With all the talk about the perils of the “fiscal cliff” here in the Washington, DC area, I am slowly coming to the conclusion that maybe this thing called “sequestration,” that everyone fears, may not be so bad after all. I know many of my friendswill think I have gone off the reservation. Let me explain.
Living here is the DC area there is something about the fiscal cliff and what should be done about it in the papers and news every day. On 2 JAN 2013, unless Congress does something about it,taxes are scheduled to go up by a significant amount for everyone that actually pays taxes (don’t get me started on that subject). Federal spending is also scheduled to be cut by automatic, across-the-board reductions, sequestration (sequester: to confiscate, to take away). Both parties disagree
on what to do, and in my view both parties are irresponsible.
We simply cannot tax our way out of this mess regardless of what the president says. Even if all taxes could be raised without a negative impact on the economy, not just the taxes on the middle class and up, those some refer to as the “rich,” the result would not be enough to address our current and future debt problem. The Democrat proposal for increased taxes on the “rich” is more political posturing than a serious proposal. And the Republican call for extending the current tax rates (not the Bush Tax Cuts) merely extends uncertainly into an already muddy economic situation. And I simply do not see Congress having the will to set any real priorities.
That is understandable. For example, my personal priorities would be for defense, conservation, transportation and such things. Someone else would favor more food stamps for the “needy,” more foreign aid, etc. We will never agree on priorities, and Congress has that same problem.
I believe we are in an unsustainable financial situation. We have all seen many US cities file for bankruptcy, and some states such as IL and CA may not be far behind. As the current fiscal year comes to an end, our federal deficit will surpass $1 trillion for the fourth fiscal year in a row. But the worst is yet to come. Medicare and Medicaid (and I have Medicare) will continue to grow and will soon consume more than 50% of the federal budget. The solution is for Congress to act now by cutting spending. That means that everything, including my favorites of defense, conservation, transportation, etc., should be on the table for cuts. The same goes for other peoples priorities. The work that many people I work with did in crafting a draft 2012 Farm Bill with the House and Senate, would have offered significant cuts, but alas was not passed.
While sequestration would present some challenges in its first year of implementation, I believe its ill effects, which I read about daily, are overestimated. After the initial cuts, spending will grow by $1.65 trillion rather than $1.8 trillion, between 2012 and 2021. This modest reduction in growth beats the alternative.
According to the CBO, three things have influenced the swing from actual and projected surpluses to actual deficits over the 2002 to 2011 time period. They are 1) increased federal spending, 2) a shortfall in tax revenues, and 3) inaccuracies in projections. However, spending increases over the 10-year period are the main factor contributing to the current deficit.
Now, if spending is the main culprit for our current deficit it just seems to me that it should play a large role in fixing the problem. And there are not many ways to go about it. Congress must cut spending, and that includes so-called “entitlements,” and cut it now. A first step just may be to allow sequestration to happen. And we will all feel the effects.
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