Tennessee lawmakers search for 'fiscal cliff' solution

8:58 PM, Nov 9, 2012   |    comments
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By PAUL C. BARTON, Gannett Washington Bureau

WASHINGTON -- As Tennessee lawmakers return to Capitol Hill next week, a fiscal time bomb awaits them, one that could plunge the nation back into recession and sharply increase unemployment unless diffused.

That's the opinion of many economic analysts, business leaders and politicians from both sides of the political spectrum about the so-called "fiscal cliff," the combination of tax increases and government spending cuts that will occur automatically beginning Jan. 1, 2013.

All told, $607 billion would be sucked out of the economy in 2013, equal to about 4 percent of gross domestic product, according to the nonpartisan Congressional Budget Office.

While there is little disagreement that the nation needs long-term deficit reduction to make headway on the $16 trillion national debt, there is widespread fear that a $607 billion reduction in 2013 would be too a big a jolt for even the U.S. economy to take in stride.

Most Tennessee congressional members contacted this week said they want to go ahead and find a long-term solution to the nation's finances, not just a short-term approach that avoids a Jan. 1 calamity.

Regardless, if the cliff is not avoided, economic growth next year would plunge 1.3 percent with unemployment increasing 1 percent, the CBO projects.

Congress and President Barack Obama find themselves in this predicament because of laws enacted in 2010 and 2011 that, among other things:

  • Called for maintaining income tax rates through this year, but only through this year, at levels set in 2001-2003 under former President George W. Bush.
  • Provided for continuation of emergency unemployment assistance to cushion the economic impacts of sluggish job growth.
  • Provided for across-the-board automatic federal spending cuts to take effect at the start of 2013 as part of a deal that raised the nation's debt ceiling so that the government could keep paying its bills.

Now, less than one week after the end of bitterly contested elections, Congress and Obama must return to work on the nation's fiscal problems under the extreme deadline pressure posed by the fiscal cliff.

The president has called congressional leaders to the White House next week to begin discussions on finding a mutually acceptable approach.

A key question is whether the White House and the Republican-controlled House will be able to avoid a partisan stand off of the kind that almost caused the nation to experience financial default in 2011.

Rep. Diane Black, R-Gallatin, said she doesn't like the word "compromise" because "it suggests compromising your principles."

However, she said Republicans are willing to "negotiate" when all sides bring ideas to the table.

Obama has signaled he wants taxes to increase on the wealthy as part of a deal or "grand bargain" to eliminate the cliff; congressional Republicans oppose increases in specific tax rates but say they would consider elimination of deductions and loopholes as a way to boost government revenues.

Tennessee members echoed that sentiment.

Most also said they want to go ahead and find a long-term solution to the nation's finances, not just a short-term approach that avoids a Jan. 1 calamity.

Rep. Jim Cooper, D-Nashville, said Congress should be guided by the recommendations of the 2010 National Commission on Fiscal Responsibility and Reform, headed by former Republican Sen. Alan Simpson of Wyoming and Erskine Bowles, the former White House chief of staff for Democratic President Bill Clinton.

That panel called for blending tax reform, cuts in mandatory and discretionary spending and entitlement program changes affecting Social Security, Medicaid and Medicare. In addition, it recommended "process reforms" that involve strictly enforced deficit-reduction targets. The combination of steps was projected to slash deficits by more than $4 trillion over a decade.

At least "something along that line," Cooper said of what he wants, while acknowledging, "We have a lot of persuading to do."

While saying he was encouraged that House Speaker John Boehner was willing to consider "new revenues," the Nashville Democrat added: "The problem is not Boehner. It's (House Majority Leader) Eric Cantor and the tea party Republicans."

Cooper also said the nation's balance sheet is even worse than it looks. Under accrual accounting, which would factor in future obligations of programs like Medicare and Social Security, not just yearly payouts, the nation falls further into the hole by $8 billion a day.

"Politicians are ignorant of the time factor of money," Cooper said of how government obligations mushroom.

Republican Sen. Bob Corker said, "We all know what the issues are."

The first step to fiscal sanity should be entitlement reform, Corker said, followed by tax reform that includes a willingness to raise new revenues through closure of deductions and loopholes.

However, fellow Republican Sen. Lamar Alexander, in a statement, did not go that far, saying only that he looks "forward to presidential leadership on fixing the debt, and to working with the president and congressional leaders to get a result."

Rep. Marsha Blackburn, R-Brentwood, said plenty of proposals introduced in the House in recent years, including her own call for across-the-board spending cuts, offer ideas for solving the fiscal imbalance.

While she would consider looking at tax loopholes as part of "cleaning up the tax code," Blackburn said, the main thing needed "is a willingness of the president and the (Democratically controlled Senate) to work with us."

But Rep. Scott DesJarlais of Jasper, who came to Capitol Hill as a tea party Republican in 2011, said the issues are too complicated to enact a long-term fix before Jan. 1 and Congress should strive for a "short-term bridge" instead.

"These things take time to do properly," DesJarlais said.

Long term, he said, "I'm not for increasing taxes on anybody until we get spending under control." And DesJarlais said Democrats and Republicans need to agree first on a basic budget, a task left unaccomplished in recent years.

But as a part of a "fairer, flatter" tax system, DesJarlais said, he would be willing to consider closing loopholes and deductions.

Black said the across-the-board automatic spending cuts scheduled for Jan. 1 should be replaced by a more targeted mix that focuses on duplicative and out-of-date programs.
"We need a scalpel approach rather than a hatchet," she said.

And Black, too, said she would consider raising revenues through closing of deductions and loopholes as part of a "pro-growth tax policy." Encouraging economic growth, Black said, is the best way to achieve revenue growth.

And Rep. Stephen Fincher, R-Frog Jump, said in a statement that anything that increases taxes on small businesses "is simply unacceptable." His office did not respond to questions about closing loopholes and deductions.

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Contact Paul C. Barton at pbarton@gannett.com

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