Since Congress will not do its job, the “fiscal cliff” will do it for them

The failure of Congress to make substantial economic reform is nowhere more visible than in the present hysteria regarding the “fiscal cliff” and its consequences for the federal budget and American economy.

House Speaker John Boehner (R-OH) and Republicans have painted themselves into an awkward corner. They are unwilling to raise taxes on anyone, anywhere thanks to Grover Norquists’s anti-tax pledge and Tea Party extremism, but automatic rate increases and spending cuts are set to kick in once the Bush tax cut extension expires on the first of the New Year. This unwillingness to bend is an ideological straight-jacket that may lead them to break their pledge, all without casting a single vote.

The failure to reach a compromise with the more moderate Senate and President Obama means that Republicans are effectively going to raise taxes on all Americans including its most vulnerable citizens. What does this mean in financial terms?

• The poorest Americans making less than $20,000 a year would  have to pay more to the IRS. The average increase would be $590—a significant sum for low-income earners.
• Those earning more than $40,000 a year would also be significantly affected with tax hikes averaging about $1200.
• Those earning between $40,000 and $64,000 annually would see an average increase of nearly $2,000.
• Those earning $108,000 or more also face an increase of nearly $13,000.

Not only will rates increase—immediately effecting payroll taxes and decreasing the daily earnings of American workers, potentially undermining effective demand and triggering another recession—automatic spending cuts will set in, leading to reductions in basic social services that are also essential for the most vulnerable Americans. Unfortunately, we live in a time of political extremism with an opposition party that has stated it wants to “shrink” the federal government. (Since metaphors are all the rage in politics these days, it is important to point out that “shrink” means “wreck” here.)

The metaphor of the the “fiscal cliff” has been thrown out haphazardly— scaring investors, dragging down markets, and creating unwarranted fear. The damage of going over the cliff is unknown in terms of the long-term financial viability of the federal government paying its debt obligations, but the real damage is to average American workers who will take home less income, shoulder more than their fair share in tax revenue, and pay more out-of-pocket expenses for everything ranging from food to health care.

The statutory tax increases and spending cuts basically do what Congress is supposed to do in the first place, however. The inability of Republicans to compromise on the budget has led to a legislative impasse that the “fiscal cliff” resolves in extreme terms. In short, the automatic hikes and cuts does the job of politicians for them, but the form it takes will hurt real American workers and initiate a new wave of political cynicism about government in this country.