Let's Go Over the Cliff

January bring the so called fiscal cliff to America. On January 1, the income tax rates will revert to those in place at the end of the Clinton administration. The estate tax will rise by 20% and the exemption will fall from $5 million to %1 million. Expensing of corporate investments will end and we will go back to normal depreciation rules. Federal spending will be cut as the sequestration provisions go into effect. That means about $100 billion will be cut from the budget -- half from defense and the other half from domestic programs. At the same time, the reimbursement rates from Medicare will go to the levels that Congress passed years ago and then kept postponing.

The panic over the cliff is pervasive in the media. It will bring a recession, we are told over and over. Well, that may be so, but the correct course is still to go over the cliff. Here is why I believe this is the correct choice:

1) For tax rates, we need to do something more than tinker with the highest rate only. There needs to be tax reform in a major way. There is no reason why people making the same income should pay drastically different amounts of tax due to the existence of loopholes and deductions. We need to bring fundamental fairness back into the tax code as a goal. The only way to motivate Congress and the president to actually focus on this problem is to keep the pressure on them. A deal that avoids the cliff will take that pressure away and we will just have business as usual.

2) Federal spending also has to be cut. Remember, the sequestration cuts are in place just to try to keep the budget deficit from ballooning further. Let them go into effect and then let Congress look for a more realistic way to make such cuts.

3) The Medicare reimbursement cuts have got to go into effect. These are the same sorts of cuts that Obamacare uses to finance most of its costs. If Congress is not going to allow them to go into effect, then America needs to know this. If these cuts are really likely to have such a bad effect, then America needs to know this.

4) If there is a recession, it will be much less severe than the depression which will surely come when the USA loses its ability to borrow because of all the debt it has run up. Remember, the fiscal cliff will close the budget deficits by about 6 trillion dollars over the next decade. We ought not simply to avoid reality. It has a way of coming back and hitting you in the face.