion on defense, accounting for more than 40 percent of global defense expenditures. The solutions are evident, but the politicians are reluctant to act on them. For ideological reasons and because they're fearful of not being re-elected, many Republican representatives hesitate to be seen as going along with tax increases, and have a bias against cutting defense budgets in general.
The word “taxes” alone is enough to cause some conservatives to suffer an allergic reaction. They're closed to any rational discussion about needs; they transform the budget debate into large-scale ideological trench warfare. If they stick with that position, there will be no compromises.
The threatening fiscal cliff is described in the media as being nothing short of the gates to hell. Nothing worse is imaginable. But is it really that bad? It may sound perverse, but Democrats as well as Republicans may be well served by taking the great leap. Both parties agreed to this automated procedure — surely to be used as an emergency measure, but nevertheless in recognition that there has to be political agreement.
Politicians in both parties realize that business as usual is not an option for the nation and that dramatic consequences loom in the nation's future. Republicans also have no wish to see the country go bankrupt, but they have to show their constituents that they stood strong until the last minute in opposing tax increases. Democrats will get tax increases on the rich by allowing the Bush tax cuts to expire and because of specific portions of Obama's Affordable Care Act. Besides that, the military budget will be slashed by about $55 billion annually, starting in 2013.
However, the Democrats have to do everything possible to avoid the fiscal cliff, because the bottom line is that many low and middle income people will be affected by the tax increases. The cuts also reduce unemployment insurance payments, public sector employment and investment in research. It should also be kept in mind that the stock market will decline and the nation may have its credit rating reduced. Neither Republicans nor Democrats want to take the blame for these things.
Here in Germany, much is written about the consequences for the global economy if the U.S. goes over the fiscal cliff. Americans are the global consumption champs and Germany, as the former global exporting champ, is dependent on selling its products. But we dare not ignore the fact that America's consumption is based largely on its willingness to go into debt.
The American government isn't alone in being deeply indebted. The American people themselves have gotten used to a carefree lifestyle on credit. The fiscal cliff isn't the best thing for such a lifestyle, and withdrawal will cause a great deal of pain. But at a minimum, Americans will be forced to slim down a little.
For better or for worse, America should jump off the fiscal cliff. I only hope it can avoid doing a belly flop.