With a Jewish holiday coming up tonight thoughts turn to what I should be neurotic about. Matt Yglesias says I should freak out about Europe, and he’s right. But that’s been the case for two years. And the powers that be over there are religiously opposed to the proper steps to take to end the crisis. In short, seen it! So what’s next?
I’ve noticed a cottage industry of late in getting people to care about the “fiscal cliff,” the combination of measures that will hit at the end of the year producing a significant fiscal drag. The three measures are: the expiration of the Bush tax cuts, the end of the payroll tax cut and extended unemployment insurance, and the “trigger” from the Budget Control Act of across-the-board cuts to defense and discretionary spending. I’ve written about the Bush tax cuts, which I think we may be better off letting expire, with a follow-up of some more progressive tax changes. But today, Jim Dyer and Scott Lilly (former Republican and Democratic staff directors on the House Appropriations Committee, respectively) explain what they believe are dangers from the trigger:
One problem is the apparent belief that slicing $110 billion out of a $3.6 trillion budget is no big deal. The truth is that those cuts will come from a much smaller part of the budget — and in a time frame that will make them impossible to absorb without major dislocation for the economy at large as well as for government bureaucrats.
Some of the most serious damage will be directed not at the big programs about which the two parties have deep and long-standing disagreements but at basic, critical functions of government that are broadly supported by members of both parties. Take U.S. marshals, who, among other things, protect judges and juries during federal court proceedings. Some recent analysis indicates that the U.S. Marshals Service will have to furlough (suspend salary payments) every deputy marshal in the country for five weeks during the nine-month sequestration period. Because U.S. court dockets are already so crowded that it is difficult to find enough marshals to maintain adequate protection levels, it is possible that each federal court in the nation will have to cancel five weeks of court dates during the first nine months of next year.
Similar scenarios are possible with an array of federal services: Processing of applications for patents and trademarks, Social Security benefits, and federal land leases would be reduced. So would food and meat inspections. Perhaps even more problematic would be a 12 percent personnel cut among air traffic controllers. One budget analyst we spoke with suggested the possibility of “flightless Fridays.”
Dyer and Lilly suggest that lawmakers… do something about this. But that’s precisely the problem, right? If there were any consensus on what to do to eliminate the trigger, it would have happened in the Super Committee, under very favorable rules for passage. The House Republican budget proposes a one-year patch for the trigger by cutting the federal workforce, which Democrats oppose. Democrats haven’t really come up with an answer. But if Dyer and Lilly are to be believed, there’s a serious disruption that would come from an across-the-board cut like this.
If it were up to me, I’d just flat-out cancel it. Let Standard and Poor’s do their worst. A damaged credit rating that does not affect the sale of debt is nothing compared to this kind of damage on the economy.
Meanwhile, the head of the IRS brought up a separate issue:
Allowing tax provisions to be unsettled as 2013 begins will cause confusion for taxpayers, said Douglas Shulman, IRS commissioner, speaking at the National Press Club in Washington.
“We’re going to have real risk in the system,” if Congress delays, Shulman said.
“You could have a real disaster in the filing season where there’s total confusion,” especially for the alternative-minimum tax “patch,” he said.
This is a fourth expiring measure that I didn’t even include in the first three. The AMT patch impacts millions of taxpayers. Shulman is actually talking about delaying the tax filing season next year, if uncertainty reigns.
In short, a ton of tricky work is being left for the lame duck session. To this Congress.
OK, I’ve found something to be neurotic about!