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A Long Fall Off The Cliff

Home News Tribune — Thursday, December 20, 2012

By Michael L. Diamond

Think careening off the fiscal cliff would be a perfectly fine alternative to the budget prescription your side opposes?

Don't.

Not only would the economic recovery stall from a sharp rise in taxes and cuts in spending, but also it would be further weighed down by fear and uncertainty among businesses and consumers, economist Joel Naroff said.

"That's the real risk in all of this," Naroff said. "It's not just the numbers from the cuts and the tax increases."

President Barack Obama and House Republicans traded volleys again on Wednesday, labeling each other as the obstacle to reaching an agreement that would head off the severe austerity measures set to begin in January.

It brought them a day closer to the proverbial "fiscal cliff." Workers' income taxes would rise to Clinton-era levels. Government spending would be slashed by almost $500 billion. Defense contractors would face cutbacks. Doctors would be reimbursed less from Medicare. The will-they-or-won't-they-reach-a-deal cycle would continue. And the economy could tumble into another recession, mirroring missteps the federal government made in the 1930s that prolonged the Great Depression, Naroff said.

At issue is how to rein in the federal deficit, which has topped $1 trillion for four consecutive years and forced the government to borrow money to fill the gap.

Obama during the presidential campaign said he wanted to maintain current tax rates for the middle class and raise them on single taxpayers with annual income of more than $200,000 and married taxpayers with annual income of more than $250,000. He also supported ending some corporate tax breaks.

Republicans have opposed his plan. They want to maintain existing tax rates and instead reduce the deficit by cutting spending, in part through reductions in entitlement programs such as Social Security and Medicare.

On Wednesday, New Jersey Citizen Action, a consumer advocacy group, urged lawmakers to go with Obama's position. Business owners at a news conference in Asbury Park organized by the group said those measures would allow the government to make investments in the nation's roads, schools and bridges, keep money in the pockets of the middle class and spark consumer demand.

Not everyone thinks the nation can simply return to the 1990s tax rates and emerge unscathed.

"It was a boom economy back then," said Philip Kirschner, president of the New Jersey Business and Industry Association, a business lobby group.

"Here the economic mantra has always been, don't raise taxes during a recession or weak recovery like this."

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