Like the annual winter solstice, Washington DC in December repeats a familiar scenario:  yet another issue pits Democrats against Republicans; President Obama against Congressional Republicans; Liberals against Conservatives.  Americans rightly ask, why is the “Fiscal Cliff” apparently impossible to resolve?

Why so much drama? Why is compromise so painful? Looking at the headlines we’re tempted to ask whether our elected officials even speak the same language.

In truth there are several reasons that explain why reaching consensus on reducing budget deficits and the public debt is proving so elusive. Read more.

Human Resources Legislation

INTELLIGENCE FOR HCM PROFESSIONALS

Stay Informed About Changing Compliance Regulations & Workforce Trends
Read the HR Legislation Blog to stay on top of complex HR & Payroll policy issues

Fiscal Cliff: Why A Cliffhanger?

Sun Dec 9, 2012

Like the annual winter solstice, Washington DC in December repeats a familiar scenario:  yet another issue pits Democrats against Republicans; President Obama against Congressional Republicans; Liberals against Conservatives.  Americans rightly ask, why is the “Fiscal Cliff” apparently impossible to resolve?

Why so much drama? Why is compromise so painful? Looking at the headlines we’re tempted to ask whether our elected officials even speak the same language.

In truth there are several reasons that explain why reaching consensus on reducing budget deficits and the public debt is proving so elusive.

One, years and years of kicking the proverbial can down the road have produced titanic deficit and debt numbers: annual federal budget deficits of more than $1 trillion for five consecutive years and a gross public debt that now exceeds $16 trillion.

Like the person who has postponed medical checkups for too long, Republicans and Democrats have postponed confronting the day of reckoning for so long that the illness has become chronic. At a minimum the public debt must be cut by $4 trillion over ten years—a gargantuan figure!

Two, deficit and debt reduction of this magnitude will affect real people and programs. It’s wishful thinking to believe that cutting government “waste, fraud and abuse” will magically save $4 trillion.

Halving annual budget deficits to, say, $500 billion, and preventing  the 2022 public debt burden from reaching $22 trillion could involve cuts in Medicare, Medicaid, national defense, aid to education and so forth. It could also involve significantly higher tax revenue—more on that later.

Three, for a number of reasons recent elections have deepened  political polarization. The ideological gulf separating Republicans and Democrats on fiscal matters has widened, with Republican orthodoxy opposing tax increases and Democratic orthodoxy opposing cuts in entitlement spending.

Faced with the need to cut $4 trillion over the next ten years, the two parties retreat to their ideological fortresses and prepare for battle. Neither side seems ready to “surrender” cherished beliefs about taxes and spending.

Four, in some ways America too has become more philosophically polarized. President Obama was re-elected with just over 50% of the popular vote (to be sure a larger electoral vote majority). Split roughly down the middle it’s safe to say the electorate feels ambivalent about how to slash federal budget deficits, collectively telling Congress not to raise taxes and not to cut federal government spending.

As Washington DC drives toward the edge of the fiscal cliff this month maybe we need to remind ourselves that Democrats and Republicans, while fierce competitors, have the best interests of our country at heart. They’re struggling with big numbers, big philosophies and big expectations from a sharply divided electorate.

A prediction: Congress and the President will avoid going over the fiscal cliff. It won’t be a pretty process but they’ll get to “yes.” How exactly, we’ll start next week with a look at taxes.