At an Oct. 18 debate between U.S. Rep. Jim Himes and fourth congressional district challenger Steve Obsitnik, both candidates were asked what actions should be taken over the next four to five months to address the infamous fiscal cliff.
Obsitnik, a Westport businessman running on the Republican ticket, got the first crack at it.
“We need immediate term solutions,” Obsitnik said. “Specifically, we need to give certainty to job creators, small businesses and homes, to say this Congress has failed, on both sides of the aisle, so we need to move forward and set a date by the end of the fiscal year where we can address thoughtful tax reform, spending reform, and put a budget in place.”
Obsitnik is partially right, but partially wrong as well.
Businesses and consumers do need immediate term solutions. They need more than a semblance of certainty. And the 112th Congress has failed to deliver on both counts, especially where the fiscal cliff is concerned.
But it is not good enough for Democrats and Republicans to wait until the end of the federal fiscal year – that’s Sept. 30, folks – to sit down at the bargaining table.
In fact, it’s not even good enough for the two sides to wait until the 113th Congress is sworn into office in early January.
As Himes said in his response to the question, avoiding the fiscal cliff “is job one right after the election.”
Under current law, tax increases and spending cuts worth $600 billion, or about 4 percent of the U.S. gross domestic product, will begin to take effect Jan. 1.
In a late September memo, Fitch Ratings said the U.S. fiscal cliff “represents the single biggest near-term threat to a global economic recovery,” adding that failure to address the sweeping cuts would, at the very least, “be likely to halve the rate of global growth in 2013.”
Legislation equating a grand bargain won’t be passed during the lame duck session, given the sheer quantity and complexity of the issues that must be addressed by both parties, both chambers and the White House.
But it is imperative that a specific framework for this grand bargain be reached between Nov. 7 and Jan. 3 – the end of the current legislative term – that would allow for a package of bills to be assembled and passed in the first quarter of 2013.
At a Sept. 27 hedge fund conference held in Greenwich, Jeff Kummer, a director of tax policy for Deloitte’s Washington, D.C., office, warned, “If rates expire, even if just temporarily – even if congressional Republicans, the White House, congressional Democrats all get together and say, sometime in 2013, ‘We’re going to fix this and retroactively make everybody whole again’ – you’re still going to have people with less purchasing power in their pockets the first biweekly pay period in January.”
Scott Mather, head of global portfolio management for Pacific Investment Management Co. (PIMCO), earlier this month said it’s not a question of if the U.S. sovereign credit rating will be downgraded, but when.
But perhaps his colleague, Bill Gross, manager of PIMCO’s $278 billion Total Return Fund, stated it best when he described the U.S. as a nation that “frequently pleasures itself with budgetary crystal meth.”
It’s time for Washington to kick the habit.
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