Beyond the fiscal cliff
President Barack Obama said Wednesday that he’s “optimistic” about reaching a budget compromise with House Speaker John Boehner before the Jan. 1 “fiscal cliff” deadline.
That’s reassuring. If no such deal is struck, automatic tax hikes and spending cuts — both on a large scale — would go into effect, derailing an already-weak economic recovery.
But the president also said that part of his optimism was based on his offer of “$2 trillion in spending cuts over the last couple of years.”
Make that the last couple of years of a 10-year agreement.
Hmm. So tax hikes would go into effect virtually immediately. Yet that promised “$2 trillion in spending cuts” would not go into effect until, as President Obama said, nearly a decade from now.
Does that live up to his description Wednesday of a “balance of spending cuts and tax increases”?
Meanwhile, Speaker Boehner didn’t sound as upbeat as the president Wednesday about finding common ground.
His curt response to Mr. Obama’s remarks: “The president will have a decision to make. He can call on the Senate Democrats to pass our bill, or he can be responsible for the largest tax increase in American history.”
Still, it’s good to know that President Obama has lowered his higher-revenue demand, though slightly, and that Speaker Boehner has agreed to some extra tax money in their efforts to find common ground.
After all, with our record national debt now over $16 trillion and climbing after four straight annual deficits of $1 trillion or more on Mr. Obama’s White House watch, it would be naive to imagine that we can lower our red-ink effusion without both increasing revenues and decreasing spending.
Unfortunately, it’s also naive to trust people — especially Washington politicians — when they say they’ll spend less eight years from now if only you’ll give them more money next month.
So yes, surely the president and Congress will still turn away from the fiscal-cliff plunge in the nick of time.
Yet if (when?) they do, that won’t erase this long-term challenge:
Even with higher taxes on “the rich” (part of the president’s winning re-election platform), the U.S. government will never restore budgetary credibility without also drawing much more money from the non-rich — and without making significant spending reductions.
Indeed, though the emerging fiscal-cliff accord would avoid the steep tax hikes and spending cuts scheduled to kick in on Jan. 1, that same compromise will include some tax hikes, too.
As Wednesday’s Wall Street Journal reported: “Almost all taxpayers would pay more to the federal government next year if President Barack Obama and House Majority Leader John Boehner close the deal they have been negotiating in recent days.”
And: “Starting the first week of January, workers would receive smaller paychecks as the payroll-tax rate rises. Higher-income households would face higher individual income-tax rates and tighter limits on deductions and other breaks, under the emerging agreement.”
The story added that the administration “has proposed limiting the value of itemized deductions and other breaks, possibly including tax-free interest on municipal bonds.”
But mayors across the nation are sounding an alarm that removing municipal bonds’ tax exemption could push many communities off fiscal cliffs of their own.
Charleston Mayor Joe Riley and Columbia Mayor Steve Benjamin stressed that concern Monday during a visit to this newspaper.
Mayor Riley defended those tax exemptions as “not a loophole” but “a time-honored way to diversify investments.” He warned that the ability of cities (including Charleston) to finance crucial infrastructure projects (including our city’s drainage improvements) would be seriously jeopardized by removing that tax-exempt status from municipal bonds.
Mayor Benjamin echoed that appeal, citing those bonds as a “primary vehicle” for municipal funding of infrastructure “necessities, not luxuries.”
So which tax “loopholes” would you scrap to bolster federal revenue?
Clearly, it’s much easier to make a pitch about closing unidentified “loopholes” than to sell the idea of ending the tax exemption on municipal bonds — or the tax deductions on mortgage interest and charitable donations.
And clearly, Americans and their elected representatives will face many more tough bottom-line decisions after the current fiscal-cliff crisis is resolved.