Dear Commons Community,
Now that the presidential election is over, the media is awash with the latest news on the so-called “fiscal cliff” that the American economy is heading for if a deal on taxes and spending is not reached by the end of this year when the Bush tax reductions expire. Every newspaper and news television program has been reporting on the dire consequences if Congress and the President don’t act. Some quick analysis:
First, it is not clear how severe the fiscal cliff is and when it would affect the economy is pure conjecture. James K. Galbraith, an economist, who teaches at the LBJ School of Public Affairs, The University of Texas at Austin. and the son of renowned economist, the late John Kenneth Galbraith, posits that the cliff is at least partially contrived and that any consequences will be gradual and not immediate.
Second, the bluster and posturing on the part of the Democrats and Republicans is mostly political theater designed to sway public opinion. It is my opinion that President Obama and the Democrats are winning this battle. Most Americans see the Republicans as protecting the rich and maintaining their obstinacy to compromise on the various issues.
Third, the Republicans have their backs to the wall and will do anything necessary to avoid having the Bush tax reductions expire because if they do, the income tax rates for everybody and especially for those in the highest tax brackets, will increase. Furthermore, they do not want to be the party that has recommended specific program reductions. As Paul Krugman has stated, they have boxed themselves in with no way out except to compromise with the Democrats:
“Now Republicans find themselves boxed in. With taxes scheduled to rise on Jan. 1 in the absence of an agreement, they can’t play their usual game of just saying no to tax increases and pretending that they have a deficit reduction plan. And the president, by refusing to help them out by proposing G.O.P.-friendly spending cuts, has deprived them of political cover. If Republicans really want to slash popular programs, they will have to propose those cuts themselves.”