It seems almost a certainty that the first paycheck most Americans cash in January 2013 is going to be smaller than their last paycheck in December.
You can thank the current climate of Democrats and Republicans elected to represent all of us being unable or unwilling to work together to solve long-standing problems.
Dick Castner, western regional executive for the U.S. Chamber of Commerce, gave a presentation this week to the directors of the Mesa Chamber of Commerce titled, “The ‘Fiscal Cliff’: Will We Plunge Into Crisis or Manage a Rescue?”
Castner said several big crises face taxpayers that left unsolved will mean a significant threat to the American economy.
First is the expiration of tax cuts and stimulus measures, including the Bush tax cuts.
The second crisis is automatic so-called sequestration of defense and non-security spending. If allowed to happen by Congress it would cut funding by $55 billion for defense and $55 billion for non-defense spending (federally funded domestic programs such as courts, farm subsidies, national park rangers, air traffic controllers and public housing projects). This is a total of $1.2 trillion over 10 years, Castner said.
And, finally, once again Congress must again vote to increase the debt ceiling, likely by December.
The problem is clear. The two parties may as well be on opposite ends of the globe.
The GOP has a no-tax pledge. That means its members are in a corner and can’t support any tax increases for the moment.
The Democrat Party has been insisting that the federal tax burden must be shared more “fairly,” which means a higher tax rate on the highest income Americans. Without that they won’t go along with GOP demands for any cuts in social services.
So there is no progress. And the country is headed toward a potential economic iceberg. Castner pointed out that the combined economic impact of increased taxes and the forced sequestration spending cuts will reduce the deficit by $607 billion. That may sound good to those worried about the deficit.
The bad news is that such drastic action all at once will have a huge negative economic impact — including here in the greater Phoenix metro area. The defense cuts alone are estimated to cost as many as 30,000 jobs in Arizona and take $1 billion out of the state’s economy annually.
And then there is the fact almost every one of us will have less net pay in our paychecks beginning in January due to the tax cuts being eliminated. That means less consumer spending and that means a slowing economy.
Castner says the Congressional Budget Office estimates that decisions — or lack of decisions by Congress — that allow the expiration of the tax cuts and the defense spending cuts would result in the estimated growth in Gross Domestic Product in 2013 to stall. The initial GDP estimate was a very modest 1.1 percent. Without the tax cuts being extended and the defense and other forced spending cuts the result is that CBO’s estimate of DGP drops to a half percent next year. Stagnation.
Castner accurately predicts the current Congress will do nothing on these issues between now and the election. After all, they have had all year to do something and have done nothing.
The November election will have a huge impact. Right now Democrats control the Senate and the GOP controls the House. A sweep of both legislative branches and the presidency will clear the way to move one way or the other.
Romney and most GOP candidates say they favor extending the tax cuts. They want to temporarily delay the sequestration cuts and then review them for the future. Castner says this is the safer approach for the economy. Congress’s own budget office seems to concur.
Democrats are right that the tax system needs to be overhauled and that the highest earners should pay their share. Even most members of the GOP admit the tax system needs overhauling. But taking the position to not extend the tax cuts — in effect, a tax increase — may be a very tough blow to the economy at a time when it still hasn’t picked up steam from the worst recession of most of our lifetimes.
Keep this in mind when you go to the polls this next week. The economy is still the No. 1 issue facing the country even though most of our elected officials don’t act like it. It might be a good idea to vote for the few that do.
Terry Horne is publisher and editor of the East Valley Tribune and general manager of 1013 Communications Arizona.