Now that the election is over we’re back to the “fiscal cliff.” Just to review what that is, back before our election fever really got hot, the Congress decided to try to avoid further ugly discussions over budget by agreeing to a set of across the board cuts in the federal budget to into effect automatically after January 1. At the same time numerous tax changes would occur. These are previously enacted tax deductions that would expire on January 1. Expiration of previous tax deductions are widely interpreted as tax increases. There would thus be a significant reduction of the current yearly trillion dollar deficit brought about by these significant revenue increases and budget reductions. These automatic changes on January 1 will not balance the budget but will significantly reduce it from current levels. Such automatic changes could be replaced with similar or even more broad alterations in revenue and expenditures enacted by the Congress.
The inability of the Congress to make a decision that would avoid the so-called “fiscal cliff” has created significant uncertainty in American businesses who collectively have largely repaired their financial balance sheets and are sitting on a trillion dollars or more that they could, but have not yet applied to new job creation. Consumer confidence, housing starts, new and existing home prices have all been increasing as have jobs. the economy is growing but still has a ways to go. An agreement by the Congress to institute a comprehensive and rational budget in place of the “fiscal cliff” would create clear certainty in our fiscal plan that would replace utter confusion in the business community with much certainty, particularly if the plan were multiple-year in nature. The result would result in increased certainty of fiscal policy and would very likely increase the commitment by business to many new jobs leading to significant reduction in the level of national unemployment.
This stimulus in new jobs could have been had before the election had the Congress met its responsibilities or had the President caved in to the kind or altered fix the Republican leadership proposed. To be fair, at the time, the President was dealing with a Congress that had not written a budget since 2009. The continuing resolutions needed to run the government were somehow agreed to or automatically renewed. The absence of a budget and the absence of certainty in the business community as a result, arrested new job formation. Had the Congress met it’s responsibility unemployment might well have been reduced to the relatively low levels predicted by President Obama early in his administration. I’m not suggesting that the motivation of the Congress was entirely political in the sense that they knew that inaction would keep the growth of jobs down and that this would make it look bad for President Obama as he sought reelection. I’m sure that it looks political to many.
Now after the election is over, there is some effort on the part of all to collaborate on a solution to fiscal issues. The economy has steadily improved in spite of the Congress and its inability to make a contribution to or accelerate the nation’s recovery from fiscal damage it endured in 2008. Now that the election is over, the congress may have a second chance to show fiscal discipline and more the nation forward.