Falling off 'fiscal cliff' could have been better

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Jacquelyn Martin / The Associated Press By delaying tough choices on spending, the fiscal-cliff deal guarantees more conflict and uncertainty this winter. (CP)

WASHINGTON -- The U.S. Congress' frantic resolution of the "fiscal cliff" crisis this week is the latest in a long series of decisions by lawmakers and the White House to do less than promised -- and to ask Americans for little sacrifice -- in confronting the nation's growing debt.

The deal will generate $600 billion in new revenue over 10 years, less than half the amount U.S. President Barack Obama first called for. It will raise income tax rates only on the very rich, despite Obama's push for broader hikes.

It puts off the toughest decisions about more than $100 billion in spending cuts for military and domestic programs. And it does nothing to mitigate the looming partisan showdown on the $16.4-trillion debt ceiling, which must rise in the coming weeks to avoid default on U.S. loans.

In short, the deal reached between Obama and congressional Republicans continues to let Americans enjoy relatively high levels of government service at low levels of taxation. The only way that's possible, of course, is through heavy borrowing, which future generations will inherit.

While Americans widely denounce the mounting debt, not so many embrace cuts to costly programs such as the Social Security pension system. And most want tax increases to hit someone other than themselves.

"It is a huge missed opportunity," said William Gale, co-director of the non-partisan Tax Policy Center and a former Republican White House adviser. "Going over the cliff would have put us on a better budget path."

The fiscal cliff's combination of big tax increases and deep spending cuts, which would have kicked in Jan. 1 without a deal, would have provided major political leverage for both Democrats and Republicans to achieve greater deficit reduction as they worked to ease some, but not all, of its bite. In fact, the whole point of the congressionally created cliff was to force the government -- which borrows about 31 cents of every dollar it spends -- to begin a fiscal diet that would spread the unpleasantness widely.

Instead, Congress and the White House did what they almost always do. At the last minute, they downsized their proposals, protecting nearly every sector of society from serious pain.

Aside from a payroll-tax increase, which drew little debate even though it affects almost all working Americans, the compromise will raise tax rates only on incomes above $450,000 for couples and $400,000 for individuals. That's less than one per cent of U.S. taxpayers.

Obama had campaigned for thresholds of $200,000 and $250,000. The fiscal cliff's implementation would have made it nearly impossible for Republicans to stop him, if Democrats had held their ground.

That might have produced an ugly scene, rattled the financial markets and sparked even more partisan bitterness. But any step toward major deficit reduction will trigger anger, threats and genuine discomfort for people who receive government services or pay taxes. In other words, everyone.

And such steps can ignite opposition from powerful interest groups, which always stand ready to give money to the campaign opponents of lawmakers who displease them.

Activists on the left and right said the new law doesn't do nearly enough to tame the federal government's borrowing habits. Republican Rep. Darrell Issa said Congress achieved nothing "other than the smallest finger in a dike that in fact has hundreds of holes in it."

To be sure, Obama and Republican House Speaker John Boehner flirted at times with a "grand bargain" that would include much larger tax increases and spending cuts than those in the newly enacted law. And high-profile groups such as the Simpson-Bowles commission also recommended tough combinations of tax hikes and spending cuts, calling them necessary even if politically unpopular.

These ideas went nowhere.

Every federal dollar, and every federal program, has avid supporters who can defend their functions. And every sector can explain why higher taxes would burden struggling people at the lower end, and "job creators" at the higher end.

High levels of government service. Low levels of taxation. Big deficits to make up the difference. That's what Americans have demanded and gotten from Washington for years.

The agreement to spare Americans the pain of a fiscal cliff is right in line with that tradition.

-- The Associated Press

Republished from the Winnipeg Free Press print edition January 4, 2013 B7