Warner believes fiscal cliff will be avoided
- November 29, 2012
Sen. Mark R. Warner says he’s “optimistic but frustrated” in efforts to avoid the “fiscal cliff” looming at the end of this year.
Unless Congress acts, a combination of federal budget cuts and tax increases threaten to push the U.S. into recession next year.
Warner, a Democratic member of the “Gang of Six,” a group of senators who attempted to find a bipartisan solution to last year’s debt ceiling crisis, believes Congress will reach a deal before the end of the year. But, he added, he’s frustrated because “the clock is ticking, and if we wait until the 11th hour, we won’t get a good deal.”
Warner spoke by video this morning to about 550 people attending the Virginia Economic Summit, a conference in Williamsburg sponsored by the Virginia Chamber of Commerce.
He believes Congress eventually will arrive at compromise despite the hardline positions staked out by Democrats and Republicans since the debt crisis. Democrats want to protect domestic programs from cuts while raising taxes on households making more than $250,000 a year. Republicans want cuts to entitlement programs while keeping tax rates unchanged and avoiding additional reductions in defense spending.
If Congress does nothing, “Bush-era” tax cuts enacted a decade ago will expire and $1.2 trillion in automatic, across-the-board budget cuts will be implemented.
“Anyone who believes there is going to be a Republican-only or Democrat-only solution isn’t dealing with reality,” Warner told the business group.
The senator said the Congress’ objective should be reduce the national debt by $4 trillion over the next 10 years. “We have to show the markets and the world that we are not going to continue to kick the can down the road.”
Warner expects higher-income earners ultimately will pay more taxes to the government and defense spending will see some cuts. But, he added, entitlement programs also need reform.
Drawing a comparison to the war bond drives of World War II, he suggested any additional tax revenue be used to retire the debt instead of new spending for existing programs.
Another speaker, Mark Vinter, senior economist at Wells Fargo, was not as optimistic as Warner about Congress avoiding the fiscal cliff. He noted that a number of taxes, including some connected with the federal health-care reform act, likely will take effect next year.
He suspects Congress will allow the Bush tax cuts to expire and then enact new legislation to reduce taxes for everyone except high-income households. That way, he said, members of Congress can claim they lowered taxes rather than raising them.
Whatever Congress does, Vinter does not believe that the U.S. economy will slip into recession next year because the recovery appears to be slightly stronger than recent statistics suggest.