Inquirer Editorial: Moves to avoid the fiscal cliff

President Obama
President Obama (JACQUELYN MARTIN / Associated Press)
Posted: November 29, 2012

President Obama comes to the Philadelphia area Friday to reinforce public support for his plan to avoid the fiscal cliff. It's urgent work. The severe austerity measures - large, automatic tax increases and deep spending cuts due to kick in Jan. 1 - would likely knock the nation's fragile economy back into recession.

The president arrives amid encouraging signs from Republicans. Some are saying that they are willing to move beyond their tough antitax talk and include revenue-raising measures in any deal to avoid the cliff.

New Jersey Rep. Jon Runyan and Pennsylvania Rep. Pat Meehan are among those announcing that they are no longer wedded to lobbyist Grover Norquist's ironclad no-tax pledge. Sen. Pat Toomey, while continuing to preach austerity on spending, has also identified some potential wiggle room regarding the Norquist pledge.

Everyone agrees that going off the cliff - which could slash up to $600 billion a year of spending from the economy - is an economic peril to be avoided. However, Republicans and Democrats agree that the country can't keep running such huge deficits indefinitely. They also agree that most of the gap will have to be closed with spending cuts.

The biggest flash point is the president's call to increase taxes for Americans earning more than $250,000 a year.

On that issue, Obama knows he has the public on his side. Americans remember the economy did just fine when tax rates were last at that level, during President Bill Clinton's term - when the federal government actually ran a surplus.

For all the encouraging Republican talk about "revenue," though, none have expressed a willingness to raise tax rates. Instead, Republicans such as Pennsylvania Congressman Jim Gerlach talk about raising revenue through "tax reform." Most such proposals, which limit deductions and credits, would raise taxes on more than just the weathiest 2 percent.

Given Republican resistance, Congress has to explore ways to raise revenue from the wealthiest without raising income-tax rates. They include cutting the "carried interest" tax break for hedge-fund managers and tweaking tax formulas so the wealthiest Americans can't dodge their way around paying the tax rate that is supposed to apply.

Unfortunately, those changes won't help shrink the deficit nearly as much as boosting the top tax rate a few percentage points for the wealthiest Americans.

If Republicans won't budge on getting the wealthy to pay a fair and meaningful share toward closing the deficit, the president can stand firm without ruining the economy.

Should Jan. 1 come without a deal, the Bush-era tax cuts will expire automatically. Obama can then call on Congress to roll back taxes for all but the top 2 percent. It's doubtful Republicans can stand the heat that would result if they block that deal because they want millionaires and billionaires to get tax breaks, too.

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