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House Speaker John Boehner of Ohio

Susan Walsh, Associated Press - Ap

Editorial: Using a mulligan to avoid the 'fiscal cliff'

  • November 10, 2012 - 4:52 PM

Republicans and Democrats hoping for a decisive victory last Tuesday had their hopes dashed. Americans voted to maintain a divided federal government, with the House controlled by Republicans and Democrats maintaining their hold on the presidency and the Senate.

The only mandate was this: The two sides must work together. Voters neither rejected nor embraced either party's solutions to America's monumental budget challenges. That means it's time for both sides to compromise and govern. And it needs to happen now because the nation faces a serious, self-inflicted economic crisis in about a month -- the so-called "fiscal cliff."

This broad combination of expiring tax cuts and meat-axe spending reductions -- set to take effect around New Year's -- would impose abrupt austerity measures rivaling the overly severe plans that have gutted economic growth in Greece, Ireland and other European nations. While the fiscal cliff's effects wouldn't be felt immediately in the first few days of 2013, the cautious Congressional Budget Office (CBO) this week warned that the nation would plunge into a recession if the cuts and tax increases go into effect.

Jittery postelection markets last week underscored the CBO's warnings and reflected concerns repeatedly raised this fall by business leaders.

Voters returned to office virtually the same group of politicians who tried and failed in 2011 to reach a "grand bargain" long-term debt reduction plan -- a failure of leadership in both political parties that led to the crisis at hand. President Obama and Congress have been given a rare second chance to intelligently rein in red ink.

The pressure is on to prove to the world that our political system isn't permanently gridlocked. Obama and congressional leaders must put country before ideology and craft a balanced plan that pulls the nation back from the fiscal cliff while gradually reducing long-term debt as the economy recovers.

This can't be done simply by eliminating waste and fraud; the budget would be balanced already if it were that easy. Instead, revenue has to be increased with the burden shared fairly -- whether through higher rates or tax reform, which is code for raising revenue by ending popular tax credits and deductions. Defense spending has to be on the table. So must reforms to Medicare, Medicaid and Social Security.

These programs represent some of the biggest federal expenditures, and their finances are strained by both the current funding structure and baby boom retirees. A 2011 National Institute for Health Care Management report makes clear why Medicare reforms in particular must be part of a long-term deal. "Single beneficiaries and dual-earner couples who had earned the average wage throughout their careers can expect to receive about $3 in Medicare benefits for every $1 paid in Medicare payroll taxes,'' the report concluded.

Crafting a careful plan that does the least harm to the nation's economy, safety net and defense will take time, which is why it's unrealistic to expect the lame-duck Congress to ink a deal with the president before the session ends before Christmas.

What the nation's leaders can do in the waning days of 2012 is signal to an anxious world that the nation is capable of managing its finances. The current Congress needs to pass a measure that avoids the fiscal cliff -- providing certainty to taxpayers and businesses -- but leaves a framework for the next Congress to reach a long-term debt deal.

The respected Bipartisan Policy Center recommends a framework that includes debt-reduction targets for the next Congress, reforms to speed a deal's passage, a "down payment" of revenue and cuts, and a backstop should politicians fail reach agreement. In our view, that backstop should be a bipartisan debt-reduction plan such as Simpson-Bowles that gradually balances the budget with cuts and more tax revenue. Having a gradual plan, as opposed to one with quick and deep cuts, would avoid giving Congress an excuse to delay reforms because of concerns about a fragile economy.

Republican congressional leaders also need to signal that they won't engage in brinkmanship again with the nation's debt ceiling, which probably will need to raised in February. Anybody who believes default is an option is "in fantasyland,'' said Robert Bixby of the Concord Coalition.

The days after the election offered reason to be hopeful about the nation's ability to manage its finances. Obama and U.S. House Speaker John Boehner held news conferences, and although they disagreed about raising tax rates on the wealthy, both suggested room for compromise on increased revenue through tax reform. Obama also needs to dust off his copy of the Simpson-Bowles plan and do more than pay it lip service.

Minnesota is sending back to Washington an increasingly influential congressional delegation. Sen. Amy Klobuchar and Reps. John Kline, Tim Walz and Erik Paulsen all have deep knowledge of federal budget issues -- a key reason this newspaper endorsed them. Now we urge them to wield their clout and be on the front lines in forging deals to avoid the fiscal cliff and balance the nation's books.

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