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RI’s Fiscal Cliff Notes

December 7, 2012

Congress is greeting the holidays with visions of the fiscal cliff dancing in its collective psyche. RIPR political analyst Scott MacKay has some Cliff Notes as we kick off our week-long series on how spending cuts and tax hikes would affect the Ocean State should Congress fail to reach an agreement.

Americans love to lampoon our lawmakers. From Mark Twain to Jon Stewart, senators and representatives have been juicy targets for pundits and satirists. What student of history can forget Twain’s famous dictum that Congress is the nation’s only native criminal class.

Or that history, in the immortal words of Karl Marx, repeats itself, first as tragedy, the second time as farce. What we are witnessing in Washington, D.C. as the days dwindle to the New Year is more Groucho  Marx than Karl.

Trouble is, reveling in the entertainment Congress provides does little but mask the deadly serious stakes our state and nation face as we careen toward this financial Thelma and Louise.

President Obama’s administration estimates that 400,000 Rhode Island families would see their federal taxes increase and that consumer spending in our state would drop by $70 million if Congress doesn’t extend the tax cuts that are scheduled to expire on January 1st.

This New Year’s hangover would slam Rhode Island harder than many other states merely because our recession-racked economy, with its double-digit unemployment, is more fragile than most states, and especially our New England neighbors.

But you have to get beyond the blizzard of dire economic data to get to the core of the problem, says John Simmons, director of the Rhode Island Public Expenditure Council, the business-financed government research group.

The psychological impact on business investment and markets is probably already contributing to slower growth, Simmons says. Making investment decisions in a market society is always an educated crap shoot. But how can a business person make an informed decision if he or she doesn’t know what tax rates or health care rules will be in effect in three weeks?

So business leaders simply delay decisions, waiting another month or two at least before buying that new machine or hiring new workers. Which is the last thing we need as Rhode Island muddles through a recovery.

The sad aspect of all this is that there, of course, is a way out. That would be the time-honored American tradition of political compromise. Congressional bargains, both grubby and grand, have allowed our country to change governments for 150 years without tanks in the streets. Not many countries can make that boast.

But compromise has become a dirty word to the activists, the so-called bases, of  both the Republican and Democratic parties. Republican senators and representatives live in fear of facing primaries from Tea Party backed ultra-conservatives; thus the unwillingness to move even an inch from the no-new-tax mantra.

Liberals on the Democratic side, including recently reelected Sen. Sheldon Whitehouse,  seem way too enamored of reflexive balking at any changes in Medicare or Social Security that might mean meaningful work on the nation’s soaring deficits.

Too many Democrats appear willing to leap off the cliff if doing so embarrasses Republicans and makes the GOP out to be the party willing to hold up tax equity for 98 percent of citizens in order to protect the plutocratic two percent.

“The fiscal cliff will only be averted if America’s leaders can display bare bones competence and a middle-school level of maturity, so of course there’s no hope,’’ says Jon Stewart.

In a state whose motto is “Hope,’’ let’s hope that that eminent philosopher Mr. Stewart, is wrong. The alternative is a double-dip recession in a state that is suffering still.

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:35 and 8:35. You can also follow his political analysis and reporting at our `On Politics’ blog at RIPR.org

One Comment leave one →
  1. Mister Guy permalink
    December 7, 2012 8:22 pm

    “Too many Democrats appear willing to leap off the cliff if doing so embarrasses Republicans and makes the GOP out to be the party willing to hold up tax equity for 98 percent of citizens in order to protect the plutocratic two percent.”

    Going over the Fiscal Curb will likely be the best way to reach a real solution to this over-hyped problem, since GOPers can then safely vote for tax cuts for the super-vast majority of Americans in the New Year without violating their silly no new tax pledge to some unelected moron.

    There’s no way around the fact that tax rates on the rich are going back to the rates that were around under the Clinton Administration (which will actually cost around $3.7 Trillion over the next decade or so due to the rest of the tax cuts for less wealthy Americans unfortunately not being paid for), that the taxes (mostly on the rich) imposed by the federal health care reform laws will be taking effect no matter what & that the federal govt. will be saving roughly $800 Billion over the next decade or so by ending our major military involvement in Afghanistan by around 2014.

    What’s unsure is whether or not we’ll have another silly fight early next year over an increase in the out-dated federal debt ceiling and whether or not the over-hyped sequestration cuts to some federal discretionary programs will actually happen, the reversion of the Alternative Minimum Tax (AMT) thresholds to 2000 tax year levels will actually happen, the expiration of measures delaying the Medicare Sustainable Growth Rate (or the so-called “doc fix”) will be actually going into effect, the expiration of the 2% Social Security payroll tax cut (which should have never been passed in the first place IMHO) will actually take place, and the expiration of federal long-term unemployment benefits will actually take place. Hopefully, what won’t happen is raising the Medicare eligibility age (which only saves around $125 Billion over the next decade or so), since doing that would just throw millions more seniors onto the open & expensive private health care market.

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