Amidst the ongoing political negotiations and obsessive media coverage of the “Fiscal Cliff,” many politicians and economists are pleading for a re-branding of the term. Whether or not it should be re-dubbed a Fiscal Slope, gradual fiscal slope, fiscal curve, taxmageddon, austerity crisis, or other less exaggeratory terms is a matter of opinion; but it doesn’t take an expert to realize that the mandatory budget cuts and tax hikes that will go into place at year-end unless a deficit-reduction deal is struck isn’t quite the doomsday that the word “cliff” implies. As Ed Ardeni, president and chief investment strategist for institutional investor advisory Yardeni Research, put it: ”We’re not going to fall off the edge of the earth at the beginning of next year. When you fall off a cliff you die. So it’s a bit of an exaggeration to say that’s what we’re facing here.” Similarly, Sen. Bernie Sanders (I-Vt.), noted that even if we go past the deadline by a month or two, “I don’t think a whole lot of people will know the difference…it’s not like something cataclysmic happens on Dec. 31.”
So what’s all the fuss about? It’s true that over the long-term, if a deal is not reached, the economy could find itself in another recession. The CBO estimates that by the end 2013 unemployment would jump to 9.1%, real GDP would decline by 0.5% and the average taxpayer would be burdened with a $3,500 tax hike. However, missing the deadline does not mean that this scenario would be permanent. Lawmakers could still enact legislation after the deadline and cut taxes retroactively to account for any increase taxpayers experienced in the previous month(s). No one is arguing this is an ideal situation, but some people on the left fear that the doomsday scenario that a “fiscal cliff” implies is pushing a Republican agenda for massive spending cuts in welfare programs; using a term such as austerity, they say, would make it less easy to justify these cuts. Herein lies another failure in Democratic messaging, akin to Obamacare over the Affordable Health Care Act, entitlement programs over welfare programs and of course the wealthy aren’t rich – they’re job creators. If “Fiscal Cliff,” is a Republican invention though, it’s not working well – as recent polls suggest most Americans would pin the blame for a failure to reach an agreement on Congressional Republicans.
Now, this isn’t to say that all Democrats hate using “fiscal cliff,” or that all Republicans embrace the term. Rep. John Shimkus (R-Ill) says that, “People are trying to scare us that it’s a cliff. I think people believe it’s a cliff, but I don’t know if you really know until you jump off.” On the other hand, Democratic Rep. Jim Moran says, “Just keep calling it a cliff so we can get people to put the brakes on and come up with a reasonable way to stop the train of going in the direction it’s going,” and retiring Senate Budget Committee Chairman Kent Conrad (D-N.D.) adds, “I think it does communicate that you’re at a defining moment here.” Even President Obama uses the term casually, as does his chairman of the White House Council of Economic Advisors, Alan Krueger, albeit in a less dire context than most.
One party that is undoubtedly obsessed with the Fiscal Cliff is the media. Dropping the term now would surely decrease ratings as audiences have become very familiar with term, so it’s unlikely they’ll change their rhetoric anytime soon. Politico.com highlights some examples of the media’s flaunting of “cliff” rhetoric: “MSNBC has flashed ‘Fiscal Cliffhanger’ across its screen as it dissects the issue. CNBC has a ‘Call to Action’ special report on its website — subtitled ‘America’s looming economic crisis.’” Even this blog is guilty — we’ve added a “Fiscal Cliff,” category for our posts and considered (although the idea was dropped after this post) changing our Federal Income Tax Filing Countdown on the home page to a “Fiscal Cliff” Countdown.
With less then a month before the deadline, the “cliff” metaphor is likely hear to say. “The impression has already been created, and if it’s unfavorable, we’ve got it now, and I think we’re saddled with it,” said Rep. John Conyers (D-MI).
If you’re not on the “cliff” bandwagon, our favorite alternative is a “fiscal black hole,” coined by Mark Zandi, former Chief Economic Advisor to John McCain’s 2008 campaign and opposer to the “cliff” terminology. He argues, “with each passing day that policymakers fail to act, the greater the gravitational pull of the dark recession that will occur if they don’t.”
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.