Cliff, slope, or hostage crisis?

Since the election, Washington DC has been consumed by debate over the “fiscal cliff,” a number of large spending cuts and tax increases set to take effect at the beginning of next year.

Due to the spending cuts, Oklahoma would receive about $100 million less in federal funding, with education programs for high-poverty, special education, and very young students from low income families especially affected. One estimate projects the spending cuts would eliminate 16,000 jobs in Oklahoma over the next 15 months

On the tax side, income tax rate increases would cost a median-income Oklahoma family of four (earning $63,100) about $2,200. That’s on top of a payroll tax increase and reductions in the federal Child Tax Credit and Earned Income Tax Credit that would especially harm low-income families. The Congressional Budget Office reports that not acting to avoid the fiscal cliff would send the economy back into recession.

To avoid the cliff, Congress needs to introduce a bill by December 18 and pass it before they adjourn on December 21. If they cannot reach a deal, the higher tax rates will kick in on January 1, and the spending cuts will begin January 2.

However, Congress missing that deadline does not mean we will be subject to the full spending cuts and tax increases. These would not take effect all at once, but would instead happen over 12-15 months. They can also be reversed whenever an agreement is reached. That’s why some have taken to calling it a fiscal slope. Even if we begin to head down that path, we will still have the ability to reverse course.

A main sticking point on negotiations is that Republicans are refusing to stop any of the tax rate increases if the top rate for income over $250,000 a year is not included. In effect, a tax cut for everyone is being held hostage to obtain additional cuts for the wealthiest households. Needless to say, their position is unpopular.

On this issue, going over the cliff may make it easier to reach a deal. Once taxes increase for all rates, it will be even less defensible for Republicans to reject a tax cut for everyone (including the wealthiest, who would pay lower rates on their income below $250k) because it does not include provisions that benefit only the wealthiest. Some Republicans, prominently including Oklahoma’s own Rep. Tom Cole and Sen. Tom Coburn, have begun to recognize this fact.

Another sticking point is over the next debt ceiling increase. Republicans have strategized that they might extend the Bush tax cuts for lower rates to avoid the fiscal cliff, but regroup next year for a fight over the debt ceiling. However, President Obama has said he will no longer negotiate over the debt ceiling so that hostage-taking does not become routine.

Much like the fiscal cliff fight, Republicans would threaten to force a result that no one wants (America defaulting on its obligations) to get their way on policy that they do not otherwise have the votes to pass.  Whatever deal on the budget and taxes is reached over the coming weeks, this style of negotiation should not be rewarded.


Gene Perry worked for OK Policy from 2011 to 2019. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism.

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