By Scott Reid
We will jump off the fiscal cliff on Jan. 1 if Congress doesn’t do something. We have been climbing a mountain of prosperity in part due to the Bush-era tax cuts that have put more money in the pockets of U.S. citizens. They have spent that money on goods and services, and our economy has grown.
We also have climbed this mountain of prosperity because government spending on goods and services has grown significantly over the years. But if more money is going into our pockets so we can spend it, where is the government getting its money?
Of course, the government can’t be shackled by the fact it’s getting less money because of the tax cuts, especially when it has the ability to print money and it has so many things it would like to do. So this mountain of prosperity is built not only with increased production, but with a good bit of government debt as well.
The scary thing is that the Bush-era tax cuts are due to expire, meaning that the private sector will have less money to spend on goods and services to bolster our economy. At the same time, the government is due to enact mandatory spending cuts, which means it, too, will have less money to spend on goods and services to bolster our economy. So what is going to happen to our fragile economy with all this money taken from the system? Well, that’s what the fiscal cliff worry is all about.
It’s not all bad. If the government is going to tax more and spend less, then it makes sense that it would put that extra money against our deficit and we will reduce it at a faster rate. I believe that strategy would be a good thing because we all know that the deficit is out of hand.
But in my opinion, this has become much too big a problem to fix with tough love. I think we need some tough love, but what happens to the unemployment rate in this country if we take too much money out of the system? That is the money we need for jobs growth, as well as economic growth. Right now companies are still trying to make money with as little investment in human capital as possible. There has to be some faith that this economy is growing before we will see substantial gains in employment numbers.
So we have one group that wants to tax the people and spend that money through the government. Then we have another group that want to take money away from the government and let the private sector bail us out of this mess. How are we going to make this work? We better find a way to make some compromises on both sides and find something that can move us forward.
A lot of politicians give a lot of lip service to that idea. If there was ever a time to put that lip service into action, this would be it. The fiscal cliff isn’t the problem. The problem is that we may not have a Congress willing to do what needs to be done.
Scott Reed is CEO of investment advisory firm Hardy Reed in Tupelo. Contact him at (662) 823-4722 or firstname.lastname@example.org.