MANY people around the world have been closely following the "fiscal cliff" story in the USA, the idea that automatic tax increases and spending cuts that were to take effect on the 1st of this month would have a detrimental effect on the US economy and the global economy by extension.
It was the other doomsday prediction making the rounds in December 2012, that the USA would actually go over this "cliff" because of the inability of the two parties, Democrats and Republicans, to negotiate a Bill that could be voted on and passed in both the Senate and House of Representatives. The interesting thing about this whole story is that when President George W Bush enacted his tax cuts, they were temporary. That was partly because Republicans used an interesting method to get their way and get around needing majority support for the cuts, called Reconciliation (allowing a budget-related Bill to become law with only 51 votes instead of the traditional 60 majority, but limiting it to 10 years).
As usual in politics, when it came time for the temporary tax cuts to expire, cuts that Republicans said would lead to robust economic growth, the USA was in a recession caused by their financial firms and so President Obama and the US Congress extended (or reintroduced in reality) many of the cuts.
By now we all know that it is hard to take back things once they are given to citizens. Democrats, who control the Presidency and the Senate, wanted to see income taxes go up on the portion of income above US$250,000, affecting the top one per cent of taxpayers, while Republicans, who control the House, wanted no part in taxes returning to the level they were during the Clinton years.
They said it was a tax increase and so were quite vocal. They also demanded deep spending cuts. They claimed they were focused on reducing the deficit and overall debt, while Democrats claimed they cared about those too but wanted to protect the middle-class and most vulnerable.
Looking from the outside one would think an automatic policy change is good because if the politicians do nothing then something still happens. Some Jamaicans would rush to use that example in local governance. It did work, it forced action, but it also brought serious uncertainty.
Many people were not sure if they would pay higher income, estate and capital gains taxes in 2013 or a combination. Some even sold stock or property in late 2012 to avoid the expected higher taxes because they were unsure what rate they would pay later. Businesses were unsure what would happen to the payroll tax holiday that President Obama had brought to the table during the recession, and so hiring may have been affected until after January 1.
Even though Republicans were vocal about reducing the deficit and paying down the debt — something that the automatic cuts would clearly do via serious spending cuts, tax increases and reforms — no one supported the automatic cuts.
There were areas cut that both parties did not want to see money cut from, their special interests, and basically all economists agreed that the timing was simply bad because the US and the world in general were still in the rebound phase from the worst recession since the Great Depression. So it would most likely push the US back into recession, probably dragging the global economy with it.
This is the problem with automatic policies, you cannot predict the future. So while they are great in theory, because they get action out of government, even if politicians do nothing, these policies could end up making a situation worse. This is why policymaking requires active work and negotiation amongst both sides.
If the original Bush tax cuts had been negotiated between the two parties, then there would not have been the need for them to be temporary, which would then not have led to an automatic tax increase/spending cut proposal. Enacting policy without bipartisan support is a recipe for disaster down the line when it needs to be adjusted, because there is no guarantee your party will be in power when that time comes. It simply puts the country at risk in the medium-term because of the polarised fight guaranteed to ensue.
Jamaica has enacted some policies under different administrations over decades and 2013 is the year when we will have to re-evaluate many of them, including pensions, the size of government, tax rates, waivers, health care, and education.
While we supposedly like foreign things, I urge citizens to ensure that Jamaican politicians do not copy this idea of automatic policy that results from inaction and, more importantly, to allow both political parties to negotiate and compromise so that we don't suffer the same gridlock and last-minute governance we see in a much older democracy like the USA.
Thankfully the Parliamentary system seems better suited to deal with partisan polarisation since one party forms the majority and can usually get its way. However, that should not be abused, and the minority party should play a role in policymaking at delicate stages, otherwise we risk merely overturning policies when the Opposition wins at some point in the future.
David Mullings was the first Future Leaders representative for the USA on the Jamaica Diaspora Advisory Board. He can be found on Twitter at twitter.com/davidmullings and Facebook at facebook.com/InteractiveDialogue