December 27, 2012
The prospect of recovery-killing across-the-board tax hikes and spending cuts at the end of the year hasn't been enough to spur lawmakers to craft a plan to avert those changes. The onus for Congress' inaction falls squarely on House Republicans, whose refusal last week to follow their own leadership has quashed just about any hope of a "grand bargain" with President Obama to address the federal government's long-term fiscal woes. The main hope now is that lawmakers will find a way out of the impasse before the damage to the economy gets much worse.
The House GOP's brinkmanship since taking power has diminished the public's faith in its ability to govern, leading to a historic downgrade in the federal government's credit rating. And now, by refusing to consider higher tax rates even for millionaires, Republicans practically ensured that rates will go up for everyone when the Bush-era tax cuts expire Dec. 31. This intransigence is baffling, given that one of Obama's main campaign pledges was to increase taxes on the highest-income Americans. And he won — handily — just a few weeks ago.
There's a slim chance that Obama will persuade Congress in the next few days to accept a stopgap bill that shields many households from higher income taxes but increases the deficit. If lawmakers go that route, they should also continue the scaled-back federal unemployment benefits that they approved early this year, maintaining a safety net under millions while job openings remain relatively scarce. It's more likely that nothing will happen until the new year, however, because too many members of both parties seem convinced that they'll have more political leverage then.
That's a dangerous assumption. Although the scheduled tax changes and spending cuts may not have much bite at first, congressional inaction is already hurting the economy. Corporate executives have been telling Washington for weeks that they're holding back on hiring and investment until Congress confronts its fiscal challenges.
The task facing lawmakers is clear: They have to lay out a plan for solving Washington's long-term budget problems. That will require a combination of more taxes and less spending, particularly on Medicare and other healthcare entitlements. If dozens of House Republicans can't offer a compromise within that basic framework, their leaders should look for support from lawmakers on the other side of the aisle. Republicans can't expect Democrats to face reality on entitlements if they stay cloistered in a political fantasy world on taxes.
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