Taking Fiscal Cliff Best Route To Recovery

The Hartford Courant

As the nation hurtles toward 2013's "fiscal cliff" — a combination of tax increases and spending cuts designed to tackle the nation's ballooning deficit — pundits from across the political spectrum are inciting full-scale panic.

They warn about the tax increases the fiscal cliff could bring while destroying a fragile economy and ravaging a citizenry facing difficult economic times. They call upon the president and congressional Republicans to do whatever is necessary to reach a compromise to avert this coming tax disaster.

My advice to President Barack Obama is different. He should let us go over the precipice.

I have no desire to cause a fiscal calamity, but I do believe that the current tax policy in Washington is so politicized and the rhetoric so detached from reality that no productive compromise can emerge. We need a fresh start before we can reach any meaningful consensus on future tax policy. The path to this fresh start lies just beyond the fiscal cliff.

The roots of the problem trace back over a decade. When Congress enacted the 2001 tax cuts, the so-called "Bush tax cuts," Senate procedural rules prohibited any permanent tax cut that would add to the long-term deficit. Mr. Bush and the 2001 Congress had two alternatives. They could structure a permanent package of tax reductions and revenue measures that would not increase the deficit, or they could settle for a temporary, budget-busting tax act. They chose the latter course, including a sunset provision that would end the Bush tax cuts after 10 years.

But the politicians of 2001 had a stealth agenda for their "temporary" tax cut. They predicted that tax reductions that lasted a decade would become so entrenched in our political culture that future Congresses would be all but forced to extend those cuts (as Congress did in 2010). Notwithstanding their temporary nature and their deficit-swelling effect, low tax rates would become viewed as a permanent fixture. When the tax cuts were due to expire, the American people would refuse to let them go. Like a house guest who never leaves, the temporary tax cuts would effectively become permanent.

That political trick had its intended effect. It led to the rhetoric we hear today. It created the current political reality that to let these temporary taxes expire would be equated with affirmatively choosing to raise taxes. Additionally, any attempt to compromise upon rates between the Bush rates and the projected 2013 rates — a tax cut in substance — will be decried as a tax increase. More than a decade later, Mr. Bush and the Congress of 2001 are still in control of the national tax debate.

Fortunately, there is a way out of this morass. There is a way to make clear that the 2001 tax cuts were temporary and that extending them, in whole or part, would be to cut taxes. President Obama can risk the political fallout of making this hard choice. He should simply let the Bush tax cuts run their course. He should let the fiscal cliff work its magic.

When we go over the fiscal cliff, our economy will not be destroyed overnight. Tax rates will rise, but they can be brought back down. Government spending will drop, but it can be restored. The damage can be undone. But, the benefits will be worth the trouble.

Once on the other side of the cliff, Congress and the American people will come to understand the reality of the 2001 tax cuts. They were temporary. And they will be gone.

And once the cuts are gone, Congress and the president can work quickly to reduce taxes but in an environment where everyone is using the same terms — where a tax cut is called a tax cut, even if it's less generous than the 2001 cuts had been.

In this environment, politicians will be free to enact tax reductions that meet the needs of 2013 rather than slavishly following dictates from 2001. The Bush tax cuts will be gone. The Obama tax cuts will take effect. The fiscal cliff will have served us well.

Jeffrey A. Cooper is professor of law at Quinnipiac University School of Law.

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