It has been said that the U.S. Congress only gets serious about tackling a controversial issue when there is a crisis. Whether this crisis is real or manufactured, our national representatives usually need some sort of fire to get legislation moving.
But our leaders are currently dealing with a unique situation. If Congress fails to act and extend the Bush-era tax rates before they expire in January 2013, American taxpayers will be hit with heavy tax increases. Yet, a realistic solution seems distant and many leaders, including our president, are perfectly fine with letting some of them expire.
Even if Congress decides to listen to President Obama and only extend the current tax rates for individuals making less than $250,000, working middle class families are certain to feel the pinch with a smaller job pool. Under this scenario, accounting firm Ernst and Young estimates that wages would decrease and the economy would shed more than 700,000 jobs. This is not an economic formula that works for everyone.
Failure to act comes with a heavy cost. According to a study from the American Action Forum, the failure to extend the current rates for everyone would cause a 6 percentage drop in GDP (meaning our entire economy would shrink, not grow) and an additional 2.8 million people would be unemployed, sending the unemployment rate to more than 10 percent.
To make matters worse, the failure of the congressional super committee prompted across-the-board automatic spending cuts to take effect in January 2013. These $1.2 trillion cuts will impact federal domestic and defense discretionary spending, but they will be especially damaging to the millions of people whose employment is connected to the U.S. Department of Defense. A report by the Aerospace Industries Association found that these cuts would cost the economy 2.14 million jobs. The U.S. military does have a considerable budget, but the recent Chinese military build-up and ongoing battle against terrorism make it precarious for us to grow weary on our defenses.
With the impending tax rate increase and the military budget cuts, the American economy is facing a loss of 4.94 million jobs in just a few months! This is a crisis – and if Congress does not wake up, the U.S. economy will be in another recession and millions will be in a depression.
Unfortunately, President Obama and the Democratically-controlled U.S. Senate are unwilling to avert this disaster. Our only hope is to elect leaders in November that know how jobs are created, not eliminated.