Tags: Paulson | Rubin | Fiscal | Cliff

Paulson, Rubin: Congress Needs to Tackle ‘Fiscal Cliff’ Now

Thursday, 19 July 2012 11:06 AM

Congress needs to act now to steer the country away from the combination of tax hikes and spending cuts that will strike right after the end of the year, former Treasury Secretaries Hank Paulson and Robert Rubin said at the CNBC Institutional Investor Delivering Alpha conference in New York.

At the end of 2012, a series of tax breaks, including the Bush tax cuts, are set to expire, while automatic cuts to government spending are scheduled to kick in, a one-two punch known as a fiscal cliff that could send the country sliding back into recession if left unchecked.

Congress can avoid the cliff by extending the tax breaks or adjusting the spending cuts, though most believe lawmakers will likely resist touching tax and spending issues in an election year.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

"The question is, do you do it before the crisis or after the crisis?" Paulson, who served as under President George W. Bush, said, referring to calls from some lawmakers to address the cliff in early 2013 and adjust taxes and spending on a retroactive basis.

"A crisis sure does focus minds,” he added. “There's some evidence to indicate that it takes a crisis to get a difficult thing done. There's some reason for optimism right now."

Rubin, who served under President Clinton, agreed, pointing out the Federal Reserve cannot soften the blow by cutting interest rates or taking other steps to loosen monetary policy.

"In a financial crisis you could respond with stimulus and with monetary policy. Obviously with a fiscal crisis you can't respond with the same tools," Rubin told the conference.

"I hope at some point our political system comes together to deal with this before it becomes a crisis."

Coming together and putting partisan ideology aside would make the economy stronger and more competitive, Rubin said, pointing out the country needs more responsible budgeting, more government spending on education and infrastructure and sweeping reform in healthcare, immigration and other areas.

"In the longer term I think we could have a very successful economy in this country," Rubin said.

"If our government functions well enough to fit the challenges I described, I think we have tremendous advantages,” he noted. “There really has been a maldistribution of income of tremendous magnitude."

Bipartisan action now is key, and President Barack Obama and Republican presidential candidate Mitt Romney need to address their plans for fixing fiscal imbalances now, Paulson added.

"It's going to take bipartisan action," Paulson said. "It's not rocket science. But these things aren't being debated in the campaign. They're just not being discussed."

Federal Reserve Chairman Ben Bernanke has said Congress must find a way to steer the country away from the fiscal cliff or the economy will suffer, adding monetary policy tools will not work.

“U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority,” Bernanke told the Senate Banking Committee this week, according to the National Journal.

“At the same time, fiscal decisions should take into account the fragility of the recovery.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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Thursday, 19 July 2012 11:06 AM
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