Former Virginia Governor Jim Gilmore, President and CEO of Free Congress, defined it in an easy-to-understand way, and discussed on CNBC on Tuesday common sense ways to avoid it when he faced off against former Democratic Governor Gray David of California:
In an interview, Governor Gilmore explains the Fiscal Cliff, the potential consequences of inaction and the simple solution to the economic crisis.Check out Free Congress for more info on fiscal responsibility and common sense solutions.
Q: What is the Fiscal Cliff?
A: As a result of Congressional negotiations over the debt ceiling expansion, both parties in the US Congress agreed that they would form a bipartisan Super Committee to present a fiscal plan to Congress on how to resolve the debt crisis. If the committee failed to reach an agreement on a plan, then there would be an automatic increase in taxes by allowing the “Bush Tax Cuts” to expire. If those cuts expire then the rate of taxation will go up on every American. In addition to the income tax hike, a break on the payroll tax will be allowed to expire, increasing the cost to all businesses, including small businesses which are the most vulnerable to changes in their taxes.
In November of last year, the Super Committee deliberated and failed to reach an agreement on how to resolve the financial crisis. If no further action is taken by the end of December, the country will go off the fiscal “cliff”. Federal spending will be cut 25% across the board, including in the defense budget. At this time of great international instability, this move would weaken our military and threaten national security. As it stands now, though federal spending will be slashed, taxes on individuals and businesses will still rise. The crisis is called a cliff because of the numerous and simultaneous changes that will injure the taxpayer.
Q: How do you think that the debate is being framed in the US Congress and in the media right now on how to resolve the controversy about the Fiscal Cliff?
A: I believe that those who want to increase taxes have been dominating the debate in Congress and the media by using the strongest rhetoric. No one wants to go over a “cliff”. Those who are pushing for tax increases are claiming to compromise by accepting federal spending reductions in return for higher taxes. By resorting to the fear of going over the cliff, then calling for fairness and compromise, those who want higher taxes are playing off of the emotions of the public to achieve their agenda without fairly informing the taxpayers of the potential disastrous consequences.
Q: What is the GOP’s argument and what is its effectiveness?
A: What few in the media remember is that the Republicans in Congress have been arguing for several years to reduce the deficit in the US Federal budget and to reduce our country’s dauntingly high debt. The challenge is that some liberals can argue that debt can be reduced just by cutting taxes. Further, Republicans are making a good argument for fairness in calling for no one to have the burden of increased taxes in this recession. The Democratic leadership has countered this simply by calling for a tax on the “rich”, defined as anyone earning over $250 K. This divisive argument has appeal to all Americans who are earning less than $250K and drives a wedge between fellow American citizens, but ignores the fact that many in the middle class and small business owners will see their taxes increase.
Q: What is the right message for conservatives who want to control spending and reduce taxes
A: The right message for conservatives is “Don’t tax economic growth.” Though we are recovering slowly, the nation is still in an historic recession with almost 8% of working Americans with no job. Our message should be not to increase taxes which will reduce economic growth and cause an even greater loss of jobs.
Q: What are the consequences on increased taxation, even as a form of compromise?
A: The fundamental problem of raising taxes is that it will reduce economic growth, increase unemployment and prolong the already painfully drawn-out recession. The result of the compromises that are being offered is that government spending will be cut at the same time taxes are increased. If neither the government nor the taxpayers are spending that money, then that money is doing nothing to benefit the economy. Ideally, the money saved from any spending cuts should be returned to the taxpayers in the form of reduced taxes so that they can spend it on groceries and other goods and put the money back into circulation.
Under the proposed Bowles-Simpson compromise, that saved money will not be spent by anyone. Bowles-Simpson will instead increase taxes, particularly on small business owners, who will then have reduced capital to invest in new plants, equipment and employees. The real danger to the nation here is that a compromise will be reached that increases taxes. The result of such an action will undoubtedly be a derailing of the recovery and a fall back into recession. That outcome is one that we all desperately want to avoid.