Wehrwolfen
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Now It's Time for the Entitlement Cliff
By John Browne
January 1, 2013
As the clock winds down on 2012, the Fiscal Cliff is all anyone seems capable of discussing. Right now it appears that some sort of narrow deal has just emerged that will include raising tax rates on family income over $450,000 a year, increasing the estate tax rate, extending unemployment benefits for one year, and delaying spending cuts.
But the prospect of higher taxes and the great uncertainty that has surrounded this fiscal fiasco has been acting like sand in the gears of the complex but sputtering U.S. economy. If additional taxes are not matched by real cuts in government spending, the economically crippling tax increases will serve merely to increase the size and intrusive power of big government. In other words, the pain will yield no gain.
But the damage to the U.S. economy will result not so much from the actual cuts and tax increases that the Cliff would involve, but from blatant dereliction of duty on display in Washington which will diminish national prestige.
To some, a loss of reputation may seem to be an ephemeral and ultimately insignificant economic cost. However, the spectacle of American politicians failing to agree on budgets, spending limits, or any type of fiscal discipline can affect the credit rating of the U.S. Over the longer term, a major fall in the credit rating is likely to increase U.S. interest rates. This would add further to the pressure on U.S. debt and render the U.S. Treasury bond market as one of the greatest financial bear traps in history.
[Excerpt]
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Now It's Time for the Entitlement Cliff - John Browne - Townhall Finance Conservative Columnists and Financial Commentary
