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There are lots of good reasons to avoid letting the U.S. fall over the looming fiscal cliff, some $800 billion in annual spending cuts and tax increases scheduled to start Jan. 1 unless Congress and President Obama reach a deal.The U.S. could slip back into recession, credit-rating agencies might downgrade the U.S. for political dysfunction, and the military and a host of government programs and agencies would face pretty drastic cuts — the threat of pain was the point of the “sequestration,” after all.
But “some people, left, centre, and right, believe careening over the cliff would be an affirmative good, a willful act of liberation, a step that is necessary to rationalize our tax code,” says Daniel Gross at The Daily Beast.
“I’ve dubbed these folks the Thelma & Louise Caucus. And I count myself a member.” Here, five serious reasons people are actually rooting for us to drive over the cliff:
1. The Bush tax cuts are wrongly skewed toward Wall Street
“I’m not eager to see all the tax cuts expire” — like Obama, and a majority of Americans, I want taxes to stay lower for all but the wealthiest taxpayers, says Gross at The Daily Beast. “But I think the cliff does offer a rare opportunity to correct a historical error.”
The Bush-era tax cuts set to expire “introduced all sorts of harmful wrinkles and distortions into the tax code, in ways that privilege passivity over labour.” There’s no reason capital gains and hedge-fund fees should be taxed at half the rate of the “wages for hardworking professionals.”
But the people who benefit from those breaks have a loud, powerful voice in Washington. Once we go over the cliff, they’ll have to use it to justify their special treatment. “Good luck to them.”
2. Republicans can force Democrats to reform the tax code
So far, “the only ones in Washington who advocate fiscal cliff-diving are liberal Democrats,” says Marc Theissen at The Washington Post. “It’s time for conservatives to join them.” It’s not only lower tax rates on the wealthy that expire, after all — “so do a lot of tax policies the Democrats support,” like higher child tax credits and lower payroll taxes.
Letting those taxes lapse, too, “may be the only way Republicans can force President Obama and Senate Democrats to agree to fundamental tax reform,” which is what the GOP wants. Besides, going over the cliff “would save Republicans from having to break their pledge not to raise taxes,” and thus save the GOP brand. After all, “raising taxes and losing a fight to stop automatic tax increases are two different things.”
3. The spending cuts, while crude, are good policy
Oddly, the man who convinces Republicans to take those no-tax-hikes pledges, activist Grover Norquist, seems untroubled by the looming cliff, too. After all, along with the tax increases come big drops in federal spending. “I’m for the spending cuts,” Norquist tells The Daily Beast.
“Just let them take effect. My first preference, like most Republicans in the House, is the Ryan budget,” which “lowers the tax rate, saves the same amount of money, and doesn’t hit the defence budget as hard.” But if Democrats insist on raising taxes on the rich — he doesn’t think they will — at least government will still shrink. “The only thing worse than the sequester would be not reducing spending.”
4. Letting all taxes revert to 1990s levels will fix the deficit
“The long-term goal of our fiscal policy should be to reduce deficits,” says Jonathan Cohn at The New Republic. Well, “that’s not possible without raising taxes, and the place to start is on high incomes.” The wealthiest earners can afford Clinton-era rates, and upping their tax rates “would not harm the economy, according to the best evidence out there.”
But it also wouldn’t be enough to solve our fiscal problems. The best way to make up the gap would be a federal carbon or consumption tax, “but since neither option seems to be viable right now, the next best thing might be to let all of the Bush tax cuts expire, so that everybody — not just the wealthy — go back to paying what they did during the Clinton era.”
5. Foolish panic is a great investing opportunity
Let’s be honest: For all the scaremongering out there, “nothing bad is likely to happen at the beginning of January,” says Jonathan Chait at New York. The cuts and tax hikes take place over a year, and they can be fixed retroactively. “What will change on Jan. 1 is bargaining leverage” — Democrats get much more — and that explains why Republicans “are desperately trying to convince America that this would lead to terrifying outcomes.”
The most plausible downside of going over the cliff is that financial markets could panic. “It’s possible! Markets are dumb.” But that only means when a deal is reached, we get a rally. Right, a fix to this phony crisis is inevitable, but “if the market wants to panic,” we’ll gladly jump in, says Scott Phillips in Australia’s BusinessDay. “When investors come back to their senses, either before or after the deal is done, we’ll be glad we did.”
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