Prosperity Isn't Free

The Fair Way Down the Fiscal Cliff

A group of upper income professionals who call themselves "Tax-Us" rally in San Francisco. (Robert Galbraith / Courtesy Reuters)

Efforts to address the "fiscal cliff" -- the combination of tax increases and across-the-board spending cuts that will come into effect around the first of the new year if policymakers don't avert them -- should center around two related goals: protect the economic recovery in the short term, and promote growth, opportunity, and shared prosperity in the long term.

The most urgent short-term goal is for the United States to avoid the sizeable risk of returning to recession. If the scheduled tax and spending changes all take effect, and remain in effect for more than a month or so, the sharp fiscal contraction would likely halt the recovery and send the unemployment rate back up. With monthly job creation still sluggish and with long-term joblessness still at record levels, that would be unwise.

In the longer term, the United States must address its deficits and debt, which are on an unsustainable course. It must do so, however, in a way that avoids increasing poverty and hardship and the number of Americans without access to health care, or leaving government unable to meet basic responsibilities at home and abroad.

The United States must cut spending in responsible ways. It needs to restrain the growth in costs throughout the U.S. health care system, which burdens families and businesses as well as government at all levels. Savings in Medicare could come through such means as lowering what the program pays for drugs for low-income beneficiaries to the same rates that Medicaid pays; increasing the use of competitive bidding for certain medical equipment; asking more affluent beneficiaries to bear a larger share of the program's costs; and reforming the rules that govern "Medigap" policies -- supplemental health insurance that millions of seniors buy to augment their Medicare coverage. Reforms in various other programs, such as agricultural subsidies, can yield further savings. 

But make no mistake -- More than three-fifths of its cuts are to programs that help lower-income Americans. In addition, the plan would impose severe cuts to non-defense discretionary programs (much deeper than those scheduled to take effect in January), thereby putting at risk core government functions such as education, biomedical and other scientific research, infrastructure, and foreign assistance.

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