Alert: It is now safe to stop caring about politics. Thank God, right? That gross amount of turkey you stuffed in your face last week probably settled on a belly full of politics. State, national, local elections … You’ve earned yourself a break. Time to crack open a beer and sit back until 2016, when the fate of the republic will hinge upon your vote once again.
Elections are the sexiest part of politics. The drama, the polls, the unambiguous winner and loser — it’s hard not to get drawn in. Yet even today, amid the wreckage of Justin Bieber’s love life and smack dab in the middle of NFL football, important politics is happening. It deserves your attention.
In the short term, the most important politics on the national agenda is the ominously named “fiscal cliff.” The imagery is fantastic — it’s fun to picture America (perhaps stuffed in a car with hands duct-taped to the steering wheel) driving off a cliff.
In reality the fiscal cliff refers to the fact that on Jan. 1, a series of tax breaks and spending provisions are set to expire. First and foremost is the expiration of the George W. Bush tax cuts. If it's allowed to end, tax rates for rich Americans will rise. A 2 percent payroll tax break, which mostly puts money in the pocket of middle-class Americans, will vanish. The alternative minimum tax, targeting high-income individuals who pay less than 25 percent of their income in income taxes, will increase. Several large tax increases in President Barack Obama’s Affordable Care Act will go into effect. If the status quo is maintained, and everything described above actually happens, government revenue will increase by 19 percent.
On the spending side, federal unemployment insurance is set to end. Military spending and non-military discretionary spending will each be cut by $55 billion. These cuts, although meaningful, only total around 0.5 percent of government spending.
So that’s what the cliff is. Revenue will go up and spending will come down by a pretty drastic amount. The term “cliff” is itself a misnomer — a more accurate term would be “fiscal slope,” indicating the spending cuts and tax hikes won’t take effect all at once, but will be spread out over the year.
Nonetheless, the projected federal government deficit in 2012 is $1.1 trillion. In 2013, it’s $641 billion — half a trillion dollars lower. That’s a lot of belt tightening! From a macroeconomic perspective, this constitutes a significant drag on GDP growth. It might not cause a recession by itself, but its effect on employment will be real and damaging.
Yet predicting the consequences of leaping off the cliff is, as you might have guessed, a wholly hypothetical exercise. It is a near certainty Democrats and Republicans will agree on a compromise before Jan. 1 that will avoid the cliff. The bulk of the tax hikes — and probably all of the spending cuts — will be erased or delegated to another day. Whether Bush’s tax cuts for the rich are kept is secondary to the larger truth that neither party, when push comes to shove, is willing to do what it takes to reduce the deficit.
Is this frustrating? Not really. Reducing government spending now, at a time of economic weakness, is beyond silly. This nation’s debt is a long-term problem that merits a long-term solution. The stubbornly high unemployment rate is an immediate economic disaster that deserves an immediate solution.
Thus far, we have concentrated the bulk of our political dialogue on whether taxes on the rich should rise from the eminently reasonable 35 percent to the socialist hellscape that is 39.6 percent. We are misguided. As negotiations over the fiscal cliff reach a crescendo, let us hope politicians turn their attention away from the trifling details and focus on how not to pull out the rug from a still fragile economy.