And to put pressure on Congress and the White House to stop the spending reductions from happening as planned, the House Armed Services Committee has pushed acting Office of Management and Budget Director Jeffrey Zients to testify about exactly what the administration plans to cut in the sequester. The goal is to scare the workers in the jobs that will be affected, the communities in which those workers live and the specific companies whose contracts would be reduced with the impending economic pain so they will oppose the sequester and the candidates that support it. That couldn’t happen if the spending reductions would be painless.
The second example of a long-held budget opinion that the fiscal cliff debate is revealing as total nonsense is the concept that tax cuts pay for themselves.
The proof here is the already commonly accepted projection that the federal deficit will be precipitously lower in 2013 than it otherwise would be if the tax cuts that expire as the clock strikes midnight Jan. 1 are not extended. According to the Congressional Budget Office’s much-cited and not disputed analysis released May 22, the deficit will be $399 billion higher than it would otherwise be if the tax cuts are extended. In other words, and completely contrary to what some on Capitol Hill and elsewhere have been telling us for decades, the tax cuts will increase the deficit and absolutely not pay for themselves.
The third example also is the most obvious. Federal Reserve Board Chairman Ben Bernanke, the CBO analysis and countless other commentaries from Wall Street and elsewhere show that the correct fiscal policy next year is not to massively reduce the deficit next year. To the contrary, as first used by Bernanke and later confirmed by CBO, “fiscal cliff” is what will happen if the deficit is reduced too far too fast.
But the most important thing of all about the fiscal cliff might well be that it demonstrates how much agreement there is among Republicans and Democrats about federal deficits. The response to the threat of the cliff has shown that there is actually a widespread consensus that federal spending and tax changes increase economic activity and creates jobs that otherwise wouldn’t exist.
Unfortunately, that also shows that the real difference of opinion is about how the deficits should be created. That means that, no matter who is elected, deficits are always going to be much harder to reduce than anyone wants to us to believe.
Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”