The economy needs a break from perpetual uncertainty
By Avery Vise
Chances are that by the time you read this, the 2012 election will be history. For months, the election has been the direct or indirect focus of just about everything written or spoken about the economy, and that’s no less true within trucking. In the September Randall-Reilly MarketPulse survey of for-hire trucking executives, more than 40 percent of the comments about the economy explicitly mentioned either the election or the political climate in Washington. The public debt and the consequences of actions that would reduce it haven’t been high on the list of specific concerns. That is about to change.
On Nov. 13, Congress returns to Washington to complete its work for the year. Republicans and Democrats don’t agree on much, but one thing they always agree on is the need to get out of town and campaign during election years regardless of what’s on their plate. But when lawmakers return this time, they have some huge unfinished business: Dealing with the so-called “fiscal cliff.”
A delay of six months or a year is not enough.
The fiscal cliff is a term describing the fact that without any congressional action, two things will happen at the beginning of January. First, a series of tax cuts, credits and deductions originally enacted in 2001 and 2003 (the so-called Bush tax cuts) and in 2009 (tax benefits included in the stimulus act) will expire, leading to a significant increase in taxes on both middle- and upper-income taxpayers compared to today. Second, a law passed by Congress in 2011 to reduce the federal budget deficit will kick in, forcing reductions in virtually all federal spending programs, including both defense and domestic programs.
These major changes, which resulted from separate political deals that happen to expire at the same time, would, according to the Congressional Budget Office, cut the federal budget deficit in fiscal 2013 to $641 billion – down nearly half a trillion dollars from the $1.12 trillion deficit in fiscal 2012, which ended Sept. 30. But there almost certainly would be a heavy – perhaps economically catastrophic – price to pay for that sudden and severe belt-tightening. Even the “budget hawks” in Congress who believe the United States should be cutting its debt generally don’t want to do it this way.
Clearly a major fix is in order, but Congress doesn’t have much time to fix it, and up to now there’s no sign that legislators are willing to do anything except perhaps extend the current tax breaks and federal spending levels. We really shouldn’t expect much more. The fiscal cliff exists because Congress decided in 2010 not to make a decision on taxes and in 2011 not to make decisions on either spending or taxes.
This seemingly perpetual uncertainty – due to both a tight election and questions over the future of taxes and spending – is holding back the economic recovery. Politically speaking, Congress can’t just say “never mind” and keep tax breaks and spending levels in place indefinitely. But an extension of just six months or even a year only will continue the uncertainty that is hazardous to economic health. If Congress simply can’t reach a deal, then it should at least delay the fall off the cliff for a few years or more. That might not be leadership, but it’s probably the best we can ask.
Falling off the cliff
Without some type of compromise, the following will occur at the beginning of January:
• Significant provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 will expire, including provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003 and 2009.
• Automatic enforcement procedures established by the Budget Control Act of 2011 to restrain discretionary and mandatory spending will take effect.
• Extensions of emergency unemployment benefits and a reduction of 2 percentage points in the payroll tax for Social Security will expire.
• Sharp reductions in Medicare’s payment rates for physicians’ services will take effect.
Source: Congressional Budget Office (http://cbo.gov/publication/43539)