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Friday, July 25, 2014

Seeking a Fiscal Cliff Grand Bargain

Credit: MAPI

Although lawmakers on both sides of the aisle in Washington are actively campaigning to promote their versions of a solution to the impending fiscal cliff, we have yet to witness real progress toward a solution.

The general consensus seems to be that the White House favors maintaining middle class tax cuts while raising taxes on those earning more than $250,000 per year. The Republican position, as articulated by House Speaker John Boehner, is in favor of tax reform, mainly reducing deductions and closing tax loopholes. Offers made by both sides have been rejected. Boehner told Republicans to plan to stay in Washington through the holidays, warning that negotiations could extend right up to the Dec. 31 deadline.

The manufacturing industry needs politicians to make a grand bargain, Daniel J. Meckstroth, vice president and chief economist of the Manufacturers Alliance for Productivity and Innovation (MAPI), said yesterday in an open letter.

“There is near unanimous agreement among economists and policy analysts that stepping off the fiscal cliff for a full year is such a huge fiscal drag that the action would cause another recession in the United states,” Meckstroth said. “For this reason, a compromise to prevent the tax increases and spending cuts from all being triggered at the same time is consuming the current political discourse.”

Figuring out a balance to revenue and spending cuts is proving too difficult to inspire compromise. And further, the effect of entitlements on the U.S. economy can’t be sidestepped even if a fiscal cliff agreement is reached.

“Resolving the tax and spending provisions in the fiscal cliff will buy some time; however, there cannot be a solution to the long-term federal deficit imbalances without addressing Social Security, Medicare, Medicaid and other mandatory healthcare programs,” Meckstroth wrote.

Meckstroth points out that the demographics of those covered by entitlement programs are growing. In terms of Social Security and Medicare, “there are more retirees, living longer, who are sicker and consuming increasingly expensive medical care,” he noted.

The current fiscal situation is untenable, as Meckstroth illustrates with economic predictions for the country’s future deficit. However, the arguments in Washington are over fundamental issues, and views are tightly held.

“The president calls for $2 in revenue for every $1 in spending cuts,” while Republicans call for “a $1 tax revenue increase for every $2 in spending cuts.” However, Meckstroth urges both sides to look at the facts and deliver not just a fiscal cliff solution, but to “force negotiations to bring about a grand bargain that would achieve a long-term solution to the unstable fiscal imbalance.”

Michael Araten, president and CEO of the Rodon Group, the Hatfield, Penn.-based injection molder and moldmaker which President Barack Obama visited on Nov. 30 as part of his public campaign to press Boehner and House Republicans for a fiscal cliff solution, said, for his part, he is confident that a deal will be made before the end of the year, with more detailed structural reforms to be worked out over the course of 2013.

“We’re a 100-percent confidence-based economy,” Araten said in an interview with ThomasNet News yesterday, noting that both businesses and consumers tend to make spending decisions based on their confidence about the future. “The fiscal cliff can reverse the positive trend we’ve been on for the last three years, so that’s why I think it will be resolved, because the leaders in Washington understand that.”

Araten said Rodon and other just-in-time manufacturers could feel immediate impacts if Washington allows the country to fall over the cliff. “JIT supply chains are driven by demand and customer forecasts, and if those get ratcheted down, we will be producing less. [Plant workers] will not work as many hours and get as much overtime,” he noted. “There will be ripple effects.”

Brian Lane, with William Ng

 

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