US worst-case scenario: going over fiscal cliff (via AFP)
Letting the US economy go over the fiscal cliff would push the United States, and probably other countries, into a new crisis that political leaders now say they are determined to avoid. The fiscal cliff, a combination of mandated tax increases and spending cuts, will occur in January unless President…
The more I think about this "fiscal cliff" business the more contrarian I become. The metaphor is misleading to begin with. Lumping tax policy, Social Security, Medicare and Medicare all into one package is both fiscally and politically stupid. Social Security is a stand-alone, self-funding creature with few moving parts. Payroll taxes for both Social Security and Medicare are in effect "earmarked" for those respective programs. The fact that Congress has been pissing away Social Security revenues is an accounting problem separate from the actuarial challenges, which can be quickly resolved by a means test for beneficiaries with other income and increasing or eliminating altogether the taxable cap. Anyone who has taken a look at the details knows these simple realities. And those who prate about SS "going broke" are either ignorant or being willfully misleading.
ReplyDeletePPACA has already brought about a sea change in health care (barely started) which will squeeze down reimbursements and tweak the formulas far more effectively than any ham-fisted legislative intrusions into how IPAB does its job. Years of Congressional "oversight" is what has brought about out-of-control health care inflation and the braking mechanisms are finally in place. Congressional intrusion will have a counter-productive effect.
That leaves Medicaid and tax policy and (shudder) that monster called "sequestration." Tax policy is in two parts -- 2012 and 2013.
Sequestration is NOT something that will happen all at once, but is a budget term affecting all of 2013. Every component of the budget will have twelve months to make adjustments and if any experience I have had with budgets is any indication, they all have at least ten percent of fat/ cushion/ discretionary spending that often is not touched until the end of the budget year, at which time those budget-thinking-imaginations usually come to the same conclusion -- We better spend all we have budgeted this year or next year they might cut the budget.
The new Congress has plenty of time to address the budget for 2013 and anyone who thinks they will not do so is being (as in the case of SS) either ignorant or willfully misleading. In the end the monster may leave a scratch or two by the end of January but if Congress moves responsibly the other eleven months will reflect a more responsible distribution of available funds that any "across the board" lacerations.
The most menacing threat to the economy is Medicaid, the very place that no one wants to look. Strip away all the rest and the "fiscal crisis" really means deciding whether or how much tax and social policies will impact the poor. Like it or not, that will be the driver of whatever happens next. And I wish I were more optimistic about what that means.