Paul Jenkins: It's a short, scary ride to the fiscal cliff

By PAUL JENKINSDecember 8, 2012 

As we teeter on the so-called "fiscal cliff," it is difficult to grasp its magnitude. The nation is broke, buried in debt, with frightening challenges ahead. Our problem? We cannot stop spending - even when the money runs out.

Alaska, with more than $15,000 in federal spending annually for every man, woman and child, should be watching with bated breath. The raging debate's outcome carries with it real and perhaps painful consequences. George Mason University economist Stephen Fuller says if mandatory spending cuts totaling $1.2 trillion go into effect Jan. 2 as planned, 10,411 private sector and Defense jobs will be lost in Alaska. Across the nation, the tally will be 2.14 million.

Then, add a bushel of tax increases. Oh, and there are the hundred or so new Obamacare taxes. Many businesses with more than 50 employees already are laying off workers to avoid the added expense. Happy New Year.

The politics are tough. Many on the right warn the GOP will perish if it waffles on entitlements cuts and decreased spending, although there are Republicans willing to play patty-cake with Democrats to dodge the fiscal cliff.

The battle lines are clear: The GOP wants spending cuts, but is willing to talk taxes; Democrats want more taxes, especially on America's top earners.

Grover Norquist, whose death-on-taxes mantra defined conservative politics for decades, is threatening a vigorous Tea Party revival if Republicans knuckle under. Sarah Palin, Alaska's former demi-governor and failed vice presidential candidate, called the potential collaborators "wusses."

Without action, the Budget Control Act of 2011, with its painfully deep mandatory cuts, will take effect next month for Defense and Medicare and, Barron's says, a thousand other government programs. Taxes to raise about $536 billion next year, and $5 trillion over the next decade, also take effect. Higher unemployment and reduced investment are certainties.

If nothing is done, the Congressional Budget Office says, we will have a smaller deficit -- but another recession.

Insane spending and political recalcitrance put us where we are today. We are a nation sporting a $16.3 trillion debt -- perhaps $100 trillion when promised entitlements are factored in. Yet, we are adding $1.3 trillion a year -- and borrowing more money to do so.

Unemployment was above 8 percent for 43 months before -- wonder of wonders -- it dipped to 7.8 percent just before last month's election. Twenty-three million of us are jobless and the price tags for state and federal unemployment insurance programs are about $520 billion, the CBO says. Welfare spending is up more than 30 percent and more than 47 million are on food stamps. About 46 million are officially poor.

Government transfer funds -- money snatched from Peter to pay Paul -- account for $2 of every $3 the government spends, the Office of Management and Budget says. (In 1952, it was $1 in $6.) Government is a giant ATM machine. More than 40 percent of us paid no taxes in 2010. To underwrite all that government largesse, we borrow even more.

Then, there are the firestorms on the horizon - Social Security and welfare.

Resolving the mess will be tough. Obama, emboldened by his election, has little taste for compromise and likely would allow the nation to go over the cliff if he can blame Republicans. Americans are about to learn first-hand that elections truly have consequences.

Republicans, on the other hand, have no mandate, no leverage. All they have is the possibility of using the debt ceiling renewal in the first quarter next year to stave off even more spending. That prospect is lousy. It's a new game.

There are limited options: Congress and Obama could leave things alone, halving the deficit and triggering a recession. Or they could cancel all or some of the scheduled middle class tax increases and spending cuts, adding to the deficit. Hello, Greece. Or they can kick the can down the road into a futile spending limit-debt ceiling fight while Rome burns. Or they could find a way to make it work.

If we go over the cliff, recent polling indicates, Republicans will be blamed.

America is in a tough spot. The good news, or not-so-good news, is that in a few years -- as the entitlements and welfare fight really heats up -- the fiscal cliff will seem a walk in the park.

Meanwhile, Alaska should be sweating.

Paul Jenkins is editor of the AnchorageDailyPlanet.com.

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