Grand bargains struck by Republicans and Democrats in the past to tackle fiscal reforms delivered on tax hikes but have rarely followed through on commitments to spending cuts, experts say.
Both sides of the U.S. political aisle are negotiating reforms to avoid the fiscal cliff, a combination of deep spending cuts and tax hikes scheduled to take effect at the end of the year that could send the U.S. economy into a recession.
The debate has focused on tax hikes on top U.S. earners, though experts warn spending cuts could fall by the wayside if recent history serves as an example, as big budget deals in 1982 and in 1990 saw taxes rise alongside commitments to cut spending, the latter half never following through as planned.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
“These grand bargains have really failed miserably on the spending side,” said William Beach, a budget expert at the conservative Heritage Foundation, according to The Wall Street Journal.
“The tax increases have always come through, but the spending [cuts] have failed.”
Some former lawmakers themselves say the spending cuts due to take effect at the end of this year, the product of the 2011 debt ceiling resolution, may not come to pass.
“I think the worst outcome of this whole negotiation would be if the cuts that were agreed to last year … were simply disregarded, which could easily happen,” said former Sen. Phil Gramm, T-Texas, The Journal added, pointing out that the White House and Congress have already discussed postponing $100 billion in automatic spending cuts— known as the sequester — set to start in January.
With days to go before the country dives off the fiscal cliff, lawmakers and the White House continue to work to avoid the cliff, with Wall Street on edge though not roiling yet.
Even if Jan. 1 comes and goes without a deal, policymakers still have time to push through meaningful fiscal reforms, as the brunt of tax hikes and spending cuts will take time to materialize.
But politicians won’t have too much time to push through reforms, some say.
“It’s not like we’re going to be plunging off the top of Niagara Falls and into the river in one day,” said Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Ore., according to The Christian Science Monitor.
“If there is no agreement in six or eight weeks, then you will see some serious consequences.”
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
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