In August 2011, Congress and President Barack Obama agreed to tax increases and spending cuts to automatically take place in January of 2013.
The Congressional Budget Office has now indicated that the combination of the two actions will remove some $388 billion from the American economy if the mandated actions occur.
The first event that will affect all Americans is rescinding all of the Bush tax cuts enacted in 2003. That means that income taxes will go up for all Americans, returning the country to Clinton-era taxes. Next will be the return to normal Social Security withholdings, again affecting every worker’s paycheck. Finally, defense contractors have said that planned cuts in defense spending — over $100 billion each year — will result in layoffs of around a million workers in the defense industry in America.
The above effects are only the big-ticket items. Medicare payments will be slashed as well and hospitals will be required to lay off workers. Doctors will receive much less in such payments as well. The Alternative Minimum Tax could be further imposed, causing further tax increases, beyond just the effects of rescinding overall lower tax rates implemented by President George W. Bush. Unemployment benefits could also be affected without additional congressional action before January 2013.
Business leaders are already laying plans to implement well in advance of January 2013. Hiring in the defense industry is already slowing, but massive layoffs have not yet occurred. Hospitals are doing all they can to reduce costs now, well in advance of the coming cuts.
Confronting all of these self-imposed economic actions in Washington is like trying to navigate a ship without a rudder, for the moment. It is a presidential election year and neither party has stepped up with bold, new proposals to avoid the looming actions.
Washington will await the outcome of the November 2012 election and then try to put bandages on our fiscal problems with a lame-duck Congress that will have less than two months to act.
The real issue, in our view, however, is that regardless of which party wins or loses in November, the campaign for 2016 will begin on Nov. 7, 2012. On Election Day, we will have only rearranged the deck chairs on our ship while heading into larger and larger fiscal storms.
Opinion
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Discussion
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