This is a rather long post. It tries to put into a clearer perspective the highly publicized impending end-of-year budget and tax events – called “taxmageddon” by some in the press. It takes the position that as imposing as these legal developments are on paper, a short-sighted Congress and White House could work their way around the consequences – but only in the near term. The budget time bomb continues ticking. What are the fundamental elements needed for a new President and Congress to take this problem on? We close with a few observations.
You surely have heard of the extraordinary budgetary events that lurk in the nation’s tax and spending law, just waiting to spring out upon us at the end of this year. The list is long, and frankly frightening.
In the previous decade, temporary laws involving hundreds of billions, even trillions of dollars became highly fashionable. Then with the financial paroxysm at the turn of the decade, the Congress and the President enacted more temporary legislation to provide near-term stimulus to the economy. The former actions were based on the assumption that robust economic growth would continue forever; the latter assumed that after the recession, the economy would bounce back vigorously. Both of these assumptions have proved wrong. So now, what were once presumed to be routine extensions or expirations of temporary laws have become major policy dilemmas.
Some see the “perfect storm” or “taxmageddon” at the end of this year as a likely occasion to take on the budget problem. This optimistic view holds that when confronted with all of these issues, elected policymakers finally will get religion and solve the problem once and for all.
I am highly skeptical – not that a change of heart should happen, but that it will, given recent patterns of behavior. But there is so much at stake that we need a clear view of the next year or so. Let’s start with an inventory of the dangling issues.
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