FISCAL CLIFF – DEAL OR NO DEAL

The much discussed fiscal cliff looms on January 1, and the Congress and the President, are negotiating a deal with all deliberate slowness.  Will they reach an agreement in time, and will the agreement be meaningful?  One can only hope.

Essentially, if the Federal government takes no action the fiscal cliff mandates $7 trillion of tax increases and spending cuts over the next ten years.  The spending reductions would be across the board, in both defense and non-defense.  The tax increases would include, among other things, the expiration of the “Bush tax cuts” and the payroll tax holiday and advent of taxes relating to Obamacare.  Allowing these wholescale measures to be applied in this manner without thoughtful consideration would be grossly irresponsible, like using a hatchet to kill a fly.  No responsible person would be in favor of that, so it is incumbent upon Congress and the President to strike a deal.

There are three possible courses of action: (1) Do nothing and let the automatic measures take effect, which would be a disaster.  (2) Reach an agreement of some type that leaves some measures in place and replaces some others.  (3) Postpone action to some later date.   Looming over all of this, like a “Sword of Damocles” are the prospects of a Congressional approval to raise the debt ceiling, a credit downgrade, a double-dip recession, and/or a steep stock market decline.

Conclusion and Prediction

Now is the time for our elected officials to demonstrate some strong leadership, a quality that has been missing for the past several years.  Now is the time for each party’s leadership to reign in its fringe elements and negotiate a deal for the good of the country.  To use a sports analogy, it is the bottom of the ninth inning, and we need a big “hit.”  Time to step up to the plate Mr. President, Mr. Speaker, congressional leaders.

My prediction is there will be a lot of rhetoric and finger-pointing between now and the end of the year as each side blames the other for the country’s economic and fiscal problems and for the failure to reach an agreement.  Knowledgeable people will know, however, that the failure is on both sides of the aisle.

In the end, don’t be surprised if they concoct an inadequate makeshift deal just to get something done under the wire, or, even worse, pass a measure on December 31 to “stop the clock” while they continue to negotiate into January and beyond.  To that, I say to our elected officials: surprise us.