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Avoiding the perils of economic free-fall

Published November 18. 2012 4:00AM

The problem with referring to the nation's looming debt crisis as a fiscal cliff is there are many ways to tumble off a precipice - you can deliberately jump, be maliciously pushed or accidentally slip.

A better description would be a game of chicken between the White House and Congress - the two speeding at each other, with neither willing to be the first to back down or veer off. You can win this game by having stronger nerves, but sometimes both sides lose in a heap of twisted, smoldering metal.

And make no mistake, the U.S. economy would resemble a flaming wreck if President Obama and House Speaker John Boehner don't agree on a plan by the end of the year to shrink the ever-increasing $16 trillion federal deficit. Almost certainly, the nation would plunge into a recession and, as such nonpartisan institutions as the Tax Policy Center and the Congressional Budget Office warn, virtually every American, rich or poor, would suffer.

If a deal isn't reached, thereby triggering automatic austerity measures, the Associated Press reports the following likely scenarios:

• Middle income families would have to pay an average of about $2,000 more next year - the steepest tax increase in 60 years when measured as a percentage of the economy.

• Up to 3.4 million workers would lose their jobs, spiking the unemployment rate to 9.1 percent from its current 7.9 percent.

• Stocks could tumble at least as precipitously as the 700-point drop in the Dow Jones industrial average in 2008 after the House initially rejected the $700 billion bailout of major banks.

• Southeastern Connecticut would be especially hard hit because of an automatic 10 percent reduction in military spending. Defense Secretary Leon Panetta has said those cuts would cause temporary job losses among civilian Pentagon employees and major defense contractors.

President Obama has expressed willingness to compromise with GOP leaders, but also renewed his vow to veto any bill that would extend tax cuts on income above $250,000.

Republican Speaker Boehner says higher tax rates on upper-income Americans would slow job growth, and insists that any deal must reduce tax rates, eliminate special-interest loopholes and rein in government benefits.

President Obama upped the ante during a meeting with about a dozen business executives Wednesday, when he outlined a proposal for $1.6 trillion in new taxes on business and the wealthy. This is nearly double the amount he proposed more than a year ago during debt talks with GOP leaders.

This newspaper agrees in principle with having those who can afford tax increases pay a greater share and urges the president to hang tough on this.

While last week's re-election wasn't exactly an overwhelming mandate for the Obama administration, voters certainly favored the Democratic notion of boosting taxes on the wealthy over the Republican blanket insistence on no new taxes.

But for any deal to be reached by the Dec. 31 deadline there will have to be compromise with Republicans, who retained a majority in the House of Representatives. The White House must consider eliminating some tax loopholes as well as adjusting payments made by such entitlement programs as Medicare.

Just as there are only two effective ways to lose weight - cut calories and increase exercise - there are only two methods to shrink the deficit - trim spending and increase revenues.

President Obama and Speaker Boehner must stop their posturing and get down to the business of negotiating. Otherwise, they will look not so much as a couple of reckless drivers playing chicken, as Thelma and Louise holding hands in the front seat as they sail off the cliff together.

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