The presidential candidates yammered a lot about taxes and the middle class in Wednesday's debate. But they didn't talk about the real crisis: If all of the Bush and Obama tax cuts are allowed to expire at the end of this year, as current law requires, federal taxes will go up by an average of $3,500 per household. That would be a disaster for the economy, and likely would push the nation back into recession. Obviously, that must not be allowed to happen.
What is not obvious, however, is how to avoid such a fall off the financial cliff. In a sensible world, the two political parties would get together in Congress and hammer out a deal that would eliminate some tax cuts while extending the bulk of them for as long as job growth remains weak. At the same time, however, Congress should agree on a long-term plan that would cut spending, reform entitlements and raise taxes to phase out unsustainable borrowing.
But politics isn't sensible. Republicans remain dead set against any tax increases. That's good policy while economic growth remains weak and unemployment high. But it's bad news for deficit spending, which the party also insists must be eliminated. To contain deficits, the GOP wants to slash spending. But like tax hikes, most spending cuts, particularly the reductions in aid to the poor that the Republicans want to cut, would depress the economy. The Republicans are correct, though, that over the long term, spending must be cut to help eliminate deficits.