The Fiscal Cliff

I’m taking a chance by opining on the threat of the looming fiscal cliff before the President’s press conference today, but what the hay. Such considerations have not stopped me before. Here goes.

I think that the best option might well be to go off the fiscal cliff. The reason being that our petulant President’s only proposed solution to our current fiscal problems is to raise the tax rates on those who make more than $250,000 per year. He has scrupulously avoided talking about spending cuts or entitlement reforms. It is blatantly clear that we cannot fix our monetary morass only with such a tax rate increase. And, if the Democrats run true to form, any promised spending reforms will never occur once the tax rate increases are approved. I admit it is dangerous … but only by accepting the pain of the fiscal cliff are we going to begin to address our government spending problems.

Yes, our free-fall off of the fiscal cliff will cause income and capital gains tax rates to go up on us all, but we will also get concomitant substantial government spending reductions. And yes, this will probably push us back into a recession, but it is also likely that tax rate increases on those earning more than $250,000 will also put the (albeit smaller) kibosh on our GNP growth. Besides, I strongly suspect that our legislature will quickly fix the more egregious of the spending cuts (such as for the Defense Department) with emergency appropriations. In a strange way, one might look at the fiscal cliff as a form of zero-base budgeting … to me, a good thing.

I also could accept Mitt Romney’s suggestion of a cap on personal income tax deductions and “loopholes” of say $35,000 … IF accompanied by meaningful government spending cuts. This would effectively raise federal revenues without the messy business of a total overhaul of the tax code … and all the lengthy political haggling that would go along with picking and choosing among which deductions to keep or which to axe. But simple solutions never seem to be favored by Washington insiders, so I am not too sanguine about this option. Ergo, grab your parachute and yell with me “Geronimo.”