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Avoiding the Fiscal Cliff: A Fair and Balanced Solution
In less the 1 month, the United States Federal Government will go over the dubbed “fiscal cliff.” The Fiscal Cliff is a series of automatic spending cuts and tax increases that Republicans and Democrats both agreed to during the past debt ceiling debates. The parties came together in voting for the fiscal cliff, not because it was good policy, or the right solution, but rather because they couldn't agree on a sensible solution. The idea was that sending the US over the fiscal cliff would be too irresponsible and that avoiding it would be motivation for both parties to come together on a solution.
This brings us to today, the US Congress in nowhere close to coming to an agreement. Each Party has staked out its positions, and they are showing no sign of compromise either way. We have a President who, instead of taking charge after his reelection, is sending his Treasury Secretary to do the negotiating while the President hits the campaign trail, something he is much better at then actually negotiating. We have Democrats holding hostage 98% of the US population because they want the rich to pay more to help close the budget deficit. We have the Republicans holding 98% of the US population hostage because they don’t want small business to pay more and stop hiring. After an election season that saw no change in political control, that could be interpreted as a mandate from the American people, both parties seemed more inclined to staking out campaign positions for the 2014 midterms then actually doing their jobs and working for the American people. Our founding fathers would be sickened at level of partisanship. They overcame much tougher issues then we face today. For the good of the Country, the Democrats and Republicans need to come together to not only restore faith in the US Governmental system, but to keep the US a viable nation.
In the short-term, the Republicans have the most to lose. No matter whose fault it is, going over the fiscal cliff will benefit the Democrats elections in the short term. Come the first payday after Jan 1, 2013, the American middle class will notice an obvious shortage in their paychecks. When they call their HR office to report a problem, they will learn that there is no problem; this is just their new tax rate. Suddenly their spending power is decreased; they can’t afford to pay those credit card bills from the holidays. They purchase less, which forces employers to cut help, which snowballs into another recession. Unfortunately for Republicans, if this happens, the Democrats and the US mainstream media will be in position to further paint the Republican Party as the party of the rich and out of touch with most American families. It will be said that the GOP's refusal to stop protecting the rich has led to this crisis that affects all Americans, but particular those in the middle and lower income brackets. If this happens the GOP can kiss goodbye control of the US House in 2014, along with any hope of taking the Senate. In 2016, anger from the American people will still be spewing and again, like 2008, the Democrats will sweep all three branches of the Legislative process.
In the long-term, the Democrats have more to lose. If the GOP gives them everything they want, their out-of-control spending habits and government regulations will further cripple America. Our credit rating will be decreased again. We will see at least 4 more years of 1 trillion dollar deficits that will ultimately lead to Greece like economic collapse and one can only question, what country would be big enough to bail us out? Our allies in Europe are already strained with the burden of bailing our counties like Greece; they couldn't even begin to handle our debt. If we go over the fiscal cliff and go into another recession, like stated above, in the short-term, this benefits Democrats, but after another 4-8 years in power, they will be out of Republicans to blame and our Country will not only still be in a crisis, but we will have trillions of new debt to handle in future budgets, all of which can be blamed on the Democrats. The bottom line is, in either scenario, the American people lose, and that just can’t happen.
Our Country was founded on the principles of compromise for a better future for all. Every major hurdle our founding fathers faced, with the exception of one, was handled during the US Constitution negotiations. These compromises led to the framework that built the greatest Nation this world has ever seen. The one thing they didn't deal with almost broke the Nation into two different counties, rendering it obsolete. Our leaders need to deal with it now, make the tough decisions and concessions instead of putting it off for future elected leaders to deal with.
The biggest issues on avoiding the fiscal cliff are fiscal sanity and revenues. Almost every American agrees that we can’t continue to have these trillion dollar deficits, especially if they aren't helping our economy. Likewise, most Americans believe that cutting everything is a bad idea and need some sort of revenue increase to balance out the budget. To avoid the fiscal cliff, and have a fair and balanced solution, the best answer to the fiscal cliff is a deal that cuts federal government spending, and increases revenue to balance out the budget. For that to happen, the following needs to occur.
Like it or not, the Democrats control 2/3 of the legislative making body of the US government, and a majority of Americans support raising taxes on the wealthy. Republicans will need to give here to force the ball into the democrat’s hands to see if they are “serious” about compromise as well.
- The Republicans should move forward with a plain that raises taxes on the top 0.25% of income earners. By limiting the tax increases from the top 1% to just the top 0.25% saves nearly all small businesses, and wealthy individual business men like doctors, who play vital parts in our everyday lives from being hit with this tax increase.The average post-tax income for the individuals in the bottom 75% of the top 1% is between 200K and 350K, with a high around 3M. After you get into the top 0.25% of earners, who get into people making more the 3M per year and upward to the obscene amounts made by wealthy CEOs, athletes, and entertainers. These are the people that the Democrats actually want to go after.
- The 2nd thing Republicans should present is ending loopholes. Companies like GE who made profits in the billions should have to pay their fair share of taxes on that amount. Closing other loopholes, like deducting business expense related to moving jobs overseas should also be at the top of the list.
