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Douglas: Confronting The Cliff

11/22/12 7:55AM By Jim Douglas
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(Host) As we pause this Thanksgiving to reflect on our many blessings, former Vermont governor and commentator Jim Douglas observes that our officials in Washington have more on their plate than turkey.

(Douglas) There's a lot of talk these days about the ‘fiscal cliff.' That's the automatic year-end spending reductions and expiration of some tax cuts included in last year's budget. Congress was paralyzed by a partisan standoff, so they passed something they assumed would be so objectionable to both sides that it would force a compromise before the nation falls off the cliff.

Economists agree that, if implemented, these measures would cost millions of jobs and drive America back into recession. That's because lower Federal appropriations would mean less contracting and higher taxes would restrain consumer spending. It's an event that most don't want to experience.

The political bickering and posturing has already begun. Republicans say that lower tax rates are essential for everyone and that the proposed defense cuts must be avoided. Democrats counter that wealthier taxpayers need to pay more and that no reductions should be made in social programs. President Obama claims that a mandate from the recent election bolsters that view.

All this doesn't appear to be a framework for success, although it's hard to know how much flexibility might emerge in negotiations. The House Speaker has agreed, for example, that some tax deductions could be eliminated as long as rates aren't raised. That might accomplish the Democrats' goal of increased revenue.

I heard a presentation earlier this year by a retired general who insisted that the scheduled cuts in the defense budget would eviscerate the Pentagon and render the nation less secure. Some other former governors were in the audience and we looked at each other skeptically. We had just managed our states through the greatest recession in 80 years, making tough decisions to balance our budgets, and we weren't convinced that the Defense Department couldn't tighten its belt.

Similarly, while entitlements are exempt from the current exercise, the insistence by some Democrats that they can't be touched is equally troubling. In the coming decades domestic spending is projected to decline and social security will rise slightly. Medicaid & Medicare, however, will increase unsustainably. The aging of our population and more expensive medical care will consume a growing proportion of our Federal budget and our economy, crowding out other programs. We can't keep kicking the can down the road.

Congress is quite accomplished at doing as little as possible and they could get away with it for a while. The ‘fiscal cliff' isn't really a cliff, although the term is helpful in encouraging action. Some economists call it a ‘fiscal slope' or ‘fiscal hill,' because, even if the automatic spending cuts and tax increases were to go into effect, lawmakers could reverse any or all of them: the sooner they did that, the less the economic damage.

But let's urge them to come to an agreement now. The country just spent $6 billion on a campaign that ratified the status quo. The voters again chose divided government, but we expect it to work. That would be something for which we'd all be thankful.


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