By Will Portman
The U.S. needs deficit reduction, but there’s such thing as too much of a good thing — or, in the case of the end-of-year “fiscal cliff” the country is approaching, implementing too much of a good thing much too quickly.
In the absence of congressional action, a slew of tax increases and spending cuts will kick in all at once at the end of the year: the expiration of the 2001, 2003, and 2010 tax cuts; the activation of the sequester spending cuts in defense, discretionary spending, and Medicare; the expiration of the payroll tax cut; the end of extended unemployment benefits; the end of “doc fixes” (higher Medicare physician payments); and the end of Alternative Minimum Tax patches to keep the AMT on pace with inflation.
The combined effect of all of this would be approximately $6.8 trillion in ten-year deficit reduction relative to current policy. That may sound pretty good if, like me, you’re concerned about the impact of the mounting national debt on our country’s future. But as Federal Reserve Chairman Ben Bernanke said recently, “it is important to achieve sustainability over a longer period … one day is a pretty short time frame.”
Indeed, the fiscal cliff we’re approaching at the end of the year would reduce the deficit far too suddenly, sending the economy into a tailspin. Even fiscal hawks like Rep. Paul Ryan, whose Path to Prosperity budget doesn’t eliminate annual deficits for well over a decade, acknowledge the need to phase in fiscal reforms more gradually, especially given the fragile state of our economy.
Left-leaning Washington Post blogger and columnist Ezra Klein recently wrote that he isn’t worried about the deficit, “because when it comes to the deficit, Congress really has two choices: Do something to solve it, or do nothing [i.e. go over the fiscal cliff] and let that solve it.”
I fear Klein has omitted the most likely option: Congress will take action to avoid the fiscal cliff, but fail to substitute sensible long-term fiscal policies to get the deficit under control.
Let’s hope, as the Center for a Responsible Federal Budget (CRFB) put it, that Congress will chart a course for the nation in the coming months “between a mountain of debt and a fiscal cliff” — ideally, a nice, gently sloping valley of fiscal responsibility.