Every kid knows that falling off a cliff is never good, but what about a "fiscal cliff" — how would that feel?
Americans may indeed find out, if Congress is unable to pass a budget plan prior to Jan. 1. So, what's at stake if such an event occurs? Plenty.
First, some background.
Members of both political parties have spent beyond the nation's means for many years. This economic fact of life is a bit more embarrassing for Republicans, since most GOPers at least try to talk a good game of fiscal sense. Not so much on the other side of the aisle, however. Today's progressives advance an unending list of needs requiring government intervention — with little consideration given as to how to pay for it all. For context, Senate Majority Leader Harry Reid hasn't even bothered to pass a budget for three years running.
Republicans consistently promise to slow the growth of government but fail. Democrats continually … promise, and succeed. The result is a $16 trillion (that's 16 followed by 12 zeros) federal debt, and counting. Annual interest in fiscal year 2012: $359 billion.
Last year, leaders on both sides struck a deal (the Budget Control Act of 2011) to the effect that automatic spending cuts of $1.2 trillion ("sequestration") would be tied to the termination of $500 billion in tax cuts (including Bush tax cuts and expiration of the payroll tax holiday), unless a budget agreement could be worked out. Such was the advent of the fiscal cliff; a scenario concocted in order that real discussion about real pain caused by real budget realities could be put off until after the 2012 presidential election.
And so here we are: three weeks until drastic spending cuts and tax increases lead to what most economists assure us will be another deep recession.
You've heard of the World Series of Poker. Well, this is the world series of budget negotiations — with $16 trillion in the pot.
For Republicans, it's no longer acceptable to sketch out a rough proposal for a flatter, slimmer tax code without identifying the specific deductions and tax credits targeted for elimination. For an American middle class addicted to tax preferences, this promises to be a difficult exercise. You see, many right-wingers are only situationally conservative; they're fine with a tighter code so long as their favorite preferences are preserved.
Another difficult hurdle: Most House Republicans have signed a pledge to refrain from tax increases. An agreement to raise marginal rates would be a clear violation of this promise. But what about a plan that would maintain present rates, eliminate certain preferences, and produce more revenue? This is precisely what House Speaker John Boehner put on the table last week, to howls of protest from some corners of his caucus.
On the other side, the vast majority of congressional Democrats are certified liberals intent on protecting (and expanding) the welfare state. They always want tax increases. One problem, though: "Tax the rich" is not a plan — it's a campaign slogan. The reality of ending the Bush tax cuts would produce about $800 billion of new revenue over a decade, or about eight days' worth of what it takes to run the federal government in each of those years.
Yet another problem: Increasing taxes on those making $250,000 a year hits small business owners hard. While small businesses may be the primary job creators in America, many of these entrepreneurial types have their business income taxed at individual rates. An income tax increase combined with Obamacare's new mandates and tax hikes will not produce the new jobs required to stimulate a sustained recovery.
Reminder to all class warriors: What sounds so populist in the heat of a campaign often does not work so well in the real world of profits and losses.
Which brings us to the real dilemma of entitlement reform on Capitol Hill, a topic that usually sends the left into fits of hysteria. Just witness the grief inflicted on Sen. Ron Wyden of Oregon (one of the most reliably liberal members of the Senate) for his co-sponsorship of a serious Medicare reform proposal with Congressman Paul Ryan. And that bill simply provided seniors a chance to opt out of traditional Medicare for a better deal in the private market!
The fiscal cliff debate brings together all the ingredients for ugly — a down-in-the-mouth GOP pushed to find new revenues in addition to difficult budget cuts, and a newly energized, progressive president all dressed up to spend, but facing a fiscal cliff (and debt ceiling increase) that will force him to rein in heretofore sacrosanct entitlement spending.
Stay tuned … this could be more entertaining than "Lincoln."
Robert L. Ehrlich Jr.'s column appears Sundays. The former Maryland governor and member of Congress is a partner at the law firm King & Spalding and the author of "Turn this Car Around," a book about national politics. His email is firstname.lastname@example.org.