Former Treasury Secretary Robert Rubin says early 2013 will offer the best environment for Congressional members to hammer out critically needed fiscal reform.

“The overarching goal should be a 10-to-12 year track of deficit reduction that stabilizes the ratio of debt to GDP and then begins to bring it down,” Rubin wrote in an article for the Council of Foreign Relations.

"The compromises required for constructive action are substantially harder than the compromises necessary to punt, but taking the easy way out requires actions that come with their own set of political costs."

Doing nothing means tax increases and massive cuts in defense and nondefense spending, notes Rubin. Kicking the can down the road requires compromising with the other party on taxes and spending. And biting the bullet on the hard choices will necessitate compromises and action as well.

According to Rubin, several factors combine to create the best political environment for real fiscal action in a long time: The risks of inaction are apparent and will put pressure on all policy makers; sequestration and expiring tax cuts will have severe consequences and could cost the country 3.5 percent to 4 percent of gross domestic product in 2013, and a political punt would be a striking manifestation of our inability to govern ourselves and could have serious adverse impact on our economy and on markets.

“Most important, there is no choice available to Congress that does not involve significant changes to taxes and spending that members of each party will oppose,” Rubin says.

"Unlike any situation I remember, Congress cannot simply maintain the status quo by failing to act.”

The Washington Post reports that, for the past three years, the U.S.
Senate has failed to adopt a formal budget resolution that lays out spending and revenue targets for the coming year.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.