As the U.S. edges closer to the sequestration stipulated in the Budget Control Act of 2011, debate is heating up between President Obama and the House Republican leadership about how to avoid the “fiscal cliff.” Originally conceived as a perverse incentive for Congress to agree on an acceptable debt-reduction solution, the Act stipulates an automatic spending reduction of up to $1.2 trillion of the federal budget on Jan. 1, 2013 if a budget compromise cannot be reached before that time. While politicians on both sides of the aisle badger on about the need for a grand compromise of revenue increases and spending cuts, it is clear that any austerity deal that puts the overall health of the economy at risk is unacceptable for America’s college students.
Falling off the so-called “cliff” would unquestionably be a disaster. The U.S. Congressional Budget Office predicts that the automatic cuts would lead to a 0.5 percent retraction in next year’s GDP, coupled with a corresponding spike in the unemployment rate to 9.1 percent. To avoid this calamity, a budget deal must be reached.
On Monday, the GOP proposed a predictably vague plan to reduce deficits by $2.2 trillion over the next decade, with roughly 36 percent of the savings coming from higher revenue due to closed loopholes in the tax code. The remaining 64 percent of deficit reduction would come from cuts in health programs, Social Security, and discretionary spending. Such a ratio disproportionately places the burden of austerity on the poor, leaving wealthy Americans—the benefactors of the GOP— to continue reaping the benefits of an income tax rate the U.S. can no longer afford to maintain.
While a fiscal cliff should rightly be avoided, the Republican plan is likely worse for college students and for America’s overall economic health. Although Speaker John Boehner’s (R-Ohio) proposal failed to name specific discretionary cuts, it would almost certainly include a deep cut in funding for Pell Grants, impacting an estimated 5.4 million students who rely on them nationally. Impeding a large swathe of Americans investing in education to improve their futures is not only unfair, but also bad economic policy.
Of course, the deficit does eventually need to be reined in. But now is not the time. Rates on U.S. government bonds are still remarkably low, so the U.S. can continue to fund its deficit in the short-term in order to ensure long-term growth. Without question, cuts in spending now mean slowing down the economy just as it begins to regain health. For students preparing to enter the workforce and for the nation as a whole, any bargain that threatens the recovery is no deal for America.