The term “fiscal cliff” has been dominating the news since the election, so George Washington Today asked Mark Kennedy, a former member of Congress and current director of GW’s Graduate School of Political Management and professor of political management, to help break down the jargon and explain what’s at stake. Mr. Kennedy was elected to three terms in the U.S. House of Representatives, serving Minnesota’s 2nd district from 2001 to 2003 and its 6th district from 2003 to 2007.
Q: Basics first—what is the “fiscal cliff” in lay terms?
A: The fiscal cliff refers to tax increases and spending cuts that will trigger automatically at the year’s end, unless the president and Congress act. These include the expiration of a 2 percent reduction in payroll taxes; expiration of the Bush Era tax cuts; imposition of taxes relating to the new health care law; and the “sequester,” which would force deep cuts in more than 1,000 government programs, split evenly between defense and domestic spending.
Q: If the country goes “over” the fiscal cliff, what changes would we see?
A: Nearly everyone would see their taxes go up, and most categories of government spending would see cuts. Of perhaps more significance, most economists believe that the fiscal impact of going over the cliff could put the economy back in recession. The inability of our leadership in Washington to address this pressing matter would further heighten disillusionment with our political process.
Q: Generally, what are the Democrats’ and Republicans’ sticking points in this situation? What does each group want to see happen?
A: At this point, the primary sticking point is who puts their cards on the table first. The general contours of a deal in the $4 trillion range are generally known, including a trillion or so increase in tax revenue. It is commonly understood that Republicans will support a revenue increase only with significant entitlement reform. Entitlement programs include the Social Security retirement income program, the Medicare health care program for the elderly, and the Medicaid health care program for the poor. Each side is trying to press the other to propose what form entitlement reform should take, in part so they can blame these cuts on them in future elections.
Q: Do you think compromise is likely? What might a compromise look like?
A: I believe that a compromise is possible, perhaps even likely, but clearly not certain. My guess is that it will include a little over a trillion in revenue increases as part of a $4 trillion dollar deal that includes $500 billion in interest savings and broad-based spending cuts. The deal will provide a broad outline and assign Congress to fill in the details. It may call for each chamber to act by Easter break, and a conference report to be passed by summer recess. It would extend the fiscal cliff, which would spring back if Congress did not meet its deadlines. Finally, I believe that a deal would have to have an immediate down payment to placate fiscal hawks.
Q: What else is important about this issue for the public to understand? Are there any “myths” or frequently misunderstood points that you can clear up?
A: Pressing leaders not to bend or compromise regarding the fiscal cliff is certainly understandable, but it is counterproductive for our nation, our Main Street neighbors and our children, who will inherit our decisions. Without a doubt, the segment of society with the most at stake is young people—they will be the ones left holding the bag and paying for the debts resulting from today's deficits. It is time for young people to actively engage with one voice, urging leaders to make a deal that positions us on the path to fiscal balance. Without such a deal, America will drift toward the long struggle with unsustainable debt that engulfs Europe. With a deal, a new era of hope will dawn in America. It’s time to make a deal.