In a manner that has become emblematic of U.S. politics in recent years, it has taken only slightly more than a month for our country’s politicians and media to attempt to stir the American people into a fever pitch. The issue that many have climbed their respective soapboxes for this time is the looming fiscal cliff, which, if otherwise unattended to, will go into effect at the onset of the New Year this coming January.
The term fiscal cliff itself is a loaded moniker, to say the least. Upon its utterance alone, it conjures up images of a tranquil plain abruptly plunging into a rocky, menacing abyss. However, names aside, the fiscal cliff represents a dramatic transformation of the American tax code, spending procedures and sovereign debt of the United States.
The fiscal cliff is the result of an only slightly less than perfect storm: the end of the Bush-era tax cuts, cuts in both domestic and defense spending mandated by the 2011 Budget Control Act, and a myriad of tax increases in almost every category imaginable. Combined, these automatically enacting measures will account for a 19.63 percent increase in tax revenue and a .25 percent reduction in federal spending. This is a clear reversal from the standard that has been set in recent years, as overall, the federal government is actually aiming to reduce the debt held by the citizens of the United States.
As is the case with almost any issue that circulates through Washington D.C., the debate on how to correctly handle the issue is heatedly divided along party lines. President Obama has yet again taken to the campaign trail in an attempt to convince the American public that increasing taxes is the favorable route to take in this scenario. This is despite the prediction made by the Congressional Budget Office that such increases will result in a recession in the 2013 fiscal year. However, while the outlook for the short run indicates a potential recession, the possibility of improved economic conditions in the long term does exist.
On the other side of the coin is the Republican Party, who vehemently oppose the drastic, across-the-board tax increases. The Republicans’ conjecture is that increasing income taxes will impede the improving, but still staggering, economy. They also argue that with only 33 days until the fiscal cliff actually occurs, President Obama is squandering what precious little time is left by campaigning for his side instead of actually attempting to reach an effective solution within Congress.
The debt held by the United States is a direct indicator of the economic strength of our nation, and the massive accumulation of debt we have undergone since the Clinton administration is evidence that the time leading to the fiscal cliff has been anything but a tranquil plain, in an economic sense at least. As European countries experience the pitfalls of radically downgraded credit and debt, the importance of running a fiscally responsible country has become increasingly apparent.
However, brutally taxing Americans in a time of economic stagnation such as now should not be viewed as a viable solution to the two-headed beast of debt and stagnation we as Americans are facing. Tax increases should be left on the table, but such imposing percentage increases are unreasonable. The most effective route to debt reduction, therefore, is a much closer spread between tax increases and budget cuts.
A .25 percent cut in the federal budget, while simultaneously increasing tax revenue by 19 percent, is not only unbalanced; It places the burden to reduce the debt on we the people, instead of the government that left us with the debt in the first place.
While both sides remain obstinate in their convictions, the resolution clearly lies in open-minded discussion; discussion that grows more and more unlikely with each day President Obama spends attempting to campaign for his cause instead of working alongside his colleagues to reach an effective, unobtrusive solution to this issue.
Robert Frye is a junior majoring in finance. His column runs biweekly.
