The U.S. economy could be poised to plunge over the so-called fiscal cliff by year’s end. But with the bruising election cycle now behind them, lawmakers are showing signs they may finally be ready to work together to avert another financial crisis.
President Barack Obama met with congressional leaders Friday to discuss options for avoiding the more than $500 billion in tax increases and spending cuts slated to take effect starting Jan. 1. That sum is eye-popping enough on its own, but it’s just for one fiscal year. Without an agreement in place, that total tops $7.1 trillion over a decade.
It sounds alarming, and it is. However, there is a lot more common ground than one might expect. Four-fifths of the $500 billion for the year 2013 would come in the form of increased tax revenue — the vast majority due to the expiration of the Bush-era tax cuts.
There is broad bipartisan support for extending those tax cuts to 98 percent of Americans. The only sticking point is whether to allow the tax rate for the wealthiest 2 percent — individuals whose income exceeds $200,000 and couples whose income totals more than $250,000 a year — to stay at 35 percent, rather than return to the 39.6 percent tax rate.
Doing so would raise about $1 trillion over a decade and, frankly, I don’t buy the argument that it will stifle small businesses and harm job creation. First of all, 82 percent of those within the wealthiest 2 percent make more than $1 million in adjusted gross income. Secondly, during the Clinton era, when the wealthiest 2 percent did pay a 39.6 percent tax rate, small business growth was more than double what it was under Bush’s tenure.
“The arguments against allowing the high-end tax cuts to expire on schedule echo those made against President Clinton’s proposed 1993 tax increases, which set marginal rates at the levels to which they are set to return when the Bush rate cuts expire,” wrote Chye-Ching Huang and Chuck Marr in a report for the non-partisan Center on Budget and Policy Priorities. “Critics claimed at the time that those tax increases would seriously harm economic growth and even send the economy back into recession. As it turned out, job creation and economic growth proved significantly stronger following the 1993 tax increases than following the 2001 Bush tax cuts. Further, small businesses generated jobs at twice the rate during the Clinton years than they did under the Bush tax code.”
According to national exit polls, more than 60 percent of voters agreed with Obama’s stance on taxes. Seeming to accept that mandate from the American people, some Republican leaders are now indicating they might be willing to compromise.
“To show our seriousness, we’ve put revenue on the table, as long as it’s accompanied by significant spending cuts,” said House Speaker John Boehner, R-Ohio, after the meeting Friday. “It’s going to be incumbent on my colleagues to show the American people we’re serious.”
Democrats, too, are willing to make concessions. Spending cuts are likely to include entitlement reform, even for programs that were once seen as sacred cows by Dems.
“I have been listening for a long time, since I was on the Simpson-Bowles Commission,” Sen. Dick Durbin, D-Ill., said on CNN’s “State of the Union” Sunday. “And what I hear is a perceptible change in rhetoric from the other side, and what it is is an invitation for our side to basically sit down and say, what can we do for this country? Push the special interest groups to the side for the moment, and what I hear the president saying is, we’re not going to solve this by asking the wealthiest to pay their fair share, but it will be part of the solution.
“And what I hear from the Republican side is, well, what is the rest of the solution? That is the beginning of a negotiation. It’s an indication that the election had an impact on all of us. The American people are sick and tired of all the obstruction and all the rhetoric on both sides. And I can tell you that the fiscal cliff is focusing the mind.”
Only time will tell if this spirit of bipartisan cooperation will result in real, lasting progress, but this kind of balanced approach to governing and budget reduction could help drive the U.S. economy forward, not over a cliff.
Amy Gehrt may be reached at firstname.lastname@example.org.