- 3rd and finally, the Republicans should push hard for implementation of the Romney plan of limiting deductions, while lowering some of the tax brackets. This will help stimulate the economy further and also increase the tax revenues paid by the wealthy and corporations without actually raising their tax brackets.
US spending is out of control. President Obama himself called Bush’s 500B dollar deficits irresponsible and immoral, but he has presided over four straight Trillion (with a T) dollar deficits. Republicans should not agree to any deal that does not include serious spending cuts.
- Entitlement reform should be at the heart of this debate. While important, entitlements have grown too big and too many people depend on them. This system of entitlements is bankrupting America and we need serious reform to keep programs like Medicare and Social Security alive and viable in a fashion that doesn't further strain the US budget. While serious form is not likely before the fiscal cliff, cuts to the programs and a framework for restructuring these programs in 2013 is needed. The President offered 200B in cuts, it’s a start, and the Republicans should take it.
- No more Stimulus money. President Obama and President Bush both have spent billions upon billions in economic stimulus money and none of it was really help the US economy. That doesn't even include the billions of special funding and tax breaks given to green energy companies by President Obama. If further proof is need that stimulus money doesn't work, nearly all 30+ of these companies have not only failed to hire more workers, but most haven’t even made a profit and are in bankruptcy. Stimulus is generally a waste of taxpayer money.
- Across the board cuts. The US government wastes a lot of money. Just look at the General Services Administration spending scandal. Cuts can be made in nearly all federal departments. From the Dept. of Defense to cuts in the USDA, to cuts in the Dept. of Commerce, Dept. of Urban Development, and Dept. of Energy. With the exception to cuts in the dept. of education, the national park service and the Dept. of Veteran Affairs, all government agencies and programs should be able to be eligible for budget cuts from 2-10%, consolidated or eliminated altogether. Picking which ones will be stuff, buts that’s why we elected these people, to make tough choices.
Every businessman knows the most costly, yet most manageable expense is labor. Voting for pay cuts and pay freezes across the federal employment landscape will help solve the budget deficit gap. It won’t be huge and will largely be symbolic, but it’s definitely a place to start. Pay cuts should start at the top. In order for these cuts to be taken seriously and without the employee and union revolts that were seen in Madison, WI, the US House and Senate should vote for a 10% pay cut, and a 7% increase in what they pay for their federal benefits. From these all federal employees’ salaries (except Military pay) should be cut by 6-8% or at least frozen at current levels and all new employees should have their starting salaries cut 6-8% from current levels. All federal employees (except Military) should also pay 3-5% more for their benefits. Today over 455,000 federal employees make over $100,000 per year, putting them near the top of the income earning list. The executive branch has 1,877,990 civilian full time employees and nearly that much in part-time help. Add it all up and that’s at least a few million dollars saved right there.
- President Obama asked for complete authority to increase the debt ceiling whenever he or any future President wants to. While this will prevent future debt ceiling fights in congress, it throws out any and all spending accountability and is a huge power grab. There are checks and balances in place for a reason and nothing could deteriorate this nation’s fiscal condition faster than giving any President a credit card with no limit. No matter what, the Republicans should reject any plan that gives President Obama or any future President that sort of power.
- Extend the unemployment benefits. While costly, Republicans should vote to extend all unemployment benefits by an additional 9 months. If that is too hard to swallow, Republicans should agree to do so, only if it’s extended at 15% discounted rate for those who have been on it for 12 months or more. All new unemployment claims should be paid out at full value.
- Have policy that creates jobs! Mitt Romney nailed it when he stated the best way to increase revenues is to increase is to have more people pay taxes. Currently, for various reasons, 47% of Americans don’t pay income tax. By creating more jobs, more people will be able to pay taxes and tax revenue increases naturally. Enacting policy that gives tax breaks to companies that increase their work force by a certain % and keep it at those levels for at least 18 months would help increase employment. Cutting some (not all) government regulations and red tape for opening new businesses, primarily for factories, off-shore-drilling, and coal mines/plants should also be a Republican priority. This will not only create new business income and more jobs (thus more tax revenue), but will also lead to a decrease in cost of goods, especially energy costs, which leads to more spending money for the everyday consumer, which leads to people getting off unemployment and savings for the government.
Letting the Social Security Tax breaks expire. Both parties basically agree on this, and it needs to happen. While it was nice for a year or two, it really didn't rouse the economy and further increased the burden which social security is on our budget.
The above solution is fair and balanced. Getting all this done is no easy task. Some of the things presented here make me cringe. But in taking a cue from our founding fathers, a spirit of cooperation is needed and compromise leads to everyone being a winner. No one, not the Democrats, not President Obama, not the Republicans, and especially not the US people can afford to go over the “fiscal cliff.”
The American people are fed up with the stalemate in Congress. The election is over, it is time to get to work. This, both parties will have to cringe, republicans on tax hikes, democrats on entitlement reforms, but if both parties come together, this could do down in history as one of Americas greatest compromises, one that ensured America would last, for generations to come